U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file No. 0-13530
---------
AMERICAN BINGO & GAMING CORP.
-----------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 74-2723809
-------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1440 CHARLESTON HIGHWAY, WEST COLUMBIA, SC 29169
-------------------------------------------------
(Address of principal executive offices)
(803) 796-7875
--------------
(Issuer's telephone number)
N/A
---
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of each class of the issuer's common stock as
of November 10, 1999 was 9,910,590.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
AMERICAN BINGO & GAMING CORP.
FORM 10-QSB
For the Quarter Ended September 30, 1999
INDEX
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Statement of Operations for the
Three Months Ended September 30, 1998 and 1999 2
b) Consolidated Statement of Operations for the
Nine Months Ended September 30, 1998 and 1999 3
c) Consolidated Balance Sheet as of September 30, 1999 4
d) Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1999 5
e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 21
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended September 30,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Video gaming. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,366,613 $2,551,380
Bingo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,351,057 1,446,919
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323,975 285,496
----------- -----------
TOTAL REVENUES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,041,645 4,283,795
----------- -----------
COSTS AND EXPENSES:
Direct salaries and other compensation. . . . . . . . . . . . . . . . . . 302,166 693,953
Rent and utilities ($26,310 and $26,310, respectively to related parties) 623,118 554,483
Direct operating costs. . . . . . . . . . . . . . . . . . . . . . . . . . 409,136 691,768
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 673,051 509,552
License expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464,576 405,989
Severance expense and final compensation. . . . . . . . . . . . . . . . . 402,122 ---
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . 629,585 926,520
----------- -----------
TOTAL COSTS AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . 3,503,754 3,782,265
----------- -----------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (462,109) 501,530
OTHER INCOME AND EXPENSES:
Interest and investment income. . . . . . . . . . . . . . . . . . . . . . 37,488 50,684
Interest expense ($5,769 and $7,426, respectively to related parties) . . (47,033) (95,856)
Other income and (expense) . . . . . . . . . . . . . . . . . . . . . . . (3,074) 34,429
----------- -----------
TOTAL OTHER INCOME AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . (12,619) (10,743)
NET INCOME BEFORE PROVISION FOR INCOME TAXES. . . . . . . . . . . . . . . . (474,728) 490,787
PROVISION FOR STATE INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . 37,322 111,450
----------- -----------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($512,050) $ 379,337
=========== ===========
EARNINGS PER SHARE:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($.05) $ .04
=========== ===========
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($.05) $ .04
=========== ===========
Weighted average shares outstanding - basic . . . . . . . . . . . . . . . 9,910,590 9,325,499
Weighted average shares outstanding - diluted . . . . . . . . . . . . . . 9,910,590 9,878,404
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Nine Months Ended September 30,
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Video gaming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,309,246 $ 7,597,009
Bingo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,010,353 3,519,940
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 893,817 620,217
------------ ------------
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,213,416 11,737,166
------------ ------------
COSTS AND EXPENSES:
Direct salaries and other compensation . . . . . . . . . . . . . . . . . . . . 874,983 1,840,454
Rent and utilities ($78,930 and 78,930, respectively to related parties) . . . 1,569,251 2,142,412
Direct operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,372,275 2,484,620
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 2,040,394 1,507,877
License expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,562,368 999,764
Severance expense and final compensation . . . . . . . . . . . . . . . . . . . 982,122 ---
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . 2,481,038 3,519,188
------------ ------------
TOTAL COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,882,431 12,494,315
------------ ------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (669,015) (757,149)
OTHER INCOME AND EXPENSES:
Interest and investment income . . . . . . . . . . . . . . . . . . . . . . . . 157,182 351,573
Interest expense ($18,708 and $7,426 respectively to related parties). . . . . (178,996) (507,754)
Gain on settlement with a related party, net of legal expenses of $100,000 . . 191,127 ---
Other income and (expense). . . . . . . . . . . . . . . . . . . . . . . . . . 27,003 148,327
------------ ------------
TOTAL OTHER INCOME AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . 196,316 (7,854)
NET INCOME BEFORE PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . (472,699) (765,003)
PROVISION FOR STATE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . 248,272 226,352
------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($720,971) ($991,355)
============ ============
EARNINGS PER SHARE:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($.07) ($.12)
============ ============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($.07) ($.12)
============ ============
Weighted average shares outstanding - basic. . . . . . . . . . . . . . . . . . 9,886,066 9,207,403
Weighted average shares outstanding - diluted. . . . . . . . . . . . . . . . . 9,886,066 9,207,403
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
------
September 30, 1999
--------------------
<S> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 3,408,142
Accounts receivable net of allowance for doubtful
accounts of $143,776. . . . . . . . . . . . . . . . . . . . . . . 721,246
Notes receivable - current portion,
net of allowance for doubtful accounts of $165,361. . . . . . . . 185,525
Prepaid license expense - current portion . . . . . . . . . . . . . 1,178,064
Other prepaid expenses and current assets . . . . . . . . . . . . . 340,336
--------------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . 5,833,313
--------------------
Property and Equipment - at cost, net of accumulated
depreciation and amortization . . . . . . . . . . . . . . . . . . 6,117,779
Other Assets:
Notes receivable, net of current portion. . . . . . . . . . . . . . 493,351
Prepaid license expense, net of current portion . . . . . . . . . . 818,333
Intangible assets, net of accumulated amortization. . . . . . . . . 4,220,231
Other non-current assets. . . . . . . . . . . . . . . . . . . . . . 178,665
--------------------
Total Other Assets. . . . . . . . . . . . . . . . . . . . . . . 5,710,580
--------------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,661,672
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes payable - current portion . . . . . . . . . . . . . . . . . . $ 37,875
Capital leases payable - current portion. . . . . . . . . . . . . . 288,984
Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . 250,733
Accrued expenses and other current liabilities. . . . . . . . . . . 112,830
--------------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . 690,422
--------------------
Long-term Liabilities:
Notes payable, net of current portion ($272,690 to related parties) 1,308,018
Capital leases payable, net of current portion . . . . . . . . . . 19,247
--------------------
Total Long-term Liabilities . . . . . . . . . . . . . . . . . . 1,327,265
--------------------
Stockholders' Equity:
Common stock, $.001 par value,
authorized 20,000,000 shares,
issued 10,176,890 shares. . . . . . . . . . . . . . . . . . . . . 10,177
Additional paid-in-capital. . . . . . . . . . . . . . . . . . . . . 23,481,630
Treasury stock - 266,300 shares . . . . . . . . . . . . . . . . . . (732,337)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (7,115,485)
--------------------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . 15,643,985
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . $ 17,661,672
====================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
1999 1998
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVATES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . ($720,971) ($991,355)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 1,485,625 2,507,641
Non-cash write-offs and charges . . . . . . . . . . . . . . --- 1,170,698
Provision for uncollectible receivables . . . . . . . . . . 82,841 ---
Gain on litigation settlement . . . . . . . . . . . . . . . 1,300 ---
Gain on receipt of treasury stock . . . . . . . . . . . . . (45,938) ---
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable . . . . . . . . . . . . . . . . . . (424,982) (505,621)
Prepaid licenses. . . . . . . . . . . . . . . . . . . . (497,005) (150,717)
Deposits. . . . . . . . . . . . . . . . . . . . . . . . (7,000) ---
Other prepaid expenses and current assets . . . . . . . 201,769 38,853
Trade accounts payable and accrued expenses . . . . . . 110,743 (495,332)
Accrued expenses and other current liabilities (286,098) ---
----------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . (99,716) 1,574,167
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and intangible expenditures . . . . . . . . . . . . --- (1,792,385)
Acquisition of subsidiary . . . . . . . . . . . . . . . . . --- (500,000)
Property and equipment expenditures . . . . . . . . . . . . (752,658) (2,221,417)
Collections of notes receivable . . . . . . . . . . . . . . 712,249 214,587
Issuance of notes receivable. . . . . . . . . . . . . . . . (20,000) (308,000)
Reductions of notes receivable allowance. . . . . . . . . . (30,234) ---
Other non-current assets. . . . . . . . . . . . . . . . . . --- 33,133
Proceeds from sale of property and equipment. . . . . . . . 24,714 ---
----------- -------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . ( 65,929) ( 4,574,082)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations . . . . . . . . . . . (251,084) ---
Payments on notes payable . . . . . . . . . . . . . . . . . (443,111) (577,870)
Issuances of employee stock option and purchase plans . . . 3,000 43,560
Payments related to warrant financing costs . . . . . . . . --- (10,323)
Dividend payments to preferred stockholders . . . . . . . . --- (83,010)
Repurchase of common stock. . . . . . . . . . . . . . . . . --- (1,075,296)
Cash paid in connection with preferred stock conversions. . --- (812,365)
Proceeds from option exercises. . . . . . . . . . . . . . . 311,581 ---
----------- -------------
NET CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES . . . . (379,614) (2,515,304)
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . 545,259 (5,515,219)
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . 3,953,401 11,936,862
----------- -------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . $3,408,142 $ 6,421,643
=========== =============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
1999 1998
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest. . . . . . . . . . . . . . . . . . . . . . . . $178,996 $180,872
======== ========
Income taxes. . . . . . . . . . . . . . . . . . . . . . $160,200 $402,288
======== ========
Non-cash transactions:
Acquisition of business in exchange for note payable
($0 and $400,000, respectively from related parties). $ --- $400,000
======== ========
Acquisition of property and equipment in exchange
for notes payable . . . . . . . . . . . . . . . . . . $434,415 $439,007
======== ========
Acquisition of businesses in exchange for common stock. $ --- $ 90,000
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION.
- --------------------------------------------------------------------------------
The unaudited consolidated condensed financial statements include the accounts
of American Bingo & Gaming Corp. and its wholly owned subsidiaries (the
"Company"). The financial statements contained herein are unaudited and, in the
opinion of management, contain all adjustments necessary for a fair presentation
of financial position, results of operations and cash flows for the periods
presented. The Company's accounting policies and certain other disclosures are
set forth in the notes to the consolidated financial statements contained in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998. The financial statements contained herein should be read in conjunction
with the notes to the Company's audited consolidated financial statements
included in the Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998. The preparation of the consolidated condensed financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amount of revenue and expenses during the reported period. Actual results could
differ from these estimates. Where appropriate, items within the consolidated
condensed financial statements have been reclassified to maintain consistency
and comparability for all periods presented.
The operating results for the three and nine month periods ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
full fiscal year ending December 31, 1999. Except for historical information
contained herein, certain matters set forth in this report are forward looking
statements that are subject to substantial risks and uncertainties, including
the impact of government regulation and taxation, customer attendance and
spending, competition, and general economic conditions, among others.
- --------------------------------------------------------------------------------
NOTE 2 - PROPERTY AND EQUIPMENT.
- --------------------------------------------------------------------------------
Property and equipment at September 30, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . $ 189,671
Buildings. . . . . . . . . . . . . . . . . . . . . 379,342
Building and leasehold improvements. . . . . . . . 3,005,050
Video gaming machines and bingo equipment. . . . . 6,905,167
Equipment, furniture and fixtures. . . . . . . . . 1,180,021
Automobiles. . . . . . . . . . . . . . . . . . . . 375,831
------------
12,035,082
Less: Accumulated depreciation and amortization (5,917,303)
------------
Property and equipment, net. . . . . . . . . . . . . $ 6,117,779
============
</TABLE>
Property and equipment as of September 30, 1999 includes $1.3 million of assets
held under capital leases and related accumulated amortization of $455,000.
Related amortization expense charged to operations for the nine months ended
September 30, 1999 and 1998 was $162,000 each period.
Depreciation expense charged to operations for the nine months ended September
30, 1999 and 1998 was $1,428,000 and $1,036,000, respectively.
7
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - INTANGIBLE ASSETS.
- --------------------------------------------------------------------------------
Intangible assets at September 30, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Goodwill. . . . . . . . . . . . . $ 5,095,436
Covenants not to compete. . . . . 553,891
------------
5,649,327
Less: Accumulated amortization (1,429,096)
------------
Intangible assets, net. . . . . . . $ 4,220,231
============
</TABLE>
Amortization expense charged to operations for the nine months ended September
30, 1999 and 1998 was $619,000 and $433,000, respectively.
- --------------------------------------------------------------------------------
NOTE 4 - SHAREHOLDERS' EQUITY.
- --------------------------------------------------------------------------------
The Company has issued 327,308 shares of its common stock since the beginning of
1999, including 325,000 shares pursuant to stock options exercised and 2,308
shares pursuant to purchases under the Company's Employee Stock Purchase Plan.
The Company received proceeds of $310,781 and $3,000 related to these purchases,
respectively. The Company also recognized $1,300 in equity proceeds for the
reimbursement of founders shares. The Company received 35,000 shares from the
Company's former President, Greg Wilson, and members of his family in the second
quarter of 1999 from the settlement of lawsuits and other issues between the
parties. These shares have been accounted for as treasury stock.
- --------------------------------------------------------------------------------
NOTE 5 - EARNINGS (LOSS) PER SHARE.
- --------------------------------------------------------------------------------
A reconciliation of basic to diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three months ended September 30,
------------------------------------------------
1999 1998
---------------------- ------------------------
Basic Diluted Basic Diluted
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
- --------------------------------------
Net loss . . . . . . . . . . . . . . ($512,050) ($512,050) $ 379,337 $ 379,337
Add preferred dividends. . . . . . . --- --- (21,902) ---
---------- ---------- ----------- -----------
Income available/(loss) attributable
to common stockholders . . . . ($512,050) ($512,050) $ 357,435 $ 379,337
========== ========== =========== ===========
Denominator:
- --------------------------------------
Weighted average shares outstanding. 9,910,590 9,910,590 9,325,499 9,325,499
Add Common Stock Equivalents . . . . --- --- --- 552,905
Effect of dilutive securities:
Preferred stock. . . . . . . . . . --- --- --- ---
Stock options and warrants . . . . --- --- --- ---
---------- ---------- ----------- -----------
Weighted average shares outstanding. 9,910,590 9,910,590 9,325,499 9,878,404
========== ========== =========== ===========
Earnings (Loss) per share. . . . . . ($.05) ($.05) $ .04 $ .04
========== ========== =========== ===========
</TABLE>
8
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 5 - EARNINGS (LOSS) PER SHARE (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
---- ----
Basic Diluted Basic Diluted
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net loss . . . . . . . . . . . . . . . . ($720,971) ($720,971) ($991,355) ($991,355)
Add preferred dividends. . . . . . . . . --- --- (83,010) (83,010)
---------- ---------- ------------ ------------
Loss attributable to common stockholders ($720,971) ($720,971) ($1,074,365) ($1,074,365)
========== ========== ============ ============
Denominator:
- ------------------------------------------
Weighted average shares outstanding. . . 9,886,066 9,886,066 9,207,403 9,207,403
Effect of dilutive securities:
Preferred stock. . . . . . . . . . . . --- --- --- ---
Stock options and warrants . . . . . . --- --- --- ---
---------- ---------- ------------ ------------
Weighted average shares outstanding. . . . 9,886,066 9,886,066 9,207,403 9,207,403
========== ========== ============ ============
Earnings (Loss) per share. . . . . . . . ($.07) ($.07) ($.12) ($.12)
========== ========== ============ ============
</TABLE>
- --------------------------------------------------------------------------------
NOTE 6 - NONRECURRING AND UNUSUAL CHARGES
- --------------------------------------------------------------------------------
The Company recorded approximately $633,000 of nonrecurring and unusual charges
in the third quarter of 1999. The charges included severance and final
compensation payments pursuant to existing employment agreements of $402,000
associated with the realignment of the Company's management team and the
integration of Darlington Music Co., Inc.'s operations into the Company. In
addition, the forgiveness of two promissory notes from former senior managers in
accordance with the Company's contractual obligations under existing employment
agreements totaled $109,000. Unusual charges included a one-time assessment of
$33,000 by the State of South Carolina to fund the video gaming referendum,
which, prior to the South Carolina Supreme Court decision discussed in Note 9
and Note 11 that held the referendum unconstitutional, was scheduled for
November 2, 1999. The Company also recorded contributions of $73,500 made in
support of the industry campaign to support a favorable outcome in the
referendum and the payment of $15,000 for bingo violations that occurred in
April of 1999.
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES
- --------------------------------------------------------------------------------
The Company recorded approximately $37,322 and $248,272 of state income tax
expense for the three and nine-month periods ended September 30, 1999,
respectively. The Company does not expect to incur material federal income tax
liabilities until the depletion of its accumulated federal income tax loss
carryforwards, which totaled approximately $3.1 million at September 30, 1999.
The utilization of the net operating loss is subject to limitations in
accordance with 382 of the Internal Revenue Code.
9
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 8 - RELATED PARTY TRANSACTIONS.
- --------------------------------------------------------------------------------
In conjunction with the purchase of Ambler Bingo in March 1998, the Company
issued a promissory note payable in the amount of $400,000 to the seller (a
related party), as partial consideration for this purchase. This note payable
is due in monthly installments of $9,765, with an interest rate of 8.0% and a
maturity date of May 2002. For the three and nine months ended September 30,
1999, the Company recognized $5,769 and $18,708, respectively, of interest
expense related to this obligation.
As a part of the Company's acquisition of Darlington Music Co., Inc, the Company
assumed a related party lease for an office and game machine warehouse facility.
The lease is by and between the Company and a former director and two immediate
family members, all of whom are shareholders of the Company. The lease
originated on January 15, 1990 for a 15 year term with monthly rental payments
of $3,500. For the three and nine months ended September 30, 1999, the Company
has expensed $10,500 and $31,500, respectively, for rental payments to the
related parties under this lease.
As a part of the acquisition of Gold Strike, Inc. and Lucky 4, Inc. the Company
assumed an operating lease for gaming properties located in South Carolina. The
lessor is a partnership in which a shareholder and former director of the
Company is a 50% general partner. This lease expires November 2001 and can be
terminated with thirty (30) day notice at any time upon a change in South
Carolina gaming laws. The monthly rental payments under this lease are $5,270.
For the three and nine months ended September 30, 1999, the Company has expensed
$15,810 and $47,430, respectively, for rental payments to the related party
under this lease.
An entity owned and managed by one person who is a shareholder and former
director of the Company and a second person who is a shareholder of the Company
entered into a three year Agreement with the Company in November 1998 to operate
the Company's non-route video gaming operations at eight video gaming machine
centers. In connection with this Agreement, the Company entered into a lease or
sublease with the operator at seven of the eight video gaming machine centers
and receives rental income from the operator for the use of these locations. On
October 23, 1999, the Company renegotiated this Agreement and now receives all
net proceeds from the operations of the video gaming machine centers.
In July 1999, the Company entered into a contract with a person who is a
shareholder and former director of the Company to manage and supervise the
Company's bingo operations in South Carolina. The Company terminated this
arrangement effective October 23, 1999 and the Company is now managing and
supervising the South Carolina bingo operations.
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
On July 2, 1999, the Governor of South Carolina signed into law legislation
taxing and regulating video poker in South Carolina. The new law required a
referendum to be held on November 2, 1999, in which South Carolina voters would
decide whether video poker payouts should remain legal. If video poker payouts
were supported by the referendum, then payouts would remain legal and other
provisions in the new law would take effect. If video poker payouts were not
supported by the referendum, however, payouts would be illegal after June 30,
2000. One provision, which would take effect if voters decided to keep payouts
legal, was a 25% tax on net machine income after payouts. The tax would become
effective beginning on December 1, 1999.
On October 14, 1999, the South Carolina Supreme Court ruled that the portion of
the new law requiring a referendum to be held on November 2, 1999, was
unconstitutional. The Court upheld, however, the portion of the new law that
banned video poker payouts as of June 30, 2000, thus effectively outlawing the
industry in South Carolina as of June 30, 2000.
10
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
- --------------------------------------------------------------------------------
This Supreme Court ruling and the resulting ban on video poker payouts effective
after June 30, 2000, will have a material adverse effect on the Company's
financial position and operations as the Company expects that it will be forced
to cease its video poker operations which represented approximately 52% of the
Company's revenues for the nine month period ended September 30, 1999.
On July 13, 1999, the South Carolina Supreme Court ruled that video poker
players cannot win more than $125 in a 24-hour period. In addition, the Court
warned that advertising or offering jackpots over $125 could be a federal
racketeering offense. Advertising or offering jackpots over $125 could also be
criminal offenses under state law. The Court's ruling was issued in a case
filed by several plaintiffs who claim that the activities of some video poker
operators were illegal under current South Carolina law. Even though the
Company is not a party to this case, the Court's ruling will likely affect the
entire video poker industry in South Carolina and is expected to have a material
adverse effect on the operations of the Company.
Current regulatory requirements in South Carolina require each video gaming
machine ("VGM") to be connected via modems to the South Carolina Department of
Revenue's computer monitoring system by February 1, 2000. Any VGM not connected
to this online reporting system by the above-stated deadline must be turned off
until it is upgraded and connected to the system. These requirements would
necessitate the expenditure of approximately $2,500 per VGM. The Company has
determined that this capital expenditure is not justified given (i) the short
duration of time during which the VGMs could be legally operated since payouts
will be banned as of June 30, 2000, and (ii) the reduced level of profitability
brought about by the $125 per day per player limitation imposed by the South
Carolina Supreme Court. The effect of this determination is that the Company
will likely cease operating its video gaming segment effective February 1, 2000.
As noted above, this is expected to have a material adverse effect on the
Company's financial position and operations as the Company's video poker
operations represented approximately 52% of the Company's revenues for the nine
month period ended September 30, 1999.
In July of 1995 the Company bought three Florida bingo centers from Phillip
Furtney and two corporations related to Mr. Furtney (which corporations and Mr.
Furtney are referred to collectively for purposes of this discussion as
"Furtney"). On June 12, 1997, Furtney filed a lawsuit against the Company in a
Florida Circuit Court, alleging breach of contractFurtney alleged that the
Company defaulted on its original purchase note and stock obligations under the
purchase agreements. Furtney seeks to recover damages in the amount of $900,000
related to these allegations. On July 12, 1997, the Company answered this
lawsuit and filed a counterclaim against Furtney alleging, among other things,
fraud, negligent misrepresentation, breach of express warranties, contractual
indemnity and tortious interference with contractual rights. The Company
believes that it was materially defrauded in its purchase of these three Florida
bingo centers from Furtney in that Furtney made no disclosure to the Company of
an ongoing criminal investigation of the operation of these bingo centers by the
Florida State Attorney General's Office and that Furtney was fully aware of this
investigation. The State of Florida temporarily closed these three bingo
centers, as well as several other centers formerly owned by Mr. Furtney, in
November 1995. The Company re-sold these three bingo centers in December of
1995. In January 1997, the Company and the State of Florida settled all matters
regarding the Company's previous ownership and operation of these bingo centers.
The Company believes that Furtney's lawsuit against the Company is completely
without merit and that the Company will prevail in its counterclaim against him.
There can be no assurance of this result, however, and a decision against the
Company could have a material adverse effect on the financial position and
operations of the Company.
In 1997, one of the Company's subsidiaries was named a defendant (among many
other video gaming operators) in a legal action in the Federal U.S. District
Court in Columbia, South Carolina filed by video poker players. This action
alleges various wrongful acts by the defendants, including allegations that
certain of the defendants' video gaming operations in South Carolina: i)
comprise a lottery, which violates the state constitution; ii) violate the
state's daily net video gaming machine payout limit of $125 per player; iii)
violate the state's single premise rule which only allows up to five video
gaming machines per premise; and iv) violate the state's prohibition against
beer and wine permit holders allowing gambling or games of chance. The
plaintiffs in this action are attempting to have this action certified as a
class action lawsuit. The plaintiffs seek to recover the money lost from
playing video poker and to restrict or otherwise limit in various respects
11
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
- --------------------------------------------------------------------------------
the manner in which video gaming operations are conducted in South Carolina.
The District Judge certified questions for an advisory opinion of the South
Carolina Supreme Court regarding whether video gaming constitutes an illegal
lottery in South Carolina. The Supreme Court issued an opinion in November 1998
stating that video gaming does not constitute an illegal lottery. In addition,
in April 1999 the District Court ruled that video gaming cash payouts are
limited to $125 per day per player based on the existing law in South Carolina.
There are several issues still pending in the District Court. The Company
believes that this action is completely without merit and will defend itself
vigorously. If this case were to be decided against the Company, it would
likely have a material adverse effect on the financial position and operations
of the Company.
On October 9, 1997, Collins Entertainment, Inc., filed a lawsuit in the Court of
Common Pleas in Charleston County, South Carolina against the Company, Richard
Henry, a former employee and officer of the Company, Wayne Coats and Coats and
Coats Rental Amusements. The lawsuit alleges that the defendants engaged in
civil conspiracy and tortiously interfered with the plaintiff's contract,
violating the South Carolina Unfair Trade Practices Act. The Company believes
that this lawsuit is completely without merit and the Company will defend itself
vigorously. If this case were to be decided against the Company, it could have
a material adverse effect on the financial position and operations of the
Company.
On May 14, 1999, Roy Stevens, a former employee and current shareholder of the
Company, filed a lawsuit against the Company, certain of its subsidiaries, and
certain officers, directors and employees of the Company in the Court of Common
Pleas for the Fifth Judicial Circuit in Columbia, South Carolina. The lawsuit
alleges that the defendants breached fiduciary duties, breached contracts,
maliciously prosecuted the plaintiff, and engaged in various fraudulent and
illegal acts. The plaintiff seeks to recover actual and punitive damages of an
unspecified amount, the reassignment of a lease agreement that secures a
promissory note issued by the Company to the plaintiff and to have a receiver
appointed to take control of the Company during the pendency of this lawsuit.
The Company believes that the lawsuit is completely without merit and the
Company will defend itself vigorously. The Company and the plaintiff have
formally agreed, as of November 1, 1999, to non-binding mediation of the case in
the near future. If this case were to be decided against the Company, it would
likely have a material adverse effect on the financial position and operations
of the Company.
The South Carolina Department of Revenue has performed an audit of the state
income tax returns filed by the Company and its subsidiaries for 1995 and 1996.
As a result of these audits, the Company was notified by the Department of
Revenue that the Company may have additional tax liability relating to these
audits for South Carolina state income taxes for 1995 and 1996, including
interest of up to $100,000. The Company is in the process of providing
additional information to the Department of Revenue to support its calculation
of administrative expenses and overhead for 1995 and 1996. If this case were to
be decided against the Company, it could have a material adverse effect on the
financial position of the Company.
In the normal course of its business, the Company is subject to litigation and
regulatory assessments and fines. Management of the Company does not believe
any claims, assessments or fines, individually or in the aggregate, will have a
material adverse effect on the Company's financial position or operations of the
Company, except as otherwise stated above.
- --------------------------------------------------------------------------------
NOTE 10 - SEGMENTS
- --------------------------------------------------------------------------------
The Company's Chief Operating Decision Maker ("CODM"), the Chairman and CEO,
evaluates performance and allocates resources based on a measure of segment
profit or loss from operations.
The Company has identified two operating segments based on the different nature
of the services and legislative monitoring and, in general, the type of
customers for those services. The video gaming segment represents operations of
the Company's video gaming machines in South Carolina. The bingo segment
encompasses bingo center services provided to charitable organizations in South
Carolina, Texas and Alabama.
12
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 10 - SEGMENTS (CONTINUED)
- --------------------------------------------------------------------------------
A summary of the segment financial information reported to the CODM is as
follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
------------------------------------------
Video Gaming Bingo Adjustment Consolidated
-------------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . $ 1,366,613 $1,351,057 $ 323,975 $ 3,041,645
Depreciation and Amortization. . 312,504 351,270 9,277 673,051
Segment profit (loss). . . . . . (213,900) 211,768 (509,918) (512,050)
Capital expenditures by segment --- 203,617 10,552 214,169
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . $ 2,551,380 $1,446,919 $ 285,496 4,283,795
Depreciation and Amortization. . 259,042 278,920 (28,410) 509,552
Segment profit (loss). . . . . . 314,050 557,728 (492,441) 379,337
Capital expenditures by segment --- 98,600 --- 98,600
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . $ 5,309,246 $ 4,010,353 $ 893,817 $ 10,213,416
Depreciation and Amortization. . 962,948 1,058,054 19,392 2,040,394
Segment profit (loss). . . . . . 899,218 642,790 (2,262,979) (720,971)
Segment Assets . . . . . . . . . 7,039,791 11,888,917 (1,267,036) 17,661,672
Capital expenditures by segment. 546,289 728,817 28,484 1,303,590
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . $ 7,597,009 $3,519,940 $ 620,217 $ 11,737,166
Depreciation and Amortization. . 727,730 727,809 52,338 1,507,877
Segment profit (loss). . . . . . 935,179 72,146 (1,998,680) (991,355)
Segment Assets . . . . . . . . . 7,215,615 8,833,422 4,225,014 20,274,051
Capital expenditures by segment. 1,350,653 351,324 42,161 1,744,138
</TABLE>
The adjustments represent video gaming and bingo concession and other income,
depreciation and amortization related to corporate assets, corporate losses, and
corporate capital expenditures to reconcile segment balances to consolidated
balances. None of the other adjustments are significant.
13
<PAGE>
AMERICAN BINGO & GAMING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 11 - SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
On October 14, 1999, the South Carolina Supreme Court issued a ruling that
declared unconstitutional the November 2, 1999 referendum, which was to allow
South Carolina voters to decide whether video poker payouts should remain legal.
As a result of, and pursuant to, this ruling, video poker payouts will be
illegal in South Carolina after June 30, 2000. This Supreme Court ruling will
force the Company to cease its video poker operations, which will have a
material adverse effect on the Company's financial position and operations since
the Company's video poker operations represented approximately 52% of the
Company's revenue for the nine month period ended September 30, 1999.
On October 21, 1999, the Company announced that the Board of Directors had
elected Jeffrey L. Minch as the President of the Company and Gordon R. McNutt as
a new director of the Company.
An entity owned and managed by one person who is a shareholder and former
director of the Company and a second person who is a shareholder of the Company
entered into a three year Agreement with the Company in November 1998 to operate
the Company's non-route video gaming operations at eight video gaming machine
centers. On October 23, 1999, the Company renegotiated this Agreement and now
receives all net proceeds from the operations of the video gaming machine
centers.
On October 27, 1999, the Company received a letter from NASDAQ notifying the
Company that the Company's Common Stock had failed to maintain a minimum bid
price of at least $1.00 during the previous thirty consecutive business days, as
required under the NASDAQ rules, and that as a result, the Company's Common
Stock could possibly be delisted from the NASDAQ Small Cap Market. The Company
has until January 24, 2000, to achieve compliance with the requirement regarding
minimum bid price by having its Common Stock maintain a minimum bid price of at
least $1.00 for ten consecutive business days. If the Company's Common Stock
fails to maintain a minimum bid price of at least $1.00 for ten consecutive
business days prior to January 24, 2000, the Company's Common Stock will be
delisted from the NASDAQ Small Cap Market at the opening of business on January
26, 2000. The Company would, however, have an opportunity to appeal and stay
any delisting during the appeal pursuant to the NASDAQ rules. The Company has
already requested a hearing with NASDAQ to present its strategic plan to comply
with NASDAQ's listing requirements. The date of such hearing has not yet been
determined. Delisting of the Company's Common Stock could have a material
impact on the marketability of the Company's Common Stock.
Current regulatory requirements in South Carolina require each video gaming
machine ("VGM") to be connected via modems to the South Carolina Department of
Revenue's computer monitoring system by February 1, 2000. Any VGM not connected
to this online reporting system by the above-stated deadline must be turned off
until it is upgraded and connected to the system. These requirements would
necessitate the expenditure of approximately $2,500 per VGM. The Company has
determined that this capital expenditure is not justified given (i) the short
duration of time during which the VGMs could be legally operated since payouts
will be banned as of June 30, 2000, and (ii) the reduced level of profitability
brought about by the $125 per day per player limitation imposed by the South
Carolina Supreme Court. The effect of this determination is that the Company
will likely cease operating its video gaming segment effective February 1, 2000.
As noted above, this is expected to have a material adverse effect on the
Company's financial position and operations as the Company's video poker
operations represented approximately 52% of the Company's revenues for the nine
month period ended September 30, 1999.
14
<PAGE>
AMERICAN BINGO & GAMING CORP.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
American Bingo & Gaming Corp. was formed in 1994 as a Delaware corporation to
consummate the acquisition of charitable bingo centers and video gaming
operations. The Company operates primarily through wholly owned subsidiaries in
Texas, Alabama and South Carolina. The Company completed its initial public
offering in December of 1994.
The following discussion should be read in conjunction with the Company's Form
10-KSB and the consolidated financial statements for the years ended December
31, 1998 and 1997; the Company's Form 10-QSB for the quarters ended March 31,
1998, June 30, 1998, September 30, 1998, March 31, 1999 and June 30, 1999; and
the consolidated financial statements and related notes for the period ended
September 30, 1999. The statements in this Quarterly Report on Form 10-QSB
relating to matters that are not historical facts, including but not limited to
statements found in this "Management Discussion and Analysis of Financial
Condition and Results of Operations", are forward-looking statements that
involve a number of risks and uncertainties. Factors that could cause actual
future results to differ materially from those expressed in such forward-looking
statements include but are not limited to the impact of government regulation
and taxation, customer attendance, spending, competition, general economic
conditions, and other risks and uncertainties as discussed in this Quarterly
Report and the 1998 Annual Report on Form 10-KSB.
RESULTS OF OPERATIONS
The Company generated consolidated revenues of $3.0 million during the third
fiscal quarter of 1999 ended September 30, 1999, as compared with $4.3 million
in the comparable period of the prior fiscal year, representing a decrease of
$1.3 million or 29%. Third quarter revenues were led by bingo rental and other
revenues that totaled $1.7 million, or 55% of total revenues for the third
quarter of 1999, compared to $1.7 million, or 40% of total revenue, for the
third quarter of 1998. Video gaming operations produced $1.4 million, or 45% of
total revenues in the third quarter of 1999, compared to $2.6 million, or 60%,
in the comparable quarter of the prior year. The decrease in video gaming
revenues was partially due to the reorganization of the free-standing video
gaming machine ("VGM") operations in the fourth quarter of 1998 and the ruling
issued by the South Carolina Supreme Court concerning the $125 per day per
player gaming payout limitation. Approximately 54% of third quarter revenues
were generated in South Carolina, with 32% in Texas and 14% in Alabama, as
compared to third quarter 1998 revenues of 79% in South Carolina, 11% in Texas,
and 10% in Alabama. This shifting of revenues by region is a reflection of the
reorganization of the free-standing VGM operations in South Carolina as well as
the additional seven bingo halls in Texas. Revenues for the nine months of 1999
totaled $10.2 million, as compared to $11.7 million in the comparable period of
the prior fiscal year, a decrease of $1.5 million, or 13%. Year-to-date
revenues were led by video gaming operations, which comprised 52% of revenues
for the first nine months of 1999.
Total costs and expenses were $3.5 million in the third quarter of 1999, versus
$3.8 million in the third quarter of 1998, a decrease of $300,000, or 7%. The
decrease in total costs and expenses is primarily attributable to salary, direct
operating costs and general and administrative expense reductions of $971,000.
Nonrecurring reorganization expenses totaling $633,000 offset this decrease.
For the first nine months of 1999, total costs and expenses were $10.9 million
versus $12.5 million in the comparable period of 1998, a decrease of more than
$1.6 million, or 13%. Total costs and expenses for the first nine months of
1999 include approximately $1.3 million of nonrecurring reorganization expenses.
For the first nine months of 1998, total costs and expenses include
approximately $2.0 million of non-cash write-offs and charges recorded in the
second quarter of 1998.
Depreciation, amortization and license expense totaled $1.1 million in the third
quarter of 1999, an increase of $222,000 from the third quarter of 1998. For
the first nine months of 1999, depreciation, amortization and license expenses
were $3.6 million, versus $2.5 million in the comparable period of 1998, an
increase of $1.1 million, or 44%. The expense includes the depreciation of the
Company's South Carolina video gaming machines and related license expenses as
well as the amortization of the Company's intangible assets which consist
primarily of goodwill related to the acquisition of the seven bingo halls in
Texas.
General and administrative charges totaled $630,000 in the third quarter of
1999, compared to $927,000 in 1998. For the first nine months of 1999, general
and administrative expenses were $2.5 million, versus $3.5 million in the
comparable period of 1998, a decrease of $1.0 million, or 29%. The change is
primarily due to second quarter 1998 write-offs which
15
<PAGE>
AMERICAN BINGO & GAMING CORP.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
include $300,000 for relocation and reorganization reserves and over $200,000 of
abnormally high legal, travel, marketing and accounting costs.
Third quarter 1999 rent and utilities for the Company's freestanding video
gamerooms and bingo centers totaled $623,000, compared to $554,000 for the same
period in 1998, an increase of 12%. The Company continues to pursue
opportunities to reduce costs by canceling, renegotiating or subletting idle
property leases.
Direct operating costs for the third quarter of 1999 totaled $409,000, as
compared to $692,000 for the same period in 1998, a decrease of approximately
$283,000, or 41%. This decrease in direct operating costs is attributable to
the reorganization of the Company's freestanding VGMs into route locations that
occurred in the fourth quarter of 1998.
Net other income and expenses totaled ($13,000) for the third quarter of 1999,
as compared to ($11,000) for the third quarter of 1998. Other income and
expenses for the third quarter of 1999 was primarily comprised of investment
income and interest expense. Included in other income for the first nine months
of 1999 were proceeds received from the liquidation of Company common stock by
the former Company president, Greg Wilson, and members of his family in
connection with the settlement of lawsuits and other issues between the parties.
Net loss for the third quarter of 1999 was $512,050, which equated to a basic
and fully diluted earnings per share of ($.05). Net income for the third
quarter of 1998 was $379,337, which equated to a basic and fully diluted
earnings per share of $.04. Net loss for the first nine months of 1999 was
$720,971, which equated to a basic and fully diluted earnings per share of
($.07) per share. Net loss for the first nine months of 1998 was $991,355,
which equated to a basic and fully diluted earnings per share of ($.12).
The weighted average number of basic and fully diluted Common Stock shares
outstanding totaled 9.9 million in the third quarter of 1999, as compared to
basic Common Stock shares of 9.3 million and fully diluted shares of 9.9 million
in the third quarter of 1998. The change is primarily due to the issuance of
Common Stock in the second half of 1998 in connection with the redemption of
preferred stock, the issuance of 128,000 shares of Common Stock in October 1998
related to the acquisition of six bingo halls in Texas, and the issuance of
325,000 shares of Common Stock in January 1999 in connection with the exercise
of stock options, less the repurchase of approximately 360,000 shares of Common
Stock under the Company's buyback program during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 1999 totaled $3.4 million and
represented approximately 19% of the Company's total assets of $17.7 million.
Cash flows from operating activities for the third quarter of 1999 totaled
($100,000), compared to $1.6 million during the third quarter of 1998. Cash
flows from operating activities for the first nine months of 1999 were primarily
comprised of the Company's net loss of ($721,000), adjusted for non-cash costs
of depreciation, gaming license expense and intangible asset amortization of
$1.5 million, $83,000 related to the provision for uncollectible receivables,
($46,000) related to the gain on receipt of treasury stock, and ($902,000)
representing the net changes in operating assets and liabilities.
Net cash used in investing activities for the first nine months of 1999 totaled
$66,000, compared to $4.6 million in 1998. Cash used in investing activities
consists primarily of $752,000 related to property and equipment purchases,
offset by $712,000 from the repayment of notes receivable. Cash flows from
investing activities in the first nine months of 1998 were primarily comprised
of expenditures for video gaming licenses, leasehold improvements and the
acquisition of a bingo center.
Cash used in financing activities for the first nine months of 1999 totaled
$380,000. Cash used related to financing activities in 1999 included $694,000
of net cash paid to reduce notes payable and capital lease obligations. Cash
received relating to financing activities included $315,000 primarily related to
stock options exercised during the first quarter 1999, and stock purchases under
the Employee Stock Purchase Plan. Cash flows from financing activities in the
first nine months of 1998 was primarily comprised of $1.1 million of Company
Common Stock repurchases, cash proceeds from preferred stock conversions of
$812,000 and net lease proceeds and payments of $578,000.
16
<PAGE>
AMERICAN BINGO & GAMING CORP.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
At September 30, 1999, the Company had $17.7 million in total assets with total
liabilities of $2.0 million and $15.7 million of shareholders equity. Total
assets include $3.4 million in cash, $1.4 million of net accounts and notes
receivable, $6.1 million of property and equipment, $4.2 million of intangible
assets, $2.0 million in prepaid video gaming licenses, and $600,000 of other
assets. Total liabilities primarily consist of notes and capital lease
obligations of $1.7 million.
Net property and equipment totaled $6.1 million at September 30, 1999. The
majority of property and equipment is comprised of video gaming machines.
Intangible assets, net of accumulated amortization, totaled $4.2 million at the
end of September 30, 1999, and were primarily comprised of goodwill associated
with the Company's acquisition of seven bingo centers in Texas during 1998.
Current liabilities totaled $690,000 and long-term liabilities totaled $1.3
million at September 30, 1999. The majority of liabilities were comprised of
$1.7 million of notes payable and capital lease obligations related to the
Company's acquisition of video gaming machines.
Current assets totaled $5.8 million at September 30, 1999, providing the Company
with working capital of approximately $5.1 million and a current ratio of 8.5 to
1. Net accounts receivable totaled $721,000 and were primarily comprised of
operating receivables and short-term advances to video gaming route location
owners. Notes receivable, less provision for doubtful collectability, totaled
$679,000 at September 30, 1999. Notes receivable are primarily comprised of a
note balance due on the Company's sale of a Florida bingo center at the end of
1995. Total prepaid licenses of $2.0 million represent the Company's portfolio
of video gaming licenses for VGMs in South Carolina. Video gaming parts and
bingo supplies are expensed at the time of purchase, therefore no inventory is
recorded for operations.
The Company's ongoing operational funding requirements relating to video gaming
licenses will cease due to the South Carolina Supreme Court ruling declaring the
proposed November 2, 1999 referendum to be unconstitutional, which had the
effect of banning video poker payouts after June 30, 2000. The operating lease
obligations of the Company's bingo segment will continue to use cash derived
from operations and the Company expects to renegotiate existing leases, where
possible, and to structure future lease obligations consistent with expected
future cash flows from the leased center's operations and fair market rental
rates.
YEAR 2000 ISSUE
The Company has conducted a comprehensive review of its computer systems to
identify potential problems that could be caused by the Year 2000 issue. This
issue is the result of computer programs that were written using two digits
rather than four to define the applicable year. Such programs may recognize a
date using "00" as the year 1900 rather than year 2000, which could result in a
system failure or miscalculation. Management currently believes that the Year
2000 issue will not pose significant operational problems for the Company's
computer systems or result in significant costs to become Year 2000 compliant.
However, if the Company's computer systems were subject to undetected system
failures or operational problems resultant from the Year 2000 issue, there can
be no assurance that any one or more such failures would not have a material
adverse effect on the Company. The Company has completed the process of
certifying that the vendors and suppliers of its critical components and
services are Year 2000 compliant. The Company intends to rely on Year 2000
compliance on the part of public utility providers and all state and local
regulatory agencies, although non-compliance by those entities could materially
adversely affect the Company's financial condition and operations.
17
<PAGE>
AMERICAN BINGO & GAMING CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of material pending legal proceedings, see Note 9 to the
unaudited consolidated condensed financial statements included in Part I hereof,
which Note 9 is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On September 10, 1999, the Company's Board of Directors approved the rescission
of the Company's Rights Agreement dated August 4, 1998 by changing the
expiration date of the Rights Agreement to September 17, 1999. As a result of
this action, the preferred share purchase rights previously granted by the Board
of Directors on August 4, 1998 expired on September 17, 1999. The Rights
Agreement was adopted by the Board of Directors as a defense mechanism to the
possibility of a takeover of the Company by a third party. The Board determined
that the Rights Agreement was not in the best interest of the Company at this
time and therefore took action to change the expiration date of the Rights
Agreement and the preferred stock purchase rights granted in connection
therewith so that they would expire on September 17, 1999.
ITEM 5. OTHER INFORMATION
On October 14, 1999, the South Carolina Supreme Court issued a ruling that
declared unconstitutional the November 2, 1999 referendum, which was to allow
South Carolina voters to decide whether video poker payouts should remain legal.
As a result of, and pursuant to, this ruling, video poker payouts will be
illegal in South Carolina after June 30, 2000. This Supreme Court ruling will
force the Company to cease its video poker operations, which will have a
material adverse effect on the Company's financial position and operations since
the Company's video poker operations represented approximately 52% of the
Company's revenue for the nine month period ended September 30, 1999.
An entity owned and managed by one person who is a shareholder and former
director of the Company and a second person who is a shareholder of the Company
entered into a three year Agreement with the Company in November 1998 to operate
the Company's non-route video gaming operations at eight video gaming machine
centers. On October 23, 1999, the Company renegotiated this Agreement and now
receives all net proceeds from the operations of the video gaming machine
centers.
On October 27, 1999, the Company received a letter from NASDAQ notifying the
Company that the Company's Common Stock had failed to maintain a minimum bid
price of at least $1.00 during the previous thirty consecutive business days, as
required under the NASDAQ rules, and that as a result, the Company's Common
Stock could possibly be delisted from the NASDAQ Small Cap Market. The Company
has until January 24, 2000, to achieve compliance with the requirement regarding
minimum bid price by having its Common Stock maintain a minimum bid price of at
least $1.00 for ten consecutive business days. If the Company's Common Stock
fails to maintain a minimum bid price of at least $1.00 for ten consecutive
business days prior to January 24, 2000, the Company's Common Stock will be
delisted from the NASDAQ Small Cap Market at the opening of business on January
26, 2000. The Company would, however, have an opportunity to appeal and stay
any delisting during the appeal pursuant to the NASDAQ rules. The Company has
already requested a hearing with NASDAQ to present its strategic plan to comply
with NASDAQ's listing requirements. The date of such hearing has not yet been
determined. Delisting of the Company's Common Stock could have a material
impact on the marketability of the Company's Common Stock.
18
<PAGE>
AMERICAN BINGO & GAMING CORP.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
3.1 Certificate of Incorporation of the Company dated September 8, 1994, as
amended October 17, 1994, and further amended July 31, 1999, August 13,
1998, and September 22, 1999.
3.2 Amended and Restated Bylaws of the Company.
4.1 Amendment to Rights Agreement dated September 13, 1999, between the
Company and American Stock Transfer & Trust Company (incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the
Company on September 20, 1999).
10.1 Severance Agreement with James L. Hall dated July 1, 1999 (incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by
the Company on July 22, 1999).
10.2 Severance Agreement with George M. Harrison Jr. dated July 2, 1999
(incorporated by reference to Exhibit 10.2 of the Current Report on Form
8-K filed by the Company on July 22, 1999).
10.3 Severance Agreement with Andre M. Hilliou dated July 2, 1999
(incorporated by reference to Exhibit 10.3 of the Current Report on Form
8-K filed by the Company on July 22, 1999).
10.4 Severance Agreement with Michael W. Mims dated July 2, 1999
(incorporated by reference to Exhibit 10.4 of the Current Report on Form
8-K filed by the Company on July 22, 1999).
10.5 Severance Agreement with Grover C. Seaton III dated June 30, 1999
(incorporated by reference to Exhibit 10.5 of the Current Report on Form
8-K filed by the Company on July 22, 1999).
10.6 Severance Agreement with Richard M. Kelley dated July 2, 1999
(incorporated by reference to Exhibit 10.6 of the Current Report on Form
8-K filed by the Company on July 22, 1999).
10.7 Severance Agreement with Nancy J. Pollick dated July 2, 1999
(incorporated by reference to Exhibit 10.7 of the Current Report on Form
8-K filed by the Company on July 22, 1999).
10.8 Severance Agreement with Marie T. Pierson dated July 23, 1999.
10.9 Severance Agreement with Thomas M. Harrison dated September 17, 1999.
10.10 Severance Agreement with William W. Harrison dated September 17, 1999.
27.1 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1999, the Company filed three reports on
Form 8-K:
On July 20, 1999, the Company filed a Form 8-K to report the following events:
(i) That the Governor of South Carolina had signed into law legislation
taxing and regulating video poker and requiring a referendum to be held
on November 2, 1999, in which South Carolina voters were to decide
whether video poker payouts should remain legal; and
(ii) That on July 13, 1999, the South Carolina Supreme Court ruled that
video poker players cannot win more than $125 in a 24-hour period.
19
<PAGE>
AMERICAN BINGO & GAMING CORP.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
On July 22, 1999, the Company filed a Form 8-K to report the following events:
(i) That on July 2, 1999, the Company had announced the resignation of the
following members of its Board of Directors and members of management:
James L. Hall, formerly a Director; George M. Harrison, Jr., formerly a
Director and Vice President; Andre M. Hilliou, formerly Chairman of the
Board, President and Chief Executive Officer; Michael W. Mims, formerly
a Director; Grover C. Seaton III, formerly a Director; A. Joe Willis,
formerly a director; Richard M. Kelley, formerly Chief Financial
Officer, Vice President and Treasurer; and Nancy J. Pollick, formerly
Vice President of Operations;
(ii) That on July 6, 1999, the Company had announced that the Board of
Directors had elected Jeffrey L. Minch as a new director and Daniel W.
Deloney as Chairman of the Board and President and Chief Executive
Officer of the Company; and
(iii) That on July 9, 1999, Brock Henning, a former South Carolina bingo
area manager, and Connie Ryan, former Controller, had resigned from the
Company.
On September 20, 1999, the Company filed a Form 8-K to report the following
events:
(i) That on September 17, 1999, the Company's Board of Directors had
dismissed King Griffin & Adamson P.C. as its principal accountant; and
(ii) That on September 10, 1999, the Company's Board of Directors had
approved the rescission of the Company's Rights Agreement dated August 4, 1998,
by changing the expiration date of the Rights Agreement to September 17, 1999.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
American Bingo & Gaming Corp.
November 12, 1999
By:
/s/ Jeffrey L. Minch
----------------------
Jeffrey L. Minch
President
/s/ Larry D. Kasufkin
------------------------
Larry D. Kasufkin
Secretary and Treasurer
21
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
- ------- ----------------------------------------------------------------------------------------- -----------
<C> <S> <C>
3.1 Certificate of Incorporation of the Company dated September 8, 1994, as amended October
17, 1994, and further amended July 31, 1997, August 13, 1998, and September 22, 1999.
3.2 Amended and Restated Bylaws of the Company.
4.1 Amendment to Rights Agreement dated September 13, 1999, between the Company and
American Stock Transfer & Trust Company (incorporated by referenced to Exhibit 10.1 of
the Current Report on Form 8-K filed by the Company on September 20, 1999).
10.1 Severance Agreement with James L. Hall dated July 1, 1999 (incorporated by reference to
Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.2 Severance Agreement with George M. Harrison, Jr. dated July 2, 1999 (incorporated by
reference to Exhibit 10.2 of the Current Report on Form 8-K filed by the Company on
July 22, 1999).
10.3 Severance Agreement with Andre M. Hilliou dated July 2, 1999 (incorporated by reference
to Exhibit 10.3 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.4 Severance Agreement with Michael W. Mims dated July 2, 1999 (incorporated by reference
to Exhibit 10.4 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.5 Severance Agreement with Grover C. Seaton III dated June 30, 1999 (incorporated by
reference to Exhibit 10.5 of the Current Report on Form 8-K filed by the Company on
July 22, 1999).
10.6 Severance Agreement with Richard M. Kelley dated July 2, 1999 (incorporated by
reference to Exhibit 10.6 of the Current Report on Form 8-K filed by the Company on
July 22, 1999).
10.7 Severance Agreement with Nancy J. Pollick dated July 2, 1999 (incorporated by reference
to Exhibit 10.7 of the Current Report on Form 8-K filed by the Company on July 22, 1999).
10.8 Severance Agreement with Marie T. Pierson dated July 23, 1999.
10.9 Severance Agreement with Thomas M. Harrison dated September 17, 1999.
10.10 Severance Agreement with William W. Harrison dated September 17, 1999.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
22
<PAGE>
CERTIFICATE OF INCORPORATION OF
AMERICAN BINGO & GAMING CORP.
A STOCK CORPORATION
1. The name of this Corporation is: AMERICAN BINGO & GAMING CORP.
2. Its Registered office in the State of Delaware is to be located at 15
EAST NORTH STREET in the CITY OF DOVER, COUNTY OF KENT, 19901. The Registered
Agent in charge thereof is INCORPORATING SERVICES, LTD.
3. The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
4. The amount of the total authorized capital stock of this corporation is
TWENTY MILLION (20,000,000) COMMON SHARES WITH PAR VALUE OF .001.
5. The name and mailing address of the incorporator are:
JAMES GERACI
C/O INTERCOUNTY CLEARANCE CORPORATION
194 WASHINGTON AVE.
ALBANY, NY 12210
I, THE UNDERSIGNED, for the purpose of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do certify
that the facts herein stated are true, and I have accordingly hereunto set my
hand this 8th day of September, A.D. 1994.
/s/ James Geraci
------------------
James Geraci
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN BINGO & GAMING CORP.
American Bingo & Gaming Corp., a Delaware corporation (the "Corporation"),
hereby certifies as follows:
FIRST: That the Board of Directors of the Corporation, by unanimous written
consent dated October, 1994 in lieu of a meeting of such Board, adopted a
resolution proposing and declaring advisable the following amendments to the
Certificate of Incorporation of the Corporation, and declaring that such
proposed amendments be submitted for consideration by the stockholders of the
Corporation entitled to vote in respect thereof. The resolution setting forth
the proposed amendments is as follows:
RESOLVED, that the Certificate of Incorporation of this Corporation be amended
as follows:
II. Paragraph 4 of the Certificate of Incorporation relating to the
capitalization of the Corporation, is hereby deleted and amended to read in its
entirety as follows:
"4.a. Authorized Shares. The total number of shares of stock which the
------------------
Corporation shall have authority to issue is twenty-one million (21,000,000),
which shall consist of 20,000,000 shares, $.001 par value, designated as Common
Stock and one million (1,000,000) shares, $.01 par value, designated as
Preferred Stock.
4.b. Preferred Stock. Shares of the Preferred Stock may be issued from time
----------------
to time in series or otherwise and the Board of Directors of the Corporation is
hereby authorized, subject to the limitations provided by law, to establish and
designate series, if any, of the Preferred Stock, to fix the number of shares
constituting any such series, and to fix the voting powers, designations, and
relative, participating, option rights, conversion, redemption and other rights
of the shares of Preferred Stock or series thereof, and the qualifications,
limitations and restrictions thereof, and to increase and to decrease the number
of shares of Preferred Stock or shares constituting any such series. The
authority of the Board of Directors of the Corporation with respect to shares of
Preferred Stock or any series thereof shall include but shall not be limited to
the authority to determine the following-:
(i) the number of shares constituting any such series, and the
distinctive designations thereof;
(ii) the terms and conditions of the voting rights of the Preferred
Stock or any series thereof, including but not limited to, the right of the
holders of such shares to vote as a separate class either alone or with the
holders of shares of one or more other class or series of Preferred Stock and
the right to have more than one vote per share;
<PAGE>
(iii) the increase, and the decrease to a number not less than the
number of the outstanding shares of the Preferred Stock of any series thereof,
of the number of shares constituting such series theretofore fixed.
(iv) the rate or rates and times at which dividends on the shares of
Preferred Stock or any series thereof shall be paid and, whether such dividends
shall be cumulative and, if cumulative, the date or dates from and after which
they shall accumulate;
(v) the redemption price or prices, if any, and the terms and
conditions on which shares of the Preferred Stock or any series thereof shall be
redeemable including but not limited to the date or dates upon or after which
such shares shall be redeemable and the amount per share which shall be payable
upon such redemption which amount may vary under different circumstances and at
different redemption dates;
(vi) the requirement of any sinking funds to be applied to the purchase
or redemption of shares of the Preferred Stock or series thereof, and if so, the
amount of such fund or funds and the manner of application;
(vii) the rights of shares of the Preferred Stock or any series thereof
in the event of liquidation, dissolution or winding up of, or upon any
distribution of the assets of, the Corporation;
(viii) the rights, if any, of the holders of shares of the Preferred
Stock or any series thereof, to convert such shares into, or to exchange such
shares for, shares of any other class, classes or series of stock and the price
or prices or the rates of exchange and the adjustments at which such shares
shall be convertible or exchangeable, and any other terms and conditions of such
conversion or exchange; and
(ix) any other preferences and relative, participating, optional or
other special rights of shares of the Preferred Stock or any series thereof and
qualifications, limitations or restrictions of rights or powers to which shares
of any future series shall be subject.
4.c. Common Stock.
(i) Dividends. Subject to the preferential dividend rights applicable
---------
to shares of Preferred Stock, the holders of shares of Common Stock shall be
entitled to receive such dividends as may be declared by the Board of Directors,
2
<PAGE>
(ii) Liquidation. In the event of any voluntary or involuntary
-----------
liquidation, dissolution or winding up of the Corporation, after distribution in
full of the preferential amounts to be distributed to the holders of shares of
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive all of the remaining assets of the Corporation available for
distribution to holders of Common Stock, ratably in proportion to the number of
shares of the Common Stock held by them.
(iii) A New Paragraph 6 to the Certificate of Incorporation, relating
to a compromise or arrangement between the Corporation and its creditors, is
added as follows:
"6. Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them, any court of equitable jurisdiction
within the state of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporations, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation."
(iv) A new paragraph 7 to the Certificate of Incorporation, relating to
the indemnification of Directors and Officers is added as follows:
"7.(a) The Corporation shall, to the full extent permitted by Section 145 of
the Delaware General Corporation Law, as amended, from time to time, indemnify
all persons whom it may indemnify pursuant thereto.
(b) A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the directors
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
3
<PAGE>
(c) Each person who was or is made a Party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative, or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer, of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent, of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
-------- -------
paragraph (d) hereof, the Corporation shall indemnify and such persons seeking
indemnification in connection with a proceeding (or part thereof) which was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Paragraph 7 shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
--------
however, that if the Delaware General Corporation Law requires, the payment of
- -------
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this paragraph 7 or otherwise.
The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
4
<PAGE>
(d) If a claim under sub-paragraph (c) of this Paragraph 7 is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation.; Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(e) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Paragraph 7 shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
(f) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware Corporation Law."
(v) A new paragraph 8 to the Certificate of Incorporation relating to the
management of the Corporation is added as follows:
"8.a. The business affairs of the Corporation shall be managed by or under
the direction of the Board of Directors consisting of not less than two
directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-laws.; and
5
<PAGE>
b. A director shall hold office until the annual meeting when his successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any vacancy on
the Board of Directors that results from an increase in the number of directors
may be filled by a majority of the Board of Directors then in office, and any
other vacancy occurring in the Board of Directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director.
(vi) A new paragraph 9 to the Certificate of Incorporation relating to
meetings of stockholders of the Corporation is added as follows:
"9.a. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called (A) upon the written
request of the Chairman of the Board, the President or the Secretary; or (B) at
the written request of a majority of the Board of Directors.
b. For business to be properly brought before an annual or special meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. A stockholder's notice related to a
proposal to be presented at an annual or special meeting, to be timely, must be
received at the Corporation's principal executive offices not less than 60 days
nor more than 90 days prior to the meeting; provided, however, that if less than
70 days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which a notice of the date of the annual or special meeting, as the case may
be, was mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Article and if he should so determine, he shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted.
6
<PAGE>
c. Only persons who are nominated in accordance with the procedures set
forth in this Article 9 shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders by or at the direction of the Board of Directors or
by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this section. Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
received at the Corporation's principal executive offices not less than 60 days
nor more than 90 days prior to the meeting; provided, however, that if less than
70 days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such disclosure was made. Such stockholder's notice shall set forth (a)
as to each person whom the stockholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the class and number of shares of the Corporation
which are beneficially owned by such person and (iv) any of the information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including without limitation such persons' written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected); and
(b) as to the stockholder giving the notice (i) the name and address, as they
appear on the Corporation's books, of such stockholder and (ii) the class and
number of shares of the Corporation which are beneficially owned by such
stockholder. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth in this Section. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by this
Article, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded."
(vii) A new paragraph 10 to the Certificate of Incorporation relating to
By-Laws; is added as follows:
"10. Power to make, alter, or repeal the By-Laws; and to adopt any new
By-Law, shall be vested in the Board of Directors,"
7
<PAGE>
(viii) A new paragraph 11 to the Certificate of Incorporation relating to
amendments is added as follows:
"11. From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article 11."
12. The Corporation is to have perpetual existence.
SECOND: The amendments affected herein were authorized on October 14, 1994
by the consent in writing, setting forth the action so taken, signed by the
holders of at least a majority of all of the outstanding shares of the
corporation entitled to vote thereon pursuant to Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: The amendments effected herein were duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the American Bingo & Gaming Corp. has caused this
Certificate of Amendment of Certificate of Incorporation to be signed by Greg
Wilson, its Chairman, and attested to by Robert Hersch, its Secretary this 18th
day of October, 1994.
AMERICAN BINGO & GAMING CORP.
/s/ Greg Wilson
-----------------
GREG WILSON, Chairman
ATTEST TO:
/s/ Robert Hersch
- -------------------
ROBERT HERSCH
8
<PAGE>
AMERICAN BINGO & GAMING CORP.
CERTIFICATE OF DESIGNATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
American Bingo & Gaming Corp., a Delaware corporation (the "Corporation"),
in accordance with the provisions of Section 103 of the General Corporation Law
of the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation (the "Board of Directors" or the "Board") by the Certificate of
Incorporation, as amended, of the Corporation, the Board of Directors, by
unanimous written consent dated July 29, 1997, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, $.01 par
value, which series is designated "Series A Convertible Preferred Stock", which
resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of Directors by
the Certificate of Incorporation, as amended, the Board of Directors does hereby
provide for the creation of a series of the Preferred Stock, $.01 par value
(hereafter called the "Preferred Stock"), of the Corporation, and to the extent
that the voting powers and the designations, preferences and relative,
participating, optional or other special rights thereof and the qualifications,
limitations or restrictions of such rights have not been set forth in the
Certificate of Incorporation, as amended, of the Corporation, does hereby fix
the same as follows:
The rights, preferences, privileges, and limitations granted to and imposed
on the Series A Convertible Preferred Stock (the "Series A Convertible Preferred
Stock"), which series shall consist of 3,000 shares, are as set forth below. The
following rights, preferences, privileges, and limitations are subject to the
designation, description, and terms of one or more subsequent series of
Preferred Stock by the Board of Directors of American Bingo & Gaming Corp., (the
"Corporation") pursuant to authority granted by the Certificate of
Incorporation. To the extent that the rights, preferences, privileges, and
limitations of any such subsequent series conflict or are inconsistent with any
of the rights, preferences, privileges, and limitations of the Series A
Convertible Preferred Stock, the designation and description of terms of the
subsequent series which is the latest so designated shall control and prevail
over the rights, preferences, privileges, and limitations of the Series A
Convertible Preferred Stock.
SECTION 1. DEFINITIONS. As used herein, the following terms shall have the
-----------
following meanings:
"AMEX" shall mean the American Stock Exchange, Inc.
"Board of Director" or "Board" shall mean the Board of Directors of the
Corporation.
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed.
"Common Stock" shall mean the Common Stock, $.001 par value, of the
Corporation.
"Computed Price" of one share of Common Stock on any date shall mean the
product obtained by multiplying (a) the Conversion Percentage applicable on such
date times (b) the arithmetic average of the per share Market Price of the
-----
Common Stock for the Measurement Period with respect to the applicable dividend
payment date; provided, however, that in no event shall the Computed Price
-------- -------
determined in accordance with this clause (2) be greater than $5.50 (subject to
equitable adjustments for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events occurring on or after
the date of filing of this Certificate of Designations with the Secretary of
State of the State of Delaware).
"Conversion Agent" shall mean American Stock Transfer & Trust Company, or
its duly appointed successor.
"Conversion Amount" initially shall be equal to $1,000.00, subject to
adjustment as hereinafter provided.
"Conversion Date" shall mean the date on which the notice of conversion is
actually received by the Conversion Agent, whether by mail, courier, personal
service, telephone line facsimile transmission, or other means, in case of a
conversion at the option of the holder pursuant to Section 10(a).
"Conversion Deferral Notice" shall mean a notice given by the Corporation
to the Holders of Series A Convertible Preferred Stock pursuant to Section
10(a)(iii), which notice shall state (1) that the Corporation is exercising its
right to defer conversion of all or a portion of the Excess Shares pursuant to
Section 10(a)(iii), (2) the number of Excess Shares held by such holder as to
which conversion is deferred, and (3) the Conversion Value per unredeemed Excess
Share or the formula for determining the same, determined in accordance with
Section 10(a)(iii).
"Conversion Notice" shall mean a written notice, duly signed by or on
behalf of the holder, stating the number of shares of Series A Convertible
Preferred Stock to be converted in the form specified in the Subscription
Agreement.
"Conversion Percentage" shall mean 80%.
"Conversion Rate" shall have the meaning provided in Section 10(a).
"Conversion Value" initially shall be equal to $1,000.00, subject to
adjustment as provided in Section 10(a)(iii).
2
<PAGE>
"Converting Holder" shall mean a holder of Series A Preferred Stock who
delivers to the Corporation a Conversion Notice.
"Current Market Price" shall mean with respect to any date the arithmetic
average of the Market Price of the Common Stock on the 30 consecutive trading
days commencing 45 trading days before such date.
"Excess Shares" shall have the meaning set forth in Section 9.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"First Conversion Period" shall mean the period beginning on the 90th day
after the Issuance Date and ending on the 134th day after the Issuance Date.
"Floor Price" shall mean $4.00 per share subject to equitable adjustment
from time to time, on terms reasonably acceptable to the holders of a majority
of the outstanding shares of Series A Convertible Preferred Stock, for (i) stock
splits, (ii) stock dividends, (iii) combinations (iv) capital reorganizations,
(v) issuance to all holders of Common Stock of rights or warrants to purchase
shares of Common Stock at a price per share less than the Market Price which
would otherwise be applicable, (vi) the distribution by the Company to all
holders of Common Stock of evidences of indebtedness of the Company or cash
(other than regular quarterly cash dividends), (vii) tender offers by the
Company or any subsidiary of the Company or other repurchases of shares of
Common Stock on one or more transaction which, individually or in the aggregate,
result in the purchase of more than 10% or the Common Stock outstanding and
(viii) similar events relating to the Common Stock, in each such case which
occur during the Measurement Period.
"Floor Price Amount" shall mean the number of shares of Common Stock which
would be issuable to a Converting Holder on any Conversion Date, assuming that
the Preferred Shares surrendered for conversion by such Converting Holder were
converted at the Floor Price.
"Floor Price Shares" shall mean the number of shares of Series A Preferred
Stock which, if converted at the Conversion Price, would be convertible into a
number of shares of Common Stock equal to the Floor Price Amount.
"Fourth Conversion Period" shall mean the period beginning on the 240th day
after the Issuance Date.
"Inconvertibility Notice" shall have the meaning provided in Section
7(a)(2).
"Issuance Date" shall mean the first date of original issuance of any share
of Series A Convertible Preferred Stock.
"Junior Dividend Stock" shall mean, collectively, the Common Stock and any
other class or series of capital stock of the Corporation, ranking junior as to
dividends to the Series A Convertible Preferred Stock.
3
<PAGE>
"Junior Liquidation Stock" shall mean the Common Stock or any other class
or series of the Corporation's capital stock, ranking junior as to liquidation
rights to the Series A Convertible Preferred Stock.
"Liquidation Preference" shall mean, for each share of Series A Convertible
Preferred Stock, the sum of (i) all dividends accrued and unpaid thereon to the
date of final distribution to such holders, (ii) accrued and unpaid interest on
dividends in arrears (computed in accordance with Section 5(a)) to the date of
distribution, and (iii) $ 1,000.00.
"Market Price" of any security on any date shall mean the closing high bid
price of such security on such date on the principal securities exchange or
other market on which such security is listed for trading, as reported by such
exchange or other market; provided, however, that if during any Measurement
-------- -------
Period:
(i) The Corporation shall declare or pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock or fix any record due for any such action, then the Market Price of the
Common Stock for each day in such Measurement Period prior to the earlier of (1)
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution and (2) the date on which ex-dividend trading in
the Common Stock with respect to such dividend or distribution begins shall be
reduced by multiplying the Market Price (determined without regard to this
proviso) for each such day in such Measurement Period by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the earlier of (1) the record date fixed for such determination
and (2) the date on which ex-dividend trading in the Common Stock with respect
to such dividend or distribution begins and the denominator shall be the sum of
such number of shares and the total number of shares constituting such dividend
or other distribution;
(ii) The Corporation shall issue rights or warrants to all holders of
its outstanding shares of Common Stock, or fix a record date for such issuance,
which rights or warrants entitle such holders (for a period expiring within
forty-five (45) days after the date fixed for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or purchase shares
of Common Stock at a price per share less than the Market Price (determined
without regard to this proviso) for any day in such Measurement Period which is
prior to the end of such 45-day period, then the Market Price for such day shall
be reduced so that the same shall equal the price determined by multiplying the
Market Price (determined without regard to this proviso) by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding at the
close of business on the record date fixed for the determination of stockholders
entitled to receive such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Market Price, and of which the denominator shall be the number of shares
of Common Stock outstanding on the close of business on such record date plus
the total number of additional shares of Common Stock so offered for
subscription or purchase. In determining whether any rights or warrants entitle
the holders to subscribe for or purchase shares of Common Stock at less than the
Market Price (determined without regard to this proviso), and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received for such rights or warrants, the value
of such consideration, if other than cash, to be determined in good faith by a
resolution of the Board of Directors of the Corporation;
4
<PAGE>
(iii) The outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock or a record date for any such
subdivision shall be fixed, then the Market Price of the Common Stock for each
day in such Measurement Period prior to the earlier of (1) the day upon which
such subdivision becomes effective and (2) the date on which ex-dividend trading
in the Common Stock with respect to such subdivision begins shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Market Price for each day in such Measurement Period prior to the day upon
which such combination becomes effective shall be proportionately increased;
(iv) The Corporation shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of capital stock of the
Corporation (other than any dividends or distributions to which clause (i) of
this proviso applies) or evidences of its indebtedness, cash or other asset
(including securities, but excluding any rights or warrants referred to in
clause (ii) of this proviso and dividends and distributions paid exclusively in
cash and excluding any capital stock, evidences of indebtedness, cash or assets
distributed upon a merger or consolidation) (the foregoing hereinafter in this
clause (iv) of this proviso called the "Securities"), or fix a record date for
any such distribution, then, in each such case, the Market Price for any day in
such Measurement Period prior to the earlier of (1) the record date for such
distribution and (2) the date on which ex-dividend trading in the Common Stock
with respect to such distribution begins shall be reduced so that the same shall
be equal to the price determined by multiplying the Market price (determined
without regard to this proviso) by a fraction of which the numerator shall be
the Market Price (determined without regard to this proviso) on such date less
the fair market value (as determined in good faith by resolution of the Board of
Directors of the Corporation) on such date of the portion of Securities so
distributed or to be distributed to one share of Common Stock and the
denominator shall be the Market Price (determined without regard to this
proviso); provided, however that in the event the then fair market value (as so
-------- -------
determined) of the portion of the Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Market Price (determined
without regard to this clause (iv) of this proviso) on any such day, in lieu of
the foregoing adjustment, adequate provision shall be made so that the holders
of shares of Series A Convertible Preferred Stock shall have the right to
receive in payment of dividends on the share of Series A Convertible Preferred
Stock or upon conversion of the shares of Series A Convertible Preferred Stock,
as the case may be, the amount of Securities the holders of shares of Series A
Convertible Preferred Stock would have received had the number of shares of
Common Stock to be issued in payment of such dividends on the shares of Series A
Convertible Preferred Stock, or had the holder of shares of Series A Convertible
Preferred Stock converted the shares of Series A Convertible Preferred Stock, in
either such case immediately prior to the record date for such distribution. If
the Board of Directors of the Corporation determines the fair market value of
any distribution for purposes of this clause (iv) by reference to the actual or
when issued trading market for any securities comprising all or put of such
distribution, it must in doing so consider the prices in such market on the same
day for which an adjustment in the Market Price is being determined.
5
<PAGE>
For purposes of this clause (iv) and clauses (i) and (ii) of this proviso,
any dividend or distribution to which this clause (iv) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock to which clause (ii) of this proviso applies (or
both), shall be deemed instead to be (1) a dividend or distribution of the
evidences of indebtedness, assets, shares of capital stock, rights or warrants
other than such shares of Common Stock or rights or warrants to which clause
(ii) of this proviso applies (and any Market Price reduction required by this
clause (iv) with respect to such dividend or distribution shall then be made)
immediately followed by (2) a dividend or distribution of such shares of Common
Stock or such rights or warrants (and any further Market Price reduction
required by clauses (i) and (ii) of this proviso with respect to such dividend
or distribution shall then be made), except that any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding at
the close of business on the date fixed for such determination" within the
meaning of clause (i) of this proviso;
(v) The Corporation or any subsidiary of the Corporation shall (x) by
dividend or otherwise, distribute to all holders of its Common Stock cash in (or
fix any record date for any such distribution), or (y) repurchase or reacquire
shares of its Common Stock (other than shares surrendered in payment of the
exercise price or tax obligations incurred in connection with the exercise of a
stock option issued to any of the Corporation's employees, directors, or
consultants; each, an "Option Share Surrender") for, in either case, an
aggregate amount that, combined with (1) the aggregate amount of any other such
distributions to all holders of its Common Stock made exclusively in cash after
Issuance Date and within the twelve (12) months preceding the date of payment of
such distribution, and in respect of which no adjustment pursuant to this clause
(v) has been made, (2) the aggregate amount of any cash plus the fair market
value (as determined in good faith by a resolution of the Board of Directors of
the Corporation) of consideration paid in respect of any repurchase or other
reacquisition by the Corporation or any subsidiary of the Corporation of any
shares of Common Stock (other than an Option Share Surrender) made after the
Issuance Date and within the twelve (12) months preceding the date of payment of
such distribution or making of such repurchase or reacquisition, as the case
may be, and in respect of which no adjustment pursuant to this clause (v) has
been made, and (3) the aggregate of any cash plus the fair market value (as good
faith by a resolution of the Board of Directors of the Corporation) of
consideration payable in respect of any tender offer by the Corporation or any
of its subsidiaries for all or any portion of the Common Stock concluded within
the twelve (12) months preceding the date of payment of such distribution or
completion of such repurchase or reacquisition, as the case may be, and in
respect of which no adjustment pursuant to clause (vi) of this proviso has been
6
<PAGE>
made, exceeds 10% of the product of the Market Price (determined without regard
to this proviso) on any day in such Measurement Period prior to the earlier of
(1) the record date with respect to such distribution and (2) the date on which
ex-dividend trading in the Common Stock with respect to such distribution begins
or the date of such repurchase or reacquisition, as the case may be, times the
number of shares of Common Stock outstanding on such date, then, and in each
such case, the Market Price for such day shall be reduced so that the same shall
equal the price determined by multiplying the Market Price (determined without
regard to this proviso) for such day by a fraction (i) the numerator of which
shall be equal to the Market Price (determined without regard to this proviso)
for such day less an amount equal to the quotient of (x) the excess of such
combined amount over such 10% and (y) the number of shares of Common Stock
outstanding on such day and (ii) the denominator of which shall be equal to the
Market Price (determined without regard to proviso) on such day; provided,
--------
however that in the event the portion of the cash so distributed or paid for the
- -------
repurchase or reacquisition of shares (determined per share based on the number
of shares of Common Stock outstanding) applicable to one share of Common Stock
is equal to or greater than the Market Price (determined without regard to this
clause (v) of this proviso) of the Common Stock on any such day, in lieu of the
foregoing adjustment, adequate provision shall be made so that the holders of
shares of Series A Convertible Preferred Stock shall have the right to receive
in payment of dividends on shares of Series A Convertible Preferred Stock or
upon conversion of shares of Series A Convertible Preferred Stock, as the case
may be, the amount of cash the holders of shares of Series A Convertible
Preferred Stock would have received had the number of shares of Common Stock to
be issued in payment of such dividends on shares of Series A Convertible
Preferred Stock, or had the holders of shares of Series A Convertible Preferred
Stock converted shares of Series A Convertible Preferred Stock, in either such
case, immediately prior to the record date for such distribution or the payment
date of such repurchase, as applicable; or
(vi) A tender offer made by the Corporation or any of its subsidiaries
for all or any portion of the Common Stock shall expire and such tender offer
(as amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the terms
of the tender offer) of Purchased Shares (as defined below)) of an aggregate
consideration having a fair market value (as determined in good faith by
resolution of the Board of Directors of the Corporation) that combined together
with (1) the aggregate of the cash plus the fair market value (as determined in
good faith by a resolution of the Board of Directors of the Corporation), as of
the expiration of such tender offer, of consideration payable in respect of any
other tender offer, by the Corporation or any of its subsidiaries for all or any
portion of the Common Stock expiring within the twelve (12) months preceding the
expiration, of such tender offer and in respect of which no adjustment pursuant
to this clause (vi) has been made, (2) the aggregate amount of any cash plus the
fair market value (as determined in good faith by a resolution of the Board of
Directors of the Corporation) of consideration paid in respect of any repurchase
or other reacquisition by the Corporation or any subsidiary of the Corporation
of any shares of Common Stock (other than an Option Share Surrender) made after
the Issuance Date and within the twelve (12) months preceding the expiration of
such tender offer and in respect of which no adjustment pursuant to this clause
7
<PAGE>
(vi) has been made, and (3) the aggregate amount of any distributions to all
holders of the Corporation's Common Stock made exclusively in cash within twelve
(12) months preceding, the expiration of such tender offer and in respect of
which no adjustment pursuant to clause (v) of this proviso has been made,
exceeds 10% of the product of the Market Price (determined without regard to
this proviso) on any day in such period times the number of shares of Common
Stock outstanding on such day, then, and in each such case, the Market Price for
such day shall be reduced so that the same shall equal the price determined by
multiplying the Market Price (determined without regard to this proviso) for
such day by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on such day multiplied by the Market Price (determined
without regard to this proviso) for such day and the denominator shall be the
sum of (x) the fair market value (determined as aforesaid) of the aggregate
consideration payment to stockholders based on the acceptance (up to any maximum
specified in the terms tender offer) of all shares validly tendered and not
withdrawn as of the last time tenders could have been made pursuant to such
tender offer (the "Expiration Time") (the shares deemed so accepted, up to any
such maximum being referred to as the "Purchased Shares") and (y) the product of
the number of shares of Common Stock outstanding (less any Purchased Shares) on
such day and the Market Price determined without regard to this proviso) of the
Common Stock on the trading day next succeeding the Expiration Time. If the
application of this clause (vi) to any tender offer would result in an increase
in the market Price (determined without regard to this proviso) for any day, no
adjustment shall be made for such tender offer under this clause (vi) for such
day;
provided further, however, that if on any date there shall be no reported
- -------- -------
closing high bid price of such security, the "Market Price" on such date shall
- ------
be the closing high bid of such security on the date next preceding such date on
which a closing high bid price for such security has been so reported; provided
--------
further, however, that if on any date there shall be no reported closing high
- ------- -------
bid price of such security and at the time the closing high bid price for such
date is being determined there shall be known a closing high bid price so
reported for the date next subsequent to such date on which a closing high bid
price shall have been so reported, then the Market Price on such date for which
there shall have been no reported closing high bid price shall be the lower of
(x) the Market Price as determined pursuant to the second proviso to this
definition and (y) the closing high bid price as so reported for such succeeding
day for which a closing high bid price as so reported is known.
"Maximum Share Amount" shall mean 937,450 shares, or such greater number as
would be permitted by the rules which are proposed to be adopted by the Nasdaq
(such amount to be subject to equitable adjustment from time to time for stock
splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Stock occurring after the date of filing this
Certificate of Designations with the Secretary of State of the State of
Delaware), of Common Stock.
"Measurement Period" shall mean, with respect to any date, the period of
twenty (20) consecutive days ending one day prior to such date.
"Nasdaq" shall mean the Nasdaq Small Cap Market.
8
<PAGE>
"NYSE" shall mean the New York Stock Exchange, Inc.
"Parity Dividend Stock" shall mean any class or series or the Corporation's
Capital stock ranking, as to dividends, on a parity with the Series A
Convertible Preferred Stock.
"Parity Liquidation Stock" shall mean any class or series of the Corporation's
capital stock having parity as to liquidation rights with the Series A
Convertible Preferred Stock.
"Redemption Date" shall mean the date of a redemption of share of Series A
Convertible Preferred Stock pursuant to Section 9, determined in accordance
therewith.
"Redemption Notice" shall mean a notice given by the Corporation to the
holders of Series A Convertible Preferred Stock pursuant to Section 9, which
notice shall state (1) that the Corporation is exercising its right to redeem
all or a portion of the Excess Shares pursuant to Section 9, (2) the number of
Excess Shares held by such holder which are to be redeemed, (3) the Redemption
Price per share of Series A Convertible Preferred Stock to be redeemed or the
formula for determining the same, determined in accordance herewith and (4) the
applicable Redemption Date.
"Redemption Price" shall mean the greater of (i) the sum of (a) the sum of
(1) the Conversion Value, (2) an amount equal to the accrued and unpaid
dividends on such share of Series A Convertible Preferred Stock, and (3) an
amount equal to the accrued and unpaid interest on dividends in arrears
(determined as provided in Section 5) through the Redemption Date plus (b) an
----
amount equal to the product obtained by multiplying (x) the sum stated in the
immediately preceding clause (a) times (y) the quotient (expressed as a
-----
percentage) obtained by dividing (A) the amount determined by subtracting from
100 percent the Conversion Percentage in effect on the Redemption Date by (B)
the Conversion Percentage in effect on the Redemption Date and (ii) an amount
equal to the product obtained by multiplying (x) the number of shares of Common
Stock which would, but for the redemption pursuant to Section 9, be issuable on
conversion in accordance with Section 10(a) of one share of Series A Convertible
Preferred Stock and any accrued and unpaid dividends thereon and any accrued and
unpaid interest on dividends thereon in arrears if a Conversion Notice were
given by the holder of such share of Series A Convertible Preferred Stock on the
Redemption Date (determined without regard to any limitation on conversion
contained in Section 10(a)) times (y) the arithmetic average of the Market Price
-----
of the Common Stock for the twenty consecutive trading days ending one trading
day prior to the Redemption Date.
"Restricted Person" shall have the meaning provided in Section 10(a).
"Second Conversion Period" shall mean the period beginning on the 135th day
after the Issuance Date and ending on the 179th day after the Issuance Date.
"SEC" shall mean the United States Securities and Exchange Commission.
"Senior Dividend Stock" shall mean any class or series of capital stock of
the Corporation ranking senior as to dividends to the Series A Convertible
Preferred Stock.
9
<PAGE>
"Senior Liquidation Stock" shall mean any class or series of capital stock
of the orporation ranking senior as to liquidation rights to the Series A
Convertible Preferred Stock.
"Series A Convertible Preferred Stock" shall mean the Series A Convertible
Preferred Stock of the Corporation.
"Share Limitation Redemption Date" shall mean each date on which the
Corporation is required to redeem shares of Series A Convertible Preferred Stock
as provided in this Section 7(a).
"Share Limitation Redemption Price" shall mean the greater of (i) the sum
of (a) the sum of (1) the Conversion Value, (2) an amount equal to the accrued
but unpaid dividends on the share of Series A Convertible Preferred Stock to be
redeemed pursuant to Section 7(a), and (3) an amount to the accrued and unpaid
interest on dividends in arrears on such share of Series A Convertible Preferred
Stock through the applicable Share Limitation Redemption Date (as provided in
Section 5) plus (b) an amount equal to the product obtained by multiplying (x)
----
the sum stated in the immediately preceding clause (a) times (y) the quotient
-----
(expressed as a percentage) obtained by dividing (A) the amount determined by
subtracting from 100 percent the Conversion Percentage in effect on the
applicable Share Limitation Redemption Date by (B) the Conversion Percentage in
--
effect on the applicable Share Limitation Redemption Date and (ii) an amount
equal to the product obtained by multiplying (x) the number of shares of Common
Stock which would, but for the redemption pursuant to Section 7(a), be issuable
on conversion in accordance with Section 10(a) of one share of Series A
Convertible Preferred Stock and any accrued and unpaid dividends thereon and any
accrued and unpaid interest on dividends thereon in arrears if a Conversion
Notice were given by the holder of such share of Series A Convertible Preferred
Stock on the applicable Share Limitation Redemption Date (determined without
regard to any limitation on conversion contained in Section 10(a)) times (y) the
-----
arithmetic average of the Market Price of the Common Stock for the five
consecutive trading days ending one trading day prior to the applicable Share
Limitation Redemption Date.
"Stockholder Approval" shall mean the approval by a majority of the votes
cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a written consent of holders of shares of Common Stock entitled
to such number of votes given without a meeting, of the issuance by the
Corporation of 20% or more of the Common Stock of the Corporation outstanding on
the Issuance Date for less than the greater of the book or market value of such
Common Stock on conversion of the Series A Convertible Preferred Stock, as and
to the extent required under rules proposed to be adopted by the Nasdaq.
"Subscription Agreement" shall mean the Subscription Agreement between the
Corporation and the original holder of shares of Series A Convertible Preferred
Stock pursuant to which the shares of Series A Convertible Preferred Stock were
issued.
"Tender Offer" means a tender offer or exchange offer.
10
<PAGE>
"Third Conversion Period" shall mean the period beginning on the 180th day
after the Issuance Date and ending on the 239th day after the Issuance Date.
SECTION 2. DESIGNATION AND AMOUNT. The shares of such series shall be
------------------------
designated as "Series A Convertible Preferred Stock", and the number of shares
constituting the Series A Convertible Preferred Stock shall be 3,000, and shall
not be subject to increase.
SECTION 3. STATED CAPITAL. The amount to be represented in stated capital
--------------
at all times for each share of Series A Convertible Preferred Stock shall be the
greater of (i) the sum of (a) the sum of (1) $1,000, (2) to the extent legally
available, the accrued but unpaid dividends on such share of Series A
Convertible Preferred Stock, and (3) an amount equal to the accrued and unpaid
interest on dividends in arrears (as provided in Section 5) through the date of
determination plus (b) an amount equal to the product obtained by multiplying
----
(x) the sum stated in the immediately preceding clause (a) times (y) the
-----
quotient (expressed as a percentage) obtained by dividing (A) the amount
determined by subtracting from 100 percent the Conversion Percentage in effect
on such date of determination by (B) the Conversion Percentage in effect on such
--
date of determination and (ii) an amount equal to the product obtained by
multiplying (x) the number or shares of Common Stock which would, at the time of
such determination, be issuable on conversion in accordance with Section 10(a)
of one share of Series A Convertible Preferred Stock and any accrued and unpaid
dividends thereon and any accrued and unpaid interest on dividends thereon in
arrears if a Conversion (as defined herein) were given by the holder of such
share of Series A Convertible Preferred Stock on the date of such determination
(determined without regard to any limitation on conversion contained in 10(a))
times (y) the arithmetic average of the Market Price of the Common Stock for the
----
five consecutive trading days ending one trading day prior to the date of such
determination. The Corporation shall take such action as may be required to
maintain the amount required by this Section 3 to be represented in stated
capital for the Series A Convertible Preferred Stock not less frequently than
monthly.
SECTION 4. RANK. All Series A Convertible Preferred Stock shall rank (i)
----
senior to the Common Stock, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, (ii) on a parity with any
additional series of the class of Preferred Stock which series the Board of
Directors may from time to time authorize, both as to payment of dividends and
as to distributions of assets upon liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, (iii) on a parity with the
shares of any additional class of preferred stock (or series of preferred stock
of such class) which the Board of Directors or the stockholders may from time to
time authorize in accordance herewith, which class (or series thereof) by its
terms ranks on a parity with the shares of Series A Convertible Preferred Stock
and (iv) senior to any other class or series of preferred stock (other than as
stated in the immediately preceding clauses (ii) and (iii)) of the Corporation.
11
<PAGE>
SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of
-----------------------------
Series A Convertible Preferred Stock shall be entitled to receive, when, as, and
if declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $70.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest (except as otherwise
provided herein as to dividends in arrears) from the date of original issuance
until the second anniversary of the Issuance Date and shall be payable quarterly
on February 1, May 1, August 1, and November 1 of each year commencing November
1, 1997 (except that if any such date is a Saturday, Sunday, or legal holiday,
then such dividend shall be payable on the next succeeding day that is not a
Saturday, Sunday, or legal holiday) to holders of record as they appear on the
stock books of the Corporation on such record dates, not more than 20 nor less
than 10 days preceding the payment dates for such dividends, as shall be fixed
by the Board. Dividends on the Series A Convertible Preferred Stock shall be
paid in cash or, subject to the limitations in Section 5(b) hereof, shares of
Common Stock of the Corporation or any combination of cash and shares of Common
Stock, at the option of the Corporation as hereinafter provided. The amount of
the dividends payable per share of Series A Convertible Preferred Stock for each
quarterly dividend period shall be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and any period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months. Dividends not paid on a
payment date, whether or not such dividends have been declared, will bear
interest at the rate of 12% per annum until paid. No dividends or other
distributions, other than the dividends payable solely in shares of any Junior
Dividend Stock, shall be paid or set apart for payment on any shares of Junior
Dividend Stock, and no purchase, redemption, or other acquisition shall be made
by the Corporation of any shares of Junior Dividend Stock unless and until all
accrued and unpaid dividends on the Series A Convertible Preferred Stock and
interest on dividends in arrears at the rate specified herein shall have been
paid or declared and set apart for payment.
If at any time any dividend on any the Senior Dividend Stock shall be in
default, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series A Convertible Preferred Stock unless and until
all accrued and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividends for the then current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
interest on dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series A Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series A Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series A Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series A
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series A Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series A
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
12
<PAGE>
Any references to "distribution" contained in this Section 5 shall not be
deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
(b) If the Corporation elects in the exercise of its sole discretion to
issue shares of Common Stock in payment of dividends on the Series A Convertible
Preferred Stock, the Corporation shall issue and dispatch, or cause to be issued
and dispatched, by the fifth trading day after such dividend payment date to
each holder of such shares a certificate representing the number of whole shares
of Common Stock arrived at by dividing the per share Computed Price of such
shares of Common Stock into the total amount of cash dividends such holder would
be entitled to receive if the aggregate dividends on the Series A Convertible
Preferred Stock held by such holder which are being paid in shares of Common
Stock were being paid in cash; provided, however, that if certificates
-------- -------
representing shares of Common Stock are issued and dispatched to holders of
Series A Convertible Preferred Stock subsequent to the fifth trading day after a
dividend payment date, the percentage used to calculate the Computed Price will
be reduced by one percentage point for each trading day after the third trading
day following such dividend payment date to the date of dispatch of shares of
Common Stock. No fractional shares of Common Stock shall be issued in payment
of dividends. In lieu thereof, the Corporation shall pay cash in an amount equal
to the product of (x) the Market Price of the Common Stock for the Measurement
Period applicable to such dividend times (y) the fraction of a share of Common
-----
Stock which would otherwise be issuable by the Corporation. The Corporation
shall not exercise its right to issue shares of Common Stock in payment of
dividends on Series A Convertible Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held in the Corporation's treasury,
is insufficient to pay the portion of such dividends to be paid in shares of
Common Stock;
(ii) the issuance or delivery of shares of Common Stock as a dividend
payment would require registration with or approval of any governmental
authority under any law or regulation, and such registration or approval has not
been effected or obtained;
(iii) the shares of Common Stock to be issued as a dividend payment
have not been authorized for listing, upon official notice of issuance, on any
securities exchange or market on which the Common Stock is then listed; or have
not been approved for quotation if the Common Stock is traded in the
over-the-counter market;
(iv) the Computed Price (determined without regard to the proviso to
the definition thereof) is less than the par value of one share of Common stock;
(v) the shares of Common Stock (A) cannot be sold or transferred
without restriction by unaffiliated holders who receive such shares of Common
Stock as a dividend payment or (B) are no longer listed on a national securities
exchange, on the Nasdaq National Market or the Nasdaq SmallCap Market; or
13
<PAGE>
(vi) the issuance of shares of Common Stock in payment of dividends on
Series A Convertible Preferred Stock held by any Restricted Person would result
in any Restricted Person beneficially owning more than 4.9% of the Common Stock,
determined as provided in the proviso to the second sentence of Section 10(a)
hereof.
Shares of Common Stock issued in payment of dividends on Series A
Convertible Preferred Stock pursuant to this Section shall be, and for all
purposes shall be deemed to be, validly issued, fully paid and nonassessable
shares of Common stock of the Corporation; the issuance and delivery thereof is
hereby authorized, and the dispatch thereof will be, and for all purposes shall
be deemed to be, payment in full of the cumulative dividends to which holders
are entitled on the applicable dividend payment date.
(c) Neither the Corporation nor any subsidiary of the Corporation shall
redeem, repurchase or otherwise acquire in any one transaction or series of
related transactions any shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock if the number of shares so repurchased, redeemed or otherwise
acquired in such transaction or series of related transactions (excluding any
Option Share Surrender) is more than either (x) 5.0% of the number of shares of
Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may
be, outstanding immediately prior to such transaction or series of related
transactions or (y) 1% of the number of shares of Common Stock, Junior Dividend
Stock or Junior Liquidation Stock, as the case may be, outstanding immediately
prior to such transaction or series of related transactions if such transaction
or series of related transactions is with any one person or group of affiliated
persons, unless the Corporation or such subsidiary offers to purchase for cash
from each holder of shares of Series A Convertible Preferred Stock at the time
of such redemption, repurchase or acquisition the same percentage of such
holder's shares of Series A Convertible Preferred Stock as the percentage of the
number of outstanding shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock, as the case may be, to be so redeemed, repurchased or
acquired at a purchase price per share of Series A Convertible Preferred Stock
equal to the greater of (i) the sum of (a) the sum of (1) the Conversion Value,
(2) an amount equal to the accrued but unpaid dividends on such share of Series
A Convertible Preferred Stock, plus (3) an amount equal to the accrued and
----
unpaid interest on dividends in arrears (determined as provided in Section 5)
through the date of purchase pursuant to this Section 5(c) plus (b) an amount
----
equal to the product obtained by multiplying (x) the sum stated in the
immediately preceding clause (a) times (y) the quotient (expressed as a
-----
percentage) obtained by dividing (A) the amount determined by subtracting from
100 percent the Conversion Percentage in effect on the date of purchase pursuant
to this Section 5(c) by (B) the Conversion Percentage in effect on the date of
--
purchase pursuant to this Section 5(c) and (ii) an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock which would,
but for the purchase pursuant to this Section 5(c), be issuable on conversion in
accordance with Section 10(a) of one share of Series A Convertible Preferred
Stock and any accrued and unpaid dividends thereon and any accrued and unpaid
interest on dividends thereon in arrears if a Conversion Notice were given by
the holder of such share of Series A Convertible Preferred Stock on the date of
purchase pursuant to this Section 5(c) (determined without regard to any
limitation on conversion contained in Section 10(a)) times (y) the arithmetic
-----
average of the Market Price of the Common Stock for the Measurement Period with
respect to the date of purchase pursuant to this Section 5(c).
14
<PAGE>
(d) Neither the Corporation nor any subsidiary of the Corporation shall
(1) make any Tender Offer for outstanding shares of Common Stock, unless the
Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
person other than the Corporation or any subsidiary of the Corporation, unless
such person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series B Convertible Preferred Stock to
purchase for cash at the time of purchase in such Tender Offer the same
percentage of shares of Series A Convertible Preferred Stock held by such holder
as the percentage of outstanding shares of Common Stock offered to be purchased
in such Tender Offer at a price per share of Series A Convertible Preferred
Stock equal to the greater of (i) the sum of (a) the sum of (1) the Conversion
Value, (2) an amount equal to the accrued but unpaid dividends on such share of
Series A Convertible Preferred Stock, and (3) an amount equal to the accrued and
unpaid interest on dividends in arrears (determined as provided in Section 5)
through the date of purchase pursuant to this Section 5(d) plus (b) an amount
----
equal to the product obtained by multiplying (x) the sum stated in the
immediately preceding clause (a) times (y) the quotient (expressed as a
-----
percentage) obtained by dividing (A) the amount determined by subtracting from
100 percent the Conversion Percentage in effect on the date of purchase pursuant
to this Section 5(d) by (B) the Conversion Percentage in effect on the date of
--
purchase pursuant to this Section 5(d) and (ii) an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock which would,
but for the purchase pursuant to this Section 5(d), be issuable on conversion in
accordance with Section 10(a) of one share of Series A Convertible Preferred
Stock and any accrued and unpaid dividends thereon and any accrued and unpaid
interest on dividends thereon in arrears if a Conversion Notice were given by
the holder of such share of Series A Convertible Preferred Stock on the date of
purchase pursuant to this Section 5(d) (determined without regard to any
limitation on conversion contained in Section 10(a)) times (y) the price per
-----
share of Common Stock offered in such Tender Offer.
SECTION 6. LIQUIDATION PREFERENCE. In the event of a liquidation,
-----------------------
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Convertible Preferred Stock shall be entitled to receive
out of the assets Of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series A Convertible
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; provided, however, that such rights shall accrue to the
-------- -------
holders of Series A Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among (the holders of
the Series A Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation price of the shares of the Series A Convertible Preferred Stock and
the Parity Liquidation Stock, the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution, or winding up of the Corporation.
15
<PAGE>
SECTION 7. MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1) If
-----------------------------------------------------
rules of the Nasdaq SmallCap Market ("Nasdaq") relating to stockholder approval
of certain matters which rules, at the date of filing this Certificate of
Designations, are proposed to be adopted by the Nasdaq, are adopted by the
Nasdaq and are applicable in conversion of shares of Series A Convertible
Preferred Stock so as to limit the number of shares of Common Stock which the
Corporation may issue upon conversion of shares of Series A Convertible
Preferred Stock and payment of dividends on shares of Series A Convertible
Preferred Stock, then the provisions of this Section 7 shall be applicable.
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, the Corporation shall not be required to issue upon conversion of
shares of Series A Convertible Preferred Stock pursuant to Section 10 more than
the Maximum Share Amount, less the aggregate number of shares of Common Stock
issued by the Corporation pursuant to Section 5 as dividends on the Series A
Convertible Preferred Stock. The Maximum Share Amount shall be allocated among
the shares of Series A Convertible Preferred Stock at the time of initial
issuance thereof pro rata based on the total number of authorized shares of
Series A Convertible Preferred Stock provided in Section 2. Each certificate for
shares of Series A Convertible Preferred Stock initially issued shall bear a
notation as to the number of shares constituting the portion of the Maximum
Share Amount allocated to the shares of Series A Convertible Preferred Stock
represented by such certificate for purposes of conversion thereof. The
Corporation shall maintain records which show the number of shares of Common
Stock issued by the Corporation pursuant to Section 5 as dividends on the shares
of Series A Convertible Preferred Stock represented by each certificate, which
records shall be controlling to the absence of manifest error. Upon surrender of
any certificate for shares of Series A Convertible Preferred Stock for transfer
or re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 10(a) of less than all of the shares of Series A Convertible
Preferred Stock represented thereby), the Corporation shall make a notation on
the new certificate issued upon such transfer or re-registration or evidencing
such unconverted shares, as the case may be, as to the remaining number of
shares of Common Stock from the Maximum Share Amount remaining available for
conversion of the shares of Series A Convertible Preferred Stock evidenced by
such new certificate (including, without limitation, by taking into account the
number of shares of Common Stock issued by the Corporation pursuant to Section 5
as a dividend on the shares of Series A Convertible Preferred Stock represented
by the certificate so surrendered and not previously reflected on the
certificate so surrendered, as shown on the records maintained by the
Corporation). If any certificate for shares of Series A Convertible Preferred
Stock is surrendered for split-up into two or more certificates representing an
aggregate number of shares of Series A Convertible Preferred Stock equal to the
number of shares of Series A Convertible Preferred Stock represented by the
certificate so surrendered (as reduced by any contemporaneous conversion of
shares of Series A Convertible Preferred Stock represented by the certificate so
surrendered), each certificate issued on such split-up shall bear a notation of
the portion of the Maximum Share Amount allocated thereto determined by pro rata
allocation from among the remaining portion of the Maximum Share Amount
allocated to the certificate so surrendered. If any shares of Series A
Convertible Preferred Stock represented by a single certificate are converted in
full pursuant to Section 10, all of the portion of the Maximum Share Amount
allocated to such shares of Series A Convertible Preferred Stock which remains
unissued after such conversion shall be re-allocated pro rata to the outstanding
shares of Series A Convertible Preferred Stock held of record by the holder of
record at the close of business on the date of such conversion of the shares of
Series A Convertible Preferred Stock so converted, and if there shall be no
other shares of Series A Convertible Preferred Stock held of record by such
holder at the close of business on such date, then such portion of the Maximum
Share Amount shall be allocated pro rata among the shares of Series A
Convertible Preferred Stock outstanding on such date.
16
<PAGE>
(2) The Corporation shall promptly, but in no event later than five
business days after the occurrence, give notice to each holder (by telephone
line facsimile transmission at such number as such holder has specified in
writing to the Corporation for such purposes or, if such holder shall not have
specified any such number, by overnight courier or first class mail, postage
prepaid, at such holder's address as the same appears on the stock books of the
Corporation) and any holder may at any time after the occurrence give notice to
the Corporation, in either case if on any ten trading days within any period of
20 consecutive trading days the Corporation would not have been required to
convert shares of Series A Convertible Preferred Stock of such holder in
accordance with Section 10(a) as a consequence of the limitations set forth in
Section 7(a)(1) had all outstanding shares of Series A Convertible Preferred
Stock held by such holder been converted into Common Stock on each such day
determined without regard to the limitation, if any, on such holder contained in
the proviso to the second sentence of Section 10(a) (any such notice, whether
given by the Corporation or a holder, an "Inconvertibility Notice"). If the
Corporation shall have given or been required to give any Inconvertibility
Notice, or if a holder shall have given any Inconvertibility Notice, then within
ten business days after such Inconvertibility Notice is given or was required to
be given, the holder receiving or giving, as the case may be, the
Inconvertibility Notice shall have the right by written notice to the
Corporation (which written notice may be contained in the Inconvertibility
Notice given by the holder) to direct the Corporation to redeem the portion of
such holder's outstanding shares of Series A Convertible Preferred Stock (which,
if applicable, shall be all of such holder's outstanding shares of Series A
Convertible Preferred Stock) as shall not, on the business day prior to the date
of such redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 7(a)(1) (determined without regard to the
limitation, if any, on such holder contained in the proviso to the second
sentence of Section 10(a)), within ten business days after such holder so
directs the Corporation, at a price per share equal to the Share Limitation
Redemption Price. If a holder directs the Corporation to redeem outstanding
shares of Series A Convertible Preferred Stock and, prior to the date the
Corporation is required to redeem such shares of Series A Convertible Preferred
Stock, the Corporation would have been able, within the limitations set forth in
Section 7(a)(1), to convert all of such holder's outstanding shares of Series A
Convertible Preferred Stock (determined without regard to the limitation, if
any, on such holder contained in the proviso to the second sentence, of Section
10(a)) on any ten trading days within any period of 20 consecutive trading days
commencing after the period of 20 consecutive trading days which gave rise to
the applicable Inconvertibility Notice from the Corporation or such holder of
shares of Series A Convertible Preferred Stock, as the case may be, had all of
such holder's outstanding shares of Series A Convertible Preferred Stock been
surrendered for conversion into Common Stock on each of such ten trading days
within such 20 trading days period, then the Corporation shall not be required
to redeem any shares of Series A Convertible Preferred Stock by reason of such
Inconvertibility Notice.
17
<PAGE>
(3) Notwithstanding the giving of any notice by the Corporation to the
holders of Series A Convertible Preferred Stock pursuant to Section 7(a)(2) or
the giving or the absence of any notice by the holders of the Series A
Convertible Preferred Stock in response thereto or any redemption of shares of
Series A Convertible Preferred Stock pursuant to Section 7(a)(2), thereafter the
provisions of Section 7(a)(2) shall continue to be applicable on any occasion
unless the Stockholder Approval shall have been obtained from the stockholders
of the Corporation or waived by the Nasdaq.
(4) On each Share Limitation Redemption Date, the Corporation shall
make payment in immediately available funds of the applicable Share Limitation
Redemption Price to such holder of shares of Series A Convertible Preferred
Stock to be redeemed to or upon the order of such holder as specified by such
holder in writing to the Corporation at least one business day prior to such
Share Limitation Redemption Date. If the Corporation is required to redeem all
or any portion of a holder's outstanding shares of Series A Convertible
Preferred Stock pursuant to this Section 7(a), the Corporation shall make
payment to such holder of the shares of Series A Convertible Preferred Stock to
be redeemed in respect of each share of Series A Convertible Preferred Stock to
be redeemed of an amount equal to the Share Limitation Redemption Price. Upon
redemption of less than all of the shares of Series A Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three business days after surrender of such certificate to the Corporation,
the Corporation shall issue a replacement certificate for the shares of Series A
Convertible Preferred Stock evidenced by such certificate which have not been
redeemed. Only whole shares of Series A Convertible Preferred Stock may be
redeemed.
SECTION 8. NO SINKING FUND. The shares of Series A Convertible Preferred
---------------
Stock shall not be subject to the operation of a purchase, retirement, or
sinking fund.
SECTION 9. REDEMPTION BASED ON FLOOR PRICE AMOUNT. (1) Except as
-------------------------------------------
required by Section 10(a)(iv), the Corporation shall not be required to issue
upon conversion of shares of Series A Convertible Preferred Stock pursuant to
Section 10 more than the Floor Price Amount. Upon receiving a Conversion
Notice, the Corporation shall promptly determine whether the Conversion Price is
less than the Floor Price. If the Conversion Price is less than the Floor
Price, the Corporation shall have the right, exercisable by written notice to
the holders of record of the shares of Series A Convertible Preferred Stock who
delivered such Conversion Notice ("Converting Holders"), to redeem any shares
("Excess Shares") of Series A Convertible Preferred Stock as to which the
Converting Holders delivered a Conversion Notice which are in excess of the
Floor Price Shares. If the Corporation does not exercise its right to
redemption as to all of the Excess Shares, it shall deliver a Conversion
Deferral Notice to each Converting Holder pursuant to Section 10(a)(iii). Any
Redemption Notice under this Section shall be delivered to the Converting
Holders at their addresses appearing on the records of the Corporation within
one Business Day after receipt of the applicable Conversion Notice and shall
specify a date for completing the redemption (the "Redemption Date") within
three Business Days after receipt of the Conversion Notice; provided, however,
-------- -------
that any failure or defect in the giving of notice to any such holder shall not
affect the validity of notice to or the redemption of shares of Series A
Convertible Preferred Stock of any other holder.
18
<PAGE>
(2) On the Redemption Date and after receipt by the Corporation of
certificates for shares of Series A Preferred Stock to be redeemed pursuant to
this Section 9, the Corporation shall make payment, in immediately available
funds, of the applicable Redemption Price to each holder of Excess Shares to be
redeemed to or upon the order of such holder as specified by such holder in
writing to the Corporation at least one business day prior to the Redemption
Date. Upon redemption of less than all of the shares of Series A Convertible
Preferred Stock evidenced by a particular certificate, promptly, but in no event
later than three business days after surrender of such certificate to the
Corporation, the Corporation shall issue and deliver to the holder of record of
the surrendered certificate (or such holder's assignee) a replacement
certificate for the shares of Series A Convertible Preferred Stock which have
not been redeemed. Only whole shares of Series A Convertible Preferred Stock
may be redeemed. If the Corporation exercises its right to redeem less than all
Excess Shares of Series A Convertible Preferred Stock, then such redemption
shall be made, as nearly as practical pro rata among the Converting Holders.
SECTION 10. CONVERSION.
----------
(A) CONVERSION AT OPTION OF HOLDER. (i) Subject to the limitation set
-------------------------------
forth in Section 9, the limitations set forth in the legends to appear on the
certificates for the share of Series A Preferred Stock as provided in Section
10(a)(ii), and the provisions of Section 10(a)(iii) regarding conversion of
Excess Shares, the holders of the Series A Convertible Preferred Stock may
convert any or all of their shares of Series A Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. Subject to the limitations referred to in
the preceding sentence, each share of Series A Convertible Preferred Stock may
be converted at the office of the Conversion Agent or at such other additional
office or offices, if any, as the Board of Directors may designate, initially
into such number of fully paid and nonassessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) determined
by dividing (x) the sum of (i) the Conversion Value, (ii) accrued but unpaid
dividends to the applicable Conversion Date on the share of Series A Convertible
Preferred Stock being converted, and (iii) accrued but unpaid interest on the
dividends on the share of Series A Convertible Preferred Stock being converted
in arrears to the applicable Conversion Date at the rate provided in Section 5
(such sum, the "Conversion Amount") by (y) the product of (I) the Conversion
Percentage with respect to the applicable Conversion Date times (II) the
-----
arithmetic average of the Market Price of the Common Stock for the Measurement
Period with respect to the applicable Conversion Date; provided, however, that
-------- -------
in no event shall the amount determined in accordance with this clause be
greater than $5.50 nor less than $4.00 U.S. per share of Common Stock (the
"Floor Price") (subject to equitable adjustments for stock splits, stock
dividends, combinations, recapitalizations, reclassifications and similar events
occurring on or after the date of filing of this Certificate of Designations
with the Secretary of State of the State of Delaware), in each case subject to
adjustment as hereinafter provided (the "Conversion Rate"); provided further,
----------------
however, that in no event shall any holder of shares of Series A Convertible
- -------
Preferred Stock be entitled to convert any shares of Series A Convertible
Preferred Stock in excess of that number of shares of Series A Convertible
Preferred Stock upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by such holder and any person whose beneficial
ownership of Common Stock would be aggregated with such holders beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the
Exchange Act, and Regulation 13D-G thereunder (each a "Restricted Person" and
collectively, the "Restricted Persons") (other than shares of Common Stock
deemed beneficially owned through the ownership of unconverted shares of Series
A Convertible Preferred Stock) and (2) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series A Convertible
Preferred Stock with respect to which the determination in this provisio is
being made, would result in beneficial ownership by such holder and all
Restricted Persons of such holder of more than 4.9% of the outstanding shares of
Common Stock. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13D-G thereunder, except as otherwise provided in
clause (1) of the proviso to the immediately preceding sentence.
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<PAGE>
(ii) (A) 15% of the certificates for shares of Series A Convertible
Preferred Stock shall, until such time as such legend, by its terms, no longer
applies, contain the following legend:
"THESE SECURITIES ARE NOT CONVERTIBLE AT THE OPTION OF THE HOLDER HEREOF UNTIL
ON OR AFTER THE 90TH DAY FOLLOWING THE ORIGINAL ISSUANCE THEREOF."
(B) 25% of the certificates for shares of Series A Convertible
Preferred Stock shall, until such time as such legend, by its terms, no longer
applies, contain the following legend:
"THESE SECURITIES ARE NOT CONVERTIBLE AT THE OPTION OF THE HOLDER HEREOF UNTIL
ON OR AFTER THE 135TH DAY FOLLOWING THE ORIGINAL ISSUANCE THEREOF."
(C) 30% of the certificates for shares of Series A Convertible
Preferred Stock shall, until such time as such legend, by its terms, no longer
applies, contain the following legend:
"THESE SECURITIES ARE NOT CONVERTIBLE AT THE OPTION OF THE HOLDER HEREOF UNTIL
ON OR AFTER THE 180TH DAY FOLLOWING THE ORIGINAL ISSUANCE THEREOF."
(D) 30% of the certificates for shares of Series A Convertible
Preferred Stock shall, until such time as such legend, by its terms, no longer
applies, contain the following legend:
"THESE SECURITIES ARE NOT CONVERTIBLE AT THE OPTION OF THE HOLDER HEREOF UNTIL
ON OR AFTER THE 240TH DAY FOLLOWING THE ORIGINAL ISSUANCE THEREOF."
20
<PAGE>
Any new certificate issued upon transfer of any shares of Series A Convertible
Preferred Stock or, in connection with a conversion of shares of Series A
Convertible Preferred Stock, to evidence the unconverted balance of shares of
Series A Convertible Preferred Stock shall bear the same legend as the
certificate surrendered to the Corporation in connection herewith, if
applicable.
(iii) If the Corporation does not exercise its right to redeem all
Excess Shares pursuant to Section 9, the Corporation shall, during the First
Conversion Period, the Second Conversion Period and the Third Conversion Period,
have the right to defer conversion of such Excess Shares by delivering to the
Converting Holders, with a copy to the Transfer Agent, a Conversion Deferral
Notice within one Business Day after receipt of the Conversion Notice to which
such Conversion Deferral Notice relates. Any Conversion Deferral Notice shall be
delivered to the Converting Holders at their addresses appearing on the records
of the Corporation. If the Corporation elects to defer conversion of Excess
Shares instead of redeeming them, the Conversion Value for each unredeemed
Excess Share shall be multiplied by 105%; provided, however, that the Conversion
-------- -------
Value for each Excess Share may be adjusted pursuant to this Section 10(a)(iii)
only once during each of the First Conversion Period, the Second Conversion
Period, and the Third Conversion Period, although the Conversion Value for any
Excess Share may be adjusted pursuant to this Section 10(a)(iii) during
successive conversion periods. Each certificate for shares of Series A
Convertible Preferred Stock shall, until such time as such legend no longer
applies. contain the following legend:
"THE CONVERSION VALUE OF THESE SECURITIES IS SUBJECT TO ADJUSTMENT AS PROVIDED
IN SECTION 10(a)(iii) OF THE CERTIRCATE OF DESIGNATIONS."
(iv) The Corporation shall have no right to defer conversion of any
Excess Shares during the Fourth Conversion Period. If the Corporation receives a
Conversion Notice during the fourth Conversion Period, and does not deliver a
Redemption Notice to the Converting Holders in accordance with Section 9, then
the Converting Holders shall have the right to proceed with the conversion
described in the Conversion Notice notwithstanding the limitation set forth in
Section 9.
(B) OTHER PROVISIONS. (1) Notwithstanding anything in this Section
-----------------
10(b) to the contrary, no change in the Conversion Amount pursuant to Section
10(b) shall actually be made until the cumulative effect of the adjustments
called for by this Section 10(b) since the date of the last change in the
Conversion Amount would change the Conversion Amount by more than 1%. However,
once the cumulative effect would result in such a change, then the Conversion
Rate shall actually be changed to reflect all adjustments called for by this
Section 10(b) and not previously made. Notwithstanding anything in this Section
10(b), no change in the Conversion Amount shall be made that would result in a
Conversion Price of less than the par value of the Common Stock into which
shares of Series A Convertible Preferred Stock are at the time convertible.
21
<PAGE>
(2) The holders of shares of Series A Convertible Preferred Stock at
the close of business on the record date for any dividend payment to holders of
Series A Convertible Preferred Stock shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such payment
date; provided, however, that the holder of shares of Series A Convertible
-------- -------
Preferred Stock surrendered for conversion during the period between the close
of business on any record date for a dividend payment and the opening of
business on the corresponding dividend payment date must pay to the Corporation,
within five days after receipt by such holder, an amount equal to the dividend
payable on such shares on such dividend payment date if such dividend is paid by
the Corporation to such holder. A holder of shares of Series A Convertible
Preferred Stock on a record date for a dividend payment who (or whose
transferee) tenders any of such share for conversion into shares of Common Stock
on or after such dividend payment date will receive the dividend payable by the
Corporation on such shares of Series A Convertible Preferred Stock on such date,
and the converting holder need not make any payment of the amount of such
dividend in connection with such conversion of shares of Series A Convertible
Preferred Stock. Except as provided above, no adjustment shall be made in
respect of cash dividends on Common Stock or Series A Convertible Preferred
Stock that may be accrued and unpaid at the date of surrender of shares of
Series A Convertible Preferred Stock.
(3) (A) The right of the holders of Series A Convertible Preferred
Stock to convert their shares shall be exercised by delivering (which may be
done by telephone line facsimile transmission) a Conversion Notice to the
Conversion Agent, as provided above. If a holder of Series A Convertible
Preferred Stock elects to convert any shares of Series A Convertible Preferred
Stock in accordance with Section 10(a), such holder shall not be required to
physically surrender the certificate(s) representing such shares of Series A
Convertible Preferred Stock to the Corporation unless all of the shares of
Series A Convertible Preferred Stock represented thereby are so converted. Each
holder of shares of Series A Convertible Preferred Stock and the Corporation
shall maintain records showing the number of shares so converted and the dates
of such conversions or shall use such other method, satisfactory to such holder
and the Corporation, so as to not require physical surrender of such
certificates upon each such conversion. In the event of any dispute or
discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any shares of Series A Convertible Preferred Stock evidenced by a particular
certificate therefor are converted as aforesaid, the holder of Series A
Convertible Preferred Stock may not transfer the certificate(s) representing
such shares of Series A Convertible Preferred Stock unless such holder first
physically surrenders such certificate(s) to the Corporation, whereupon the
Corporation will forthwith issue and deliver upon the order of such holder of
shares of Series A Convertible Preferred Stock new certificate(s) of like tenor,
registered as such holder of shares of Series A Convertible Preferred Stock
(upon payment by such holder of shares of Series A Convertible Preferred Stock
of any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series A Convertible Preferred Stock represented
by such certificate(s). Each holder of shares of Series A Convertible Preferred
Stock, by acceptance of a certificate for such shares, acknowledges and agrees
that (1) by reason of the provisions of this paragraph, following conversion of
any shares of Series A Convertible Preferred Stock represented by such
certificate, the number of shares of Series A Convertible Preferred Stock
represented by such certificate may be less than the number of shares stated on
such certificate and by reason of Section 7(a), the number of shares of Common
Stock from the Maximum Share Amount allocated to the shares of Series A
Convertible Preferred Stock represented by such certificate for purposes of
conversion of such shares may be less than the number thereof stated on such
certificate and (2) the Corporation may place a legend on the certificates for
shares of Series A Convertible Preferred Stock which refers to or describes the
provisions of this paragraph.
22
<PAGE>
(B) The Corporation shall pay any transfer tax arising in connection
with any conversion of shares of Series A Convertible Preferred Stock except
that the Corporation shall not however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a name
other than that of the holder of the shares of the Series A Convertible
Preferred Stock being converted and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid. The number of
shares of Common Stock to be issued upon each conversion of shares of Series C
Convertible Preferred Stock shall be the number set forth in the applicable
Conversion Notice which number shall be conclusive absent manifest error. The
Corporation shall notify a holder who has given a Conversion Notice of any claim
of manifest error within one business day after such holder gives such
Conversion Notice and no such claim of error shall limit of delay performance of
the Corporation's obligation to issue upon such conversion the number of share
of Common Stock which are not in dispute. A Conversion Notice shall be deemed
for all purposes to be in proper form unless the Corporation notifies a holder
of shares of Series A Convertible Preferred Stock being converted within one
business day after a Conversion Notice has been given (which notice shall
specify all defects in the Conversion Notice) and any Conversion Notice
containing any such defect shall nonetheless be effective on the date given if
the converting holder promptly corrects all such defects.
(4) The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Convertible Preferred
Stock outstanding upon the basis herein before provided are at all times
reserved by the Corporation (or any successor corporation), free from preemptive
rights, for such conversion, subject to the provisions of the next succeeding
paragraph. If the Corporation shall issue any securities or make any change in
its capital structure which would change the number of shares of Common Stock
into which each share of the Series A Convertible Preferred Stock shall be
convertible as herein provided, the Corporation shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series A Convertible Preferred Stock, the Corporation promptly shall
seek such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
23
<PAGE>
(5) In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly-owned subsidiary of the Corporation) in
which the Corporation is not the surviving corporation, or in case of any sale
or transfer of all or substantially all of the assets of the Corporation, or in
the case of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that each holder of shares of Series A Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares of Series A
Convertible Preferred Stock into the kind of shares of stock and other
securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of shares of Common Stock into which
such shares of Series A Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger, sale,
transfer, or share exchange and on a basis which preserves the economic benefits
of the conversion rights of the holders of shares of Series A Convertible
Preferred Stock on a basis as nearly as practical as such rights exist hereunder
prior thereto. If, in connection with any such consolidation, merger, sale,
transfer, or share exchange, each holder of shares of Common Stock is entitled
to elect to receive securities, cash, or other assets upon completion of such
transaction, the Corporation shall provide or cause to be provided to each
holder of Series A Convertible Preferred Stock the right to elect the
securities, cash, or other assets into which the Series A Convertible Preferred
Stock held by such holder shall be convertible after completion of any such
transaction on the some terms and subject to the same conditions applicable to
holders of the Common Stock (including, without limitation, notice of the right
to elect, limitations on the period in which such election shall be made, and
the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
(6) If a holder shall have given a Conversion Notice for shares of
Series A convertible Preferred Stock and the Corporation shall not have given a
Redemption Notice pursuant to Section 9(a) or a Conversion Deferral Notice
pursuant to Section 10(a)(iii), the Corporation shall issue and deliver to such
person certificates for the Common Stock issuable upon such conversion within
three business days after such Conversion Notice is given and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided. If a holder
shall have given a Conversion Notice as provided herein, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by the
converting holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to the holder of record, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the holder of any obligation to the Corporation, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion. If the Corporation
fails to issue and deliver the certificates for the Common Stock to the holder
converting shares of Series A Convertible Preferred Stock pursuant to the first
sentence of this paragraph as and when required to do so, in addition to any
other liabilities the Corporation may have hereunder and under applicable law
(1) the Corporation shall pay or reimburse such holder on demand for all
24
<PAGE>
out-of-pocket expenses including, without limitation, reasonable fees and
expenses of legal counsel incurred by such holder as a result of such failure,
(2) the Conversion Percentage applicable to such conversion shall be reduced by
two-and-one-half percentage points from the Conversion Percentage otherwise
applicable to such conversion and (3) such holder may by written notice (which
may be given by mail, courier, personal service or telephone line facsimile
transmission) or oral notice (promptly confirmed in writing) given at any time
prior to delivery to such holder of the certificates for the shares of Common
Stock issuable upon such conversion of shares of Series A Convertible Preferred
Stock, rescind such conversion, whereupon such holder shall have the right to
convert such shares of Series A Convertible Preferred Stock thereafter in
accordance herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series A Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock to purchase fractional shares of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
Market Price of a share of Common Stock on the three consecutive trading days
ending on the trading day immediately preceding the Conversion Date and (ii)
such fraction of a share.
(8) The Conversion Amount shall he adjusted from time to time under
certain circumstances, subject to the provisions of Section 10(b)(1) as follows:
(i) In case the Corporation shall issue rights or warrants on a pro
rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the Current Market Price for such record date, then in
each such case the Conversion Amount in effect on such record due shall be
adjusted in accordance with the formula
C1 = C x O + N
--------
0 + N x P
--------
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable
Pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and exercise of such rights or
warrants).
25
<PAGE>
M = the Current Market Price per share of Common Stock on the
record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall he readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be Adjusted in
accordance with the formula
C1 = C x M
---
M-F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on the
record date mentioned below.
F = the aggregate amount of such cash dividend and/or the
fair market value on the record date of the assets or
securities to be distributed divided by the number of shares of
Common Stock outstanding on the record date. The Board of
Directors shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series A Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to
Section 10(b)(5), the holder of any Series A Convertible Preferred Stock,
thereafter surrendered for conversion shall become entitled to receive
securities, cash or assets other than Common Stock, the number or amount of such
securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
26
<PAGE>
(9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
(10) Whenever the Conversion Amount is adjusted as herein provided, the
Corporation shall send to each holder and each transfer agent, if any, for the
Series A Convertible Preferred Stock and the Common Stock, a statement signed by
the Chairman of the Board, the President, or any Vice President of the
Corporation and by its Treasurer or its Secretary or an Assistant Secretary
stating the adjusted Conversion Amount determined as provided in this Section
10, and any adjustment so evidenced, given in good faith, shall be binding upon
all stockholders and upon the Corporation. Whenever the Conversion Amount is
adjusted, the Corporation will give notice by mail to the holders of record of
Series A Convertible Preferred Stock, which notice shall be made within 15 days
after the effective date of such adjustment and shall state the adjustment and
the Conversion Amount. Notwithstanding the foregoing notice provisions, failure
by the Corporation to give such notice or a defect in such notice shall not
affect the binding nature of such corporate action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the actions
specified in Section 10(b)(5) or in subparagraphs (i) or (ii) of Section
10(b)(8) which would result in any adjustment in the Conversion Amount under
this Section 10(b), the Corporation shall cause a notice to be mailed at least
20 days prior to the date on which the books of the Corporation will close or on
which a record will be taken for such action, to the holders of record of the
outstanding Series A Convertible Preferred Stock on the date of such notice.
Such notice shall specify the action proposed to be taken by the Corporation and
the date as of which holders of record of the Common Stock shall participate in
any such actions or be entitled to exchange their Common Stock for securities or
other property as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction.
(C) MANDATORY CONVERSION. There shall be no mandatory conversion of
---------------------
Series A Convertible Preferred Stock.
SECTION 11. REDEMPTION AT OPTION OF HOLDERS. The holders of shares of
----------------------------------
Series A Convertible Preferred Stock shall not be entitled to require the
Corporation to redeem any of such shares.
SECTION 12. VOTING RIGHTS. Except as otherwise required by law or
--------------
expressly provided herein, shares of Series A Convertible Preferred Stock shall
not be entitled to vote on any matter.
27
<PAGE>
The affirmative vote or consent of the holders of a majority of the
outstanding shares of the Series A Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Restated Certificate of Incorporation if the amendment, alteration, or repeal
materially and adversely affects the powers, preferences, or special rights of
the Series A Convertible Preferred Stock, or (2) the creation and issuance of
any Senior Dividend Stock or Senior Liquidation Stock; provided, however, that
-------- -------
any increase in the authorized Preferred Stock of the Corporation or the
creation and issuance of any stock which is both Junior Dividend Stock of the
Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock shall not be deemed to affect
materially and adversely such powers, preferences, or special rights and any
such increase or creation and issuance may be made without any such vote by the
holders of Series A Convertible Preferred Stock except as otherwise required by
law.
SECTION 13. OUTSTANDING SHARES. For purposes of this Certificate of
-------------------
Designations all shares of Series A Convertible Preferred Stock shall be deemed
outstanding except (i) from the date of surrender of certificates representing
shares of Series A Convertible Preferred Stock for conversion into Common Stock,
all shares of Series A Convertible Preferred Stock converted into Common Stock;
(ii) from the date of registration of transfer, all shares of Series A
Convertible Preferred Stock held of record by the Corporation or any subsidiary
or Affiliate (as defined herein) of the Corporation and (iii) from the Share
Limitation Redemption Date, Redemption Date or Optional Redemption Date all
shares of Series A Convertible Preferred Stock which are redeemed, so long as in
each case the Share Limitation Redemption Price, the Redemption Price or the
Optional Redemption Price, as the case may be, of such shares of Series A
Convertible Preferred Stock shall have been paid by the Corporation as and when
required hereby. For the purposes of this Certificate of Designations,
"Affiliate" means any person, other than the original holders of the shares of
Series A Convertible Preferred Stock, directly or indirectly controlling or
controlled by or under direct or indirect common control with the Corporation.
"Control" is the power to direct the management and policies of a person,
directly or through one or more intermediaries, whether through the ownership of
voting securities, by contract, or otherwise.
IN WITNESS WHEREOF, American Bingo & Gaming Corp., has caused this
certificate to be signed as of the 30th day of July, 1997.
AMERICAN BINGO & GAMING CORP.
Attest:
By: /s/ Greg Wilson
----------------
Chief Executive Officer
BY:
-------------------
28
<PAGE>
AMERICAN BINGO & GAMING CORP.
CERTIFICATE OF DESIGNATIONS OF
SERIES B PREFERRED STOCK
(Pursuant to Section 151 of the of the Delaware General Corporation Law)
American Bingo & Gaming Corp., a Delaware corporation (the "Corporation"),
in accordance with the provisions of Section 103 of the General Corporation Law
of the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation (the "Board of Directors" or the "Board") by the Certificate of
Incorporation, as amended, of the Corporation, the Board of Directors, at a
meeting held August 4, 1998, adopted a resolution providing for the creation of
a series of the Corporation's Preferred Stock, $.01 par value, which series is
designated "Series B Preferred Stock", which resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of Directors by
the Certificate of Incorporation, as amended, the Board of Directors does hereby
provide for the creation of a series of the Preferred Stock, $.01 par value
(hereafter called the "Preferred Stock"), of the Corporation, and to the extent
that the voting powers and the designations, preferences and relative,
participating, optional or other special rights thereof and the qualifications,
limitations or restrictions of such rights have not been set forth in the
Certificate of Incorporation, as amended, of the Corporation, does hereby fix
the same as follows:
The rights, preferences, privileges, and limitations granted to and imposed
on the Series B Preferred Stock (the "Series B Preferred Stock"), which series
shall consist of 300,000 shares, are as set forth below. The following rights,
preferences, privileges, and limitations are subject to the designation,
description, and terms of one or more subsequent series of Preferred Stock by
the Board of Directors of American Bingo & Gaming Corp. (the "Corporation")
pursuant to authority granted by the Certificate of Incorporation. To the
extent that the rights, preferences, privileges, and limitations of any such
subsequent series conflict or are inconsistent with any of the rights,
preferences, privileges, and limitations of the Series B Preferred Stock, the
designation and description of terms of the subsequent series which is the
latest so designated shall control and prevail over the rights, preferences,
privileges, and limitations of the Series B Preferred Stock.
SECTION 1. SERIES B PREFERRED STOCK. There shall be a series of
Preferred Stock referred to "Series B Preferred Stock."
<PAGE>
SECTION 2. DESIGNATION, PAR VALUE AND AMOUNT. The shares of Series B
Preferred Stock shall be with par value of $0.01 per share, and the number of
shares constituting such series shall be 300,000; provided, however, that, if
more than a total of 300,000 shares of Series B Preferred Stock shall be
issuable upon the exercise of Rights (the "Rights") issued pursuant to the
Rights Agreement, dated as of August 4, 1998, between the Corporation and
American Stock Transfer Company, as Rights Agent, as amended from time to time
(the "Rights Agreement"), the Board of Directors of the Corporation, pursuant to
Section 151 of the Delaware General Corporation Law, shall direct by resolution
or resolutions that a Certificate of Designation be properly executed and filed
providing for the total number of shares of Series B Preferred Stock authorized
to be issued to be increased (to the extent that the Certificate of
Incorporation then permits) to the largest number of whole shares (rounded up to
the nearest whole number) issuable upon exercise of the Rights.
SECTION 3. VOTING RIGHTS. The holders of shares of Series B
Preferred Stock shall have the following voting rights:
(A) Except as required by applicable law, the holders of shares of
Series B Preferred Stock and the holders of shares of the Corporation's Common
Stock, $0.001 par value (the "Common Stock"), shall vote together as one class
on all matters submitted to a vote of shareholders of the Corporation.
(B) Each share of Series B Preferred Stock shall entitle the
holder thereof to 1000 votes on all matters submitted to a vote of the
shareholders of the Corporation.
(C) The Certificate of Incorporation of the Corporation shall not
be further amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series B Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least a
majority of the outstanding shares of Series B Preferred Stock, voting
separately as a class.
(D) Except as set forth herein (or as otherwise required by
applicable law), holders of Series B Preferred Stock shall have no general or
special voting rights and their consent shall not be required for taking any
corporate action.
SECTION 4. DIVIDENDS. The holders of Series B Preferred Stock shall
share ratably in any dividend or distribution declared by the Corporation on
shares of Common Stock in a ratio of 1000 to one with respect to a share of
Series B Preferred Stock and a share of Common Stock, respectively.
SECTION 5. LIQUIDATION, DISSOLUTION OR WINDING UP.
2
<PAGE>
(A) Subject to the prior and superior rights of holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series B Preferred Stock with respect to rights upon liquidation, dissolution
or winding up (voluntary or otherwise), no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred Stock unless
prior thereto the holders of shares of Series B Preferred Stock shall have
received $0.01 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, if any, to the date of such payment (the "Series B
Liquidation Preference"). Following the payment of the full amount of the
Series B Liquidation Preference, no additional distributions shall be made to
the holders of shares of Series B Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Capital Adjustment") equal to the quotient obtained by dividing (i) the Series
B Liquidation Prefer-ence by (ii) 1000. Following the payment of the full
amount of the Series B Liquidation Preference and the Capital Adjustment in
respect of all outstanding shares of Series B Preferred Stock and Common Stock,
respectively, holders of Series B Preferred Stock and holders of Common Stock
shall receive a ratable and proportionate share of the remaining assets to be
distributed in the ratio of 1000 to one (1) with respect to Series B Preferred
Stock and Common Stock, on a per share basis, respectively.
(B) If there are not sufficient assets available to permit payment
in full of the Series B Liquidation Preference and the liquidation preferences
of all other series of preferred stock, if any, which rank on a parity with the
Series B Preferred Stock, then such remaining assets shall be distributed
ratably to the holders of Series B Preferred Stock and the holders of such
parity shares in proportion to their respective liquidation preferences. If
there are not sufficient assets available to permit payment in full of the
Capital Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
SECTION 6. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series B Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share equal to 1000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged.
SECTION 7. NO REDEMPTION. The shares of Series B Preferred Stock
shall not be redeemable.
SECTION 8. RANKING. The Series B Preferred Stock shall rank junior
to the Series A Convertible Preferred Stock and to all other series of the
Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise.
SECTION 9. REACQUIRED SHARES. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, in any other Certificate of Designation creating a
series of Preferred Stock or as otherwise required by law.
3
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation by its Chief Executive Officer as of August 4, 1998.
/s/ Andre M. Hilliou
-----------------------
Andre M. Hilliou, Chairman and
Chief Executive Officer
4
<PAGE>
CERTIFICATE OF ELIMINATION
OF
AMERICAN BINGO & GAMING CORP.
American Bingo & Gaming Corp., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Company"), in
accordance with Section 103 of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. Pursuant to the authority vested in the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company,
the Board of Directors, on September 10, 1999, duly adopted resolutions
providing for the elimination of the Series B Preferred Stock, $.01 par
value, of the Company, which resolutions are as follows:
RESOLVED, that no shares of the Series B Preferred Stock are
outstanding and none will be issued;
FURTHER RESOLVED, that a Certificate of Elimination be executed, which
shall have the effect when filed in Delaware of eliminating from the
Certificate of Incorporation all reference to the Series B Preferred
Stock.
2. None of the authorized shares of the Series B Preferred Stock are
outstanding and none will be issued.
3. In accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation,
as amended, of the Company is hereby amended to eliminate all reference to
the Series B Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this Certificate to be executed
by Daniel W. Deloney, the Chairman of the Board, President and Chief Executive
Officer of the Company, as of this 21st day of September, 1999.
----
American Bingo & Gaming Corp.
By: /s/ Daniel W. Deloney
--------------------------------
Daniel W. Deloney
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
EXHIBIT 3.2
-----------
AMENDED AND RESTATED
BYLAWS
OF
AMERICAN BINGO & GAMING CORP.
(9/10/99)
<PAGE>
TABLE OF CONTENTS
ARTICLE I. - OFFICES
Section 1. Office
Section 2. Other Offices
ARTICLE II. - MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings
Section 2. Annual Meeting
Section 3. Special Meetings
Section 4. Notice
Section 5. Voting List
Section 6. Quorum
Section 7. Required Vote; Withdrawal Of Quorum
Section 8. Method of Voting; Proxies
Section 9. Record Date
Section 10. Action Without Meeting
Section 11. Inspectors of Elections
ARTICLE III. - DIRECTORS
Section 1. Management
Section 2. Number; Election
Section 3. Change in Number
Section 4. Removal
Section 5. Vacancies and Newly Created Directorships
Section 6. Election of Directors; Cumulative Voting Prohibited
Section 7. Place of Meetings
Section 8. First Meetings
Section 9. Regular Meetings
Section 10. Special Meetings
Section 11. Quorum
Section 12. Action Without Meeting; Telephone Meetings
Section 13. Chairman of the Board
Section 14. Compensation
<PAGE>
TABLE OF CONTENTS
(Continued)
ARTICLE IV. - COMMITTEES
Section 1. Designation
Section 2. Number; Qualification; Term
Section 3. Authority
Section 4. Committee Changes; Removal
Section 5. Alternate Members of Committees
Section 6. Regular Meetings
Section 7. Special Meetings
Section 8. Quorum; Majority Vote
Section 9. Minutes
Section 10. Compensation
Section 11. Responsibility
ARTICLE V. - NOTICES
Section 1. Method
Section 2. Waiver
Section 3. Exception to Notice Requirement
ARTICLE VI. - OFFICERS
Section 1. Officers
Section 2. Election
Section 3. Compensation
Section 4. Removal and Vacancies
Section 5. Chairman of the Board
Section 6. Vice Chairman of the Board
Section 7. Chief Executive Officer
Section 8. President
Section 9. Vice Presidents
Section 10. Secretary
Section 11. Assistant Secretaries
Section 12. Treasurer
Section 13. Assistant Treasurers
ARTICLE VII. - CERTIFICATES REPRESENTING SHARES
Section 1. Certificates
Section 2. Legends
Section 3. Lost Certificates
Section 4. Transfer of Shares
Section 5. Registered Stockholders
<PAGE>
TABLE OF CONTENTS
(Continued)
ARTICLE VIII. - GENERAL PROVISIONS
Section 1. Dividends
Section 2. Reserves
Section 3. Checks
Section 4. Fiscal Year
Section 5. Seal
Section 6. Indemnification
Section 7. Transactions with Directors and Officers
Section 8. Amendments
Section 9. Table of Contents; Headings
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
AMERICAN BINGO & GAMING CORP.
(the "Corporation")
ARTICLE I.
OFFICES
-------
Section 1. Office. The registered office of the Corporation is
------
currently at 15 East North Street, City of Dover, County of Kent, Delaware
19901. The executive offices of the Corporation are currently located at 1440
Charleston Highway, West Columbia, South Carolina, 29169.
Section 2. Other Offices. The Corporation may also have offices at
-------------
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of stockholders for all
-------------------
purposes may be held at such time and place, either within or without the State
of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of stockholders of the
--------------
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice of such
meeting. At such meeting, the stockholders shall elect directors and transact
such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders
-----------------
shall be called pursuant to the requirements of the Certificate of Incorporation
and these Bylaws. Special meetings may also be called upon written request to
the President or the Secretary by the holders of at least 20% of the
Corporation's securities outstanding and entitled to vote on the date of such
notice.
1
<PAGE>
Section 4. Notice. Written or printed notice stating the place,
------
date, and hour of each meeting of the stockholders and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the Secretary, or the person(s) calling the meeting, to each
stockholder of record entitled to vote at such meeting. If such notice is to be
sent by mail, it shall be directed to such stockholder at his address as it
appears on the records of the Corporation, unless he shall have filed with the
Secretary of the Corporation a written request that notices to him be mailed to
some other address, in which case it shall be directed to him at such other
address. Notice of any meeting of stockholders shall not be required to be given
to any stockholder who shall attend such meeting in person or by proxy and shall
not, at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice, in person or by
proxy.
Section 5. Voting List. At least ten (10) days before each meeting
-----------
of stockholders, the Secretary or other officer of the Corporation who has
charge of the Corporation's stock ledger, either directly or through another
officer appointed by him or through a transfer agent appointed by the Board of
Directors, shall prepare a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or a duly executed waiver of notice of such meeting or, if not so
specified, at the place where the meeting is to be held. Such list shall also be
produced and kept at the time and place of the meeting at all times during such
meeting and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding
------
shares entitled to vote on a matter, present in person or represented by proxy,
shall constitute a quorum at any meeting of stockholders, except as otherwise
provided by statute, the Certificate of Incorporation or these Bylaws. If a
quorum shall not be present at any meeting of stockholders, the stockholders
entitled to vote thereat who are present, in person or by proxy, or, if no
stockholder entitled to vote is present, any officer of the Corporation, may
adjourn the meeting from time to time until a quorum shall be present. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place are announced at the meeting at which
the adjournment is taken. At any adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
original meeting had a quorum been present; provided that, if the adjournment is
for more than thirty (30) days or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned meeting.
Section 7. Required Vote; Withdrawal Of Quorum. When a quorum is
-------------------------------------
present at any meeting, the vote of the holders of at least a majority of the
outstanding shares entitled to vote who are present, in person or by proxy,
shall decide any question brought before the meeting, unless the question is one
2
<PAGE>
on which, by express provision of statute, the Certificate of Incorporation or
these Bylaws, a different vote is required, in which case such express provision
shall govern and control the decision of the question. The stockholders present
at a duly constituted meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 8. Method of Voting; Proxies. (a) Each outstanding share,
--------------------------
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders, except to the extent that the voting rights
of the shares of any class or classes are limited, denied, increased or
decreased by the Certificate of Incorporation.
(b) Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy, but no
such proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy provides for a longer period. Each proxy shall be filed with
the Secretary of the Corporation prior to or at the time of the meeting.
(c) Without limiting the manner in which a stockholder may
authorize another person or persons to act for him as proxy pursuant to
subsection (b) of this section, the following shall constitute a valid means by
which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing another
person or persons to act for him as proxy. Execution may be
accomplished by the stockholder or by an authorized officer,
director, employee or agent of the stockholder signing such writing
or causing such stockholder's signature to be affixed to such writing
by any reasonable means including, but not limited to, by facsimile
signature.
(ii) A stockholder may authorize another person or persons
to act for him as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the
proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. If it is determined
that such telegrams, cablegrams or other electronic transmissions
are valid, the inspectors or, if there are no inspectors, such other
persons making that determination shall specify the information upon
which they relied.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
3
<PAGE>
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
(e) A duly executed proxy shall be irrevocable if it states that
it is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power.
Section 9. Record Date. (a) In order that the Corporation may
------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by statute or these Bylaws, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Such delivery shall be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by statute or
these Bylaws, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
4
<PAGE>
Section 10. Action Without Meeting. (a) Any action required or
------------------------
permitted to be taken at a meeting of the stockholders of the Corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Such consent
or consents shall be delivered to the Corporation at its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of stockholders'
meetings are recorded. Such delivery shall be by hand or by certified or
registered mail, return receipt requested.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the written consent, and no consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered in the manner required by this section to
the Corporation, written consents signed by a sufficient number of stockholders
to take action are delivered to the Corporation in the manner required by this
section.
Section 11. Inspectors of Elections. (a) The Corporation shall, in
-------------------------
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist them in the performance of their
duties.
(c) The date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Delaware Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
5
<PAGE>
envelopes submitted with those proxies, any information provided in accordance
with 212(c)(2) of the General Corporation Law of Delaware, ballots and the
regular books and records of the Corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the limited
purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this section shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.
ARTICLE III.
DIRECTORS
---------
Section 1. Management. The business and affairs of the Corporation
----------
shall be managed by its Board of Directors who may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute,
the Certificate of Incorporation or these Bylaws directed or required to be
exercised or done by the stockholders. The Board of Directors shall keep regular
minutes of its proceedings.
Section 2. Number; Election. The Board of Directors shall consist
-----------------
of no less than two nor more than eleven directors, who need not be
stockholders or residents of the State of Delaware. The directors shall be
elected at the annual meeting of the stockholders, except as hereinafter
provided, and each director elected shall hold office until his successor is
elected and qualified or until his earlier resignation or removal.
Section 3. Change in Number. The number of directors may be
------------------
increased or decreased from time to time by resolution adopted by the
affirmative vote of a majority of the Board of Directors, but no decrease shall
have the effect of shortening the term of any incumbent director.
Section 4. Removal. Any director may be removed, with or without
-------
cause, at any annual or special meeting of stockholders, by the affirmative vote
of the holders of a majority of the shares represented in person or by proxy at
such meeting and entitled to vote for the election of such director, if notice
of the intention to act upon such matters shall have been given in the notice
calling such meeting.
Section 5. Vacancies and Newly Created Directorships. Vacancies and
-----------------------------------------
newly created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. Each director so
chosen shall hold office until the first annual meeting of stockholders held
after his election and until his successor is elected and qualified or until his
6
<PAGE>
earlier resignation or removal. If at any time there are no directors in office,
an election of directors may be held in the manner provided by statute. Except
as otherwise provided in these Bylaws, when one or more directors shall resign
from the Board of Directors, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have the
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in these Bylaws with respect to the filling
of other vacancies.
Section 6. Election of Directors; Cumulative Voting Prohibited. At
---------------------------------------------------
every election of directors, each stockholder shall have the right to vote in
person or by proxy the number of voting shares owned by him for as many persons
as there are directors to be elected and for whose election he has a right to
vote. Cumulative voting shall be prohibited.
Section 7. Place of Meetings. The directors of the Corporation may
-----------------
hold their meetings, both regular and special, either within or without the
State of Delaware.
Section 8. First Meetings. The first meeting of each newly elected
--------------
Board shall be held without further notice immediately following the annual
meeting of stockholders, and at the same place, unless by unanimous consent of
the directors then elected and serving, such time or place shall be changed.
Section 9. Regular Meetings. Regular meetings of the Board of
-----------------
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board of Directors.
Section 10. Special Meetings. Special meetings of the Board of
-----------------
Directors may be called by the Chairman of the Board on two (2) days notice to
each director, either personally or by mail or by telegram. Special meetings may
be called in like manner and on like notice on the written request of a majority
of the directors. Except as may be otherwise expressly provided by statute, the
Certificate of Incorporation or these Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice.
Section 11. Quorum. At all meetings of the Board of Directors, the
------
presence of a majority of the directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board of Directors, except as may be otherwise specifically
provided by statute, or the Certificate of Incorporation or these Bylaws. If a
quorum shall not be present at any meeting of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 12. Action Without Meeting; Telephone Meetings. Any action
------------------------------------------
required or permitted to be taken at a meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the Board of
Directors or committee, as the case may be. Such consent shall have the same
force and effect as a unanimous vote at a meeting. Subject to applicable notice
provisions and unless otherwise restricted by the Certificate of Incorporation,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in and hold a meeting by means of conference
7
<PAGE>
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such
meeting shall constitute presence in person at such meeting, except where a
person's participation is for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 13. Chairman of the Board and Vice Chairman of the Board.
---------------------------------------------------------
The Board of Directors may elect a Chairman of the Board to preside at their
meetings and to perform such other duties as the Board of Directors may from
time to time assign to him. The Board of Directors may also elect a Vice
Chairman of the Board to preside at their meetings in the absence of the
Chairman of the Board and to perform such other duties as the Board of Directors
or the Chairman of the Board may from time to time assign to him.
Section 14. Compensation. Directors, as such, shall not receive any
------------
stated salary for their services, but, by resolution of the Board of Directors,
a fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board of Directors; provided, that
nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV.
COMMITTEES
----------
Section 1. Designation. The Board of Directors may, by resolution
-----------
passed by a majority of the entire Board of Directors, designate one or more
committees.
Section 2. Number; Qualification; Term. Each committee shall
-----------------------------
consist of one or more directors appointed by resolution adopted by a majority
of the entire Board of Directors. The number of committee members may be
increased or decreased from time to time by resolution adopted by a majority of
the entire Board of Directors. Each committee member shall serve as such until
the earliest of (i) the expiration of his term as director, (ii) his resignation
as a committee member or as a director, or (iii) his removal as a committee
member or as a director.
Section 3. Authority. Each committee, to the extent expressly
---------
provided in the resolution of the Board of Directors establishing such
committee, shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Corporation
except to the extent expressly restricted by statute, the Certificate of
Incorporation or these Bylaws.
Section 4. Committee Changes; Removal. The Board of Directors shall
--------------------------
have the power at any time to fill vacancies in, to change the membership of,
and to discharge any committee. The Board of Directors may remove any committee
member, at any time, with or without cause.
8
<PAGE>
Section 5. Alternate Members of Committees. The Board of Directors
-------------------------------
may designate one or more directors as alternate members of any committee. Any
such alternate member may replace any absent or disqualified member at any
meeting of the committee.
Section 6. Regular Meetings. Regular meetings of any committee may
----------------
be held without notice at such time and place as may be designated from time to
time by the committee and communicated to all members thereof.
Section 7. Special Meetings. Special meetings of any committee may
----------------
be held whenever called by any committee member. The committee member calling
any special meeting shall cause notice of such special meeting, including
therein the time and place of such special meeting, to be given to each
committee member at least two (2) days before such special meeting. Neither the
business to be transacted at, nor the purpose of, any special meeting of any
committee need be specified in the notice or waiver of notice of any special
meeting.
Section 8. Quorum; Majority Vote. At meetings of any committee, a
----------------------
majority of the number of members designated by the Board of Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at a meeting of any committee, a majority of the members present may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum is present. The act of a majority of the members present
at any meeting at which a quorum is in attendance shall be the act of a
committee, unless the act of a greater number is required by law, the
Certificate of Incorporation or these Bylaws.
Section 9. Minutes. Each committee shall cause minutes of its
-------
proceedings to be prepared and shall report the same to the Board of Directors
upon the request of the Board of Directors. The minutes of the proceedings of
each committee shall be delivered to the Secretary of the Corporation for
placement in the minute books of the Corporation.
Section 10. Compensation. Committee members may, by resolution of
------------
the Board of Directors, be allowed a fixed sum and expenses of attendance, if
any, for attending any committee meetings or a stated salary.
Section 11. Responsibility. The designation of any committee and
--------------
the delegation of authority to it shall not operate to relieve the Board of
Directors or any director of any responsibility imposed upon it or such director
by law.
9
<PAGE>
ARTICLE V.
NOTICES
-------
Section 1. Method. Whenever by statute, the Certificate of
------
Incorporation, or these Bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
10
<PAGE>
shall be given, personal notice shall not be required, and any such notice may
be given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books or
(in the case of a stockholder) the stock transfer records of the Corporation, or
(b) by any other method permitted by law (including but not limited to overnight
courier service, telegram, telex, or telefax). Any notice required or permitted
to be given by mail shall be deemed to be given when deposited in the United
States mail as aforesaid. Any notice required or permitted to be given by
overnight courier service shall be deemed to be given at the time delivered to
such service with all charges prepaid and addressed as aforesaid. Any notice
required or permitted to be given by telegram, telex, or telefax shall be deemed
to be delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
Section 2. Waiver. Whenever any notice is required to be given to
------
any stockholder, director, or committee member of the Corporation by statute,
the Certificate of Incorporation or these Bylaws, a written waiver thereof,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be equivalent to notice. Attendance of a
stockholder, director, or committee member at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section 3. Exception to Notice Requirement. The giving of any
----------------------------------
notice required under any provision of the General Corporation Law of Delaware,
the Certificate of Incorporation or these Bylaws shall not be required to be
given to any stockholder to whom (i) notice of two consecutive annual meetings,
and all notices of meetings or of the taking of action by written consent
without a meeting to such stockholder during the period between such two
consecutive annual meetings, or (ii) all, and at least two, payments (if sent by
first class mail) of dividends or interest on securities during a twelve-month
period, have been mailed addressed to such person at his address as shown on the
records of the Corporation and have been returned undeliverable. If any such
stockholder shall deliver to the Corporation a written notice setting forth his
then current address, the requirement that notice be given to such stockholder
shall be reinstated.
ARTICLE VI.
OFFICERS
--------
Section 1. Officers. The officers of the Corporation shall be
--------
elected by the directors and shall be a Chief Executive Officer, a President, a
Vice President, a Treasurer and a Secretary. The Board of Directors may also
choose a Chairman of the Board, a Vice Chairman of the Board, additional Vice
11
<PAGE>
Presidents and one or more Assistant Secretaries and Assistant Treasurers. Any
two or more offices may be held by the same person.
Section 2. Election. The Board of Directors at its first meeting
--------
after each annual meeting of stockholders shall elect the officers of the
Corporation, none of whom need be a member of the Board, a stockholder or a
resident of the State of Delaware. The Board of Directors may appoint such other
officers and agents as it shall deem necessary, who shall be appointed for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 3. Compensation. The compensation of all officers and
------------
agents of the Corporation shall be fixed by the Board of Directors.
Section 4. Removal and Vacancies. Each officer of the Corporation
----------------------
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer or agent elected or appointed by the
Board of Directors may be removed either for or without cause by a majority of
the directors represented at a meeting of the Board of Directors at which a
quorum is represented, whenever in the judgment of the Board of Directors the
best interests of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
Section 5. Chairman of the Board. The Chairman of the Board, if
------------------------
such an officer shall be elected, shall preside at all meetings of the Board of
Directors and the stockholders of the Corporation. In the absence of the
Chairman of the Board, such duties shall be performed by the Vice Chairman of
the Board, if such an officer shall be elected, and then by the Chief Executive
Officer of the Corporation. In addition, if such an officer shall be elected,
the Chairman of the Board shall exercise and perform such other powers and
duties as usually appertain to the office of the Chairman of the Board and as
may from time to time be assigned to the Chairman of the Board by the Board of
Directors of the Corporation or be prescribed by these Bylaws.
Section 6. Vice Chairman of the Board. The Vice Chairman of the
-----------------------------
Board, if such an officer shall be elected, shall, in the absence of the
Chairman of the Board, preside at all meetings of the Board of Directors and the
stockholders of the Corporation. If such an officer shall be elected, the Vice
Chairman of the Board shall, in the absence of the Chairman of the Board,
exercise and perform such powers and duties assigned to the Chairman of the
Board. In addition, if such an officer shall be elected, the Vice Chairman of
the Board shall exercise and perform such other powers and duties as may from
time to time be assigned to the Vice Chairman of the Board by the Board of
Directors of the Corporation or by the Chairman of the Board or be prescribed by
these Bylaws.
Section 7. Chief Executive Officer. Subject to the control of the Board
-----------------------
of Directors of the Corporation and subject to the supervisory powers, if any,
as may be assigned by the Board of Directors of the Corporation to the Chairman
of the Board, if such an officer shall be elected, and to the Vice Chairman of
the Board, if such an officer shall be elected, the Chief Executive Officer
shall be the chief executive officer of the Corporation and in general shall
12
<PAGE>
supervise and control the business and affairs of the Corporation. The Chief
Executive Officer shall perform such other duties expressly delegated to other
persons by these Bylaws or the Board of Directors, and such other duties as may
be prescribed by the stockholders or the Board of Directors from time to time.
In the absence of the Chairman of the Board and the Vice Chairman of the Board,
the Chief Executive Officer shall preside at all meetings of the Board of
Directors and of the stockholders of the Corporation. The Chief Executive
Officer shall formulate and submit to the Board of Directors matters of general
policy for the Corporation and shall keep the Board of Directors fully informed
as they or any of them shall request and shall consult the Board of Directors
concerning the business of the Corporation. The Chief Executive Officer shall
have the power to appoint and remove agents and employees, except those
appointed by the Board of Directors. The Chief Executive Officer shall vote, or
shall give a proxy to any other officer of the Corporation to vote, all shares
of stock of any other Corporation standing in the name of the Corporation.
Section 8. President. Subject to the control of the Board of
---------
Directors of the Corporation and subject to such supervisory powers, if any, as
may be assigned by the Board of Directors of the Corporation to the Chief
Executive Officer, if such an officer shall be elected, the President shall be
the chief operating officer of the Corporation. If there is no Chief Executive
Officer, or in the absence of the Chief Executive Officer, or in the event of
his inability or refusal to act, the President shall perform the duties and
exercise the powers of the Chief Executive Officer. The President shall perform
such other duties as usually appertain to the office of the chief operating
officer, except for any duties expressly delegated to other persons by these
bylaws or the Board of Directors, and such other duties as may be prescribed by
the stockholders, the Chief Executive Officer, if any, or the Board of Directors
from time to time. The President may sign with the Secretary or any other
officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of capital stock of the Corporation and any deeds,
bonds, mortgages, contracts, checks, notes, drafts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof has been expressly delegated by the Bylaws or by
the Board of Directors to some other officer or agent of the Corporation, or
shall be required to be otherwise executed.
Section 9. Vice Presidents. Each Vice President shall have only
----------------
such powers and perform only such duties as the Board of Directors may from time
to time prescribe or as the President may from time to time delegate to him.
Section 10. Secretary. The Secretary shall attend all sessions of
---------
the Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose and
shall perform like duties for any committee when required. Except as otherwise
provided herein, the Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he shall be. He shall keep in safe custody
the seal of the Corporation and, when authorized by the Board of Directors,
affix the same to any instrument requiring it, and, when so affixed, it shall be
attested by his signature or by the signature of the Treasurer or an Assistant
Secretary.
13
<PAGE>
Section 11. Assistant Secretaries. Each Assistant Secretary shall
----------------------
have only such powers and perform only such duties as the Board of Directors may
from time to time prescribe or as the President may from time to time delegate.
Section 12. Treasurer. The Treasurer shall have the custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements of the Corporation and shall deposit all monies and
other valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President and
directors, at the regular meetings of the Board of Directors, or whenever they
may require it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation, and shall perform such other duties as
the Board of Directors may prescribe. If required by the Board of Directors, he
shall give the Corporation a bond in such form, in such sum, and with such
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 13. Assistant Treasurers. Each Assistant Treasurer shall
---------------------
have only such powers and perform only such duties as the Board of Directors may
from time to time prescribe.
ARTICLE VII.
CERTIFICATES REPRESENTING SHARES
--------------------------------
Section 1. Certificates. The shares of the Corporation shall be
------------
represented by certificates in such form as shall be determined by the Board of
Directors. Such certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued. Each certificate
shall state on the face thereof the holder's name, the number and class of
shares, and the par value of such shares or a statement that such shares are
without par value. Each certificate shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and may be sealed with
the seal of the Corporation or a facsimile thereof Any or all of the signatures
on a certificate may be facsimile.
Section 2. Legends. The Board of Directors shall have the power and
-------
authority to provide that certificates representing shares of stock shall bear
such legends, including, without limitation, such legends as the Board of
Directors deems appropriate to assure that the Corporation does not become
liable for violations of federal or state securities laws or other applicable
law.
Section 3. Lost Certificates. The Corporation may issue a new
------------------
certificate representing shares in place of any certificate theretofore issued
by the Corporation, alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate to be
lost, stolen or destroyed. The Board of Directors, in its discretion and as a
14
<PAGE>
condition precedent to the issuance thereof, may require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the Corporation a bond in
such form, in such sum, and with such surety or sureties as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfer of Shares. Shares of stock shall be
--------------------
transferable only on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. Registered Stockholders. The Corporation shall be
------------------------
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof, and, accordingly, shall not be bound to recognize any
equitable or other claim or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VIII.
GENERAL PROVISIONS
------------------
Section 1. Dividends. The directors, subject to any restrictions
---------
contained in the Certificate of Incorporation, may declare dividends upon the
shares of the Corporation's capital stock. Dividends may be paid in cash, in
property, or in shares of the Corporation, subject to the provisions of the
General Corporation Law of Delaware and the Certificate of Incorporation.
Section 2. Reserves. By resolution of the Board of Directors, the
--------
directors may set apart out of any of the funds of the Corporation such reserve
or reserves as the directors from time to time, in their discretion, think
proper to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other purposes as the
directors shall think beneficial to the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 3. Checks. All checks or demands for money and notes of the
------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be
-----------
fixed by resolution of the Board of Directors.
Section 5. Seal. The corporate seal shall have inscribed thereon
----
the name of the Corporation. Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
15
<PAGE>
Section 6. Indemnification. The Corporation shall indemnify its
---------------
directors, officers, employees and agents to the fullest extent permitted by the
General Corporation Law of Delaware and the Certificate of Incorporation.
Section 7. Transactions with Directors and Officers. No contract or
----------------------------------------
other transaction between the Corporation and any other corporation and no other
act of the Corporation shall, in the absence of fraud, be invalidated or in any
way affected by the fact that any of the directors of the Corporation are
pecuniarily or otherwise interested in such contract, transaction or other act,
or are directors or officers of such other corporation. Any director of the
Corporation, individually, or any firm or corporation of which any such director
may be a member, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Corporation; provided,
--------
however, that the fact that the director, individually, or the firm or
corporation is so interested shall be disclosed or shall have been known to the
Board of Directors or a majority of such members thereof as shall be present at
any annual meeting or at any special meeting, called for that purpose, of the
Board of Directors at which action upon any contract or transaction shall be
taken. Any director of the Corporation who is so interested may be counted in
determining the existence of a quorum at any such annual or special meeting of
the Board of Directors which authorizes such contract or transaction, and may
vote thereat to authorize such contract or transaction with like force and
effect as if he were not such director or officer of such other corporation or
not so interested. Every director of the Corporation is hereby relieved from any
disability which might otherwise prevent him from carrying out transactions with
or contracting with the Corporation for the benefit of himself or any firm,
corporation, trust or organization in which or with which he may be in anywise
interested or connected.
Section 8. Amendments. These Bylaws may be altered, amended, or
----------
repealed or new bylaws may be adopted by the stockholders or by the Board of
Directors at any regular meeting of the stockholders or the Board of Directors,
at any special meeting of the stockholders or the Board of Directors if notice
of such alteration, amendment, repeal, or adoption of new bylaws be contained in
the notice of such special meeting, or by written consent of the Board of
Directors or the stockholders without a meeting.
Section 9. Table of Contents; Headings. The Table of Contents and
----------------------------
headings used in these Bylaws have been inserted for convenience only and do not
constitute matters to be construed in interpretation.
16
<PAGE>
CERTIFICATE BY SECRETARY
------------------------
The undersigned, being the Secretary of the Corporation, hereby certifies
that the foregoing Amended and Restated Bylaws were duly adopted by the Board of
Directors of the Corporation effective on September 10, 1999.
IN WITNESS WHEREOF, I have signed this certification as of the 10th day of
September, 1999.
/s/ Larry D. Kasufkin
--------------------------------
Larry D. Kasufkin, Secretary
17
<PAGE>
EXHIBIT 10.8
SEVERANCE AGREEMENT
This Severance Agreement (this "Agreement") is made this 23rd day of July,
1999 by and between Marie T. Pierson (hereinafter "Pierson") and American Bingo
& Gaming Corp. (hereinafter "ABG").
Whereas Pierson is an employee and an officer of ABG;
Now, in consideration of the mutual promises contained herein and the terms
set forth below, the parties agree as follows:
1. Resignation. Pierson hereby resigns from any and all positions held with
-----------
ABG and its subsidiaries as a result of the change in control provisions of the
employment agreement.
2. Severance Payment. ABG does hereby agree to pay Pierson $90,000 as a
------------------
severance payment pursuant to the terms of her employment agreement.
3. Benefits Continuation. Continuation for the Severance Period (nine
----------------------
months) of coverage under the group health, dental, disability and life
insurance benefit plans or until Pierson is able to effect coverage from another
employer at any time during the Severance period.
4. Confidentiality. Pierson hereby acknowledges, represents and agrees that
----------------
she will maintain the confidentiality of all information obtained regarding ABG,
including but not limited to its operations, management, financial matters,
plans and other material data, and that she will not in any fashion, form or
manner, either directly or indirectly, divulge, disclose or communicate to any
person, firm, corporation or other business entity, in any manner whatsoever,
any such confidential information concerning ABG. However, Pierson may disclose
any information required by law or regulatory agency.
5. Indemnification. ABG agrees to indemnify and hold Pierson harmless from
----------------
and against any and all costs, judgments, expenses, attorney's fees, damages or
liabilities whatsoever relating to any and all claims that may be brought
against Pierson in connection with her position as an officer of ABG to the
fullest extent authorized by Delaware law as provided in paragraph 7 of the
Certificate of Incorporation of ABG, as amended October 7, 1994.
6. Governing Law. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the laws of the State of South Carolina.
7. Severability. If any of this Agreement or any portion of any provision
-------------
of this Agreement is at any time deemed or declared void, voidable or
unenforceable, then such provision or portion of such provision is severable
from the remainder of this Agreement and the remainder of this Agreement and the
remainder of this Agreement shall be fully enforced.
<PAGE>
8. Further Assurances. The parties shall from time to time promptly execute
------------------
and deliver such further instruments, documents or papers and perform all acts
necessary or proper to carry out and effect the terms and provisions of this
Agreement.
9. Supersedes Prior Agreement. It is understood and agreed that this
----------------------------
Agreement contains the entire agreement between the parties and supersedes any
and all prior agreements and arrangements or understandings between the parties
relating to the subject matter hereof. No oral understanding, statements,
promises or inducements contrary to the terms of this Agreement exist. This
Agreement cannot be changed or terminated orally.
10. ABG Release. Pierson hereby releases ABG and its officers and directors
-----------
from any and all past, present or future claims, demands, actions, causes of
action, costs, judgments, expenses, attorney's fees, damages and all liabilities
whatsoever at law or in equity, whether known or unknown, that she may have,
claim to have, or have ever had, against ABG and its officers and directors
arising from any and all causes of action.
11. Pierson Global Release. ABG hereby releases Pierson from any and all
------------------------
past, present and future claims, demands, actions, causes of action, costs,
judgments, expenses, attorney's fees, damages and all liabilities whatsoever at
law or in equity, whether known or unknown, that it may have, claim to have, or
have ever had, against Pierson.
In Witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.
WITNESS:
/s/ Shannon M. Pierson /s/ Marie T. Pierson
- ------------------------- -----------------------
Marie T. Pierson
WITNESS: American Bingo & Gaming Corp.
/s/ Shannon M. Pierson By: /s/ Daniel W. Deloney
- ------------------------- ------------------------
Name: Daniel W. Deloney
Title: Chairman of the Board & CEO
2
<PAGE>
EXHIBIT 10.9
SEVERANCE AGREEMENT
-------------------
This Severance Agreement (this "Agreement") is entered into as of the 17th
day of September, 1999, by and among Thomas M. Harrison (hereinafter
"Harrison"), American Bingo & Gaming Corp., a Delaware corporation (hereinafter
"ABG"), and Darlington Music Co., Inc., a South Carolina corporation and a
subsidiary of ABG (hereinafter "DMC").
WHEREAS, Harrison is an employee of DMC;
WHEREAS, Harrison, DMC and ABG have made a collective determination that,
subject to certain terms of separation being agreed to among Harrison, DMC and
ABG, it may be in the best interest of Harrison, DMC and ABG for Harrison to
resign from all positions held with ABG and its subsidiaries; and
NOW, THEREFORE, in consideration of the mutual promises contained herein
and the terms set forth below, the parties agree as follows:
1. Resignation. Harrison hereby resigns from any and all positions held
-----------
with ABG and its subsidiaries.
2. Employment Agreement. The Employment Agreement between Harrison and DMC
---------------------
dated December 18, 1997, as amended February 25, 1998 (the "Employment
Agreement"), is hereby terminated.
In connection with the termination of the Employment Agreement, Harrison and DMC
agree that the nondisclosure and noncompete provisions contained in Article 8 of
the Employment Agreement shall survive the termination of Harrison's employment
as provided for in Section 8.7 of the Employment Agreement. However, the terms
of the nondisclosure and noncompete provisions contained in Article 8 of the
Employment Agreement shall be modified in two respects. First, the term
"Restricted Period" as defined in Section 8.3 of the Employment Agreement is
amended to read in its entirety as follows: "For the purpose of this Agreement,
the "Restricted Period" means the period from September 17, 1999 through
September 17, 2002." Second, the noncompete provisions are hereby amended such
that Harrison is not prohibited from promoting, operating, managing, or
conducting any video gaming business which operates only machines identified
under Section 12-21-2720(A)(1), Section 12-21-2720(A)(2) or Section 12-21-2730
of the South Carolina Code of Laws. The intent of this modification and
amendment of the noncompete provision contained in Article 8 of the Employment
Agreement is to allow Harrison to own, operate and manage the machines which he
is acquiring from DMC and ABG which are set forth on Exhibit A attached hereto.
Furthermore, the parties hereto agree that Harrison shall have the right to
place any of the machines set forth on Exhibit A in any location in which ABG or
<PAGE>
any of its subsidiaries has placed video gaming machines in the event Harrison
can reach agreement with the owner and/or operator of the respective location.
ABG expressly agrees that it, and its subsidiaries, will waive any condition of
the respective Coin Machine Agreement with the owner/operator of any such
location such that the placement of such machines by Harrison in the location
will not violate any prohibitions set forth in such Coin Machine Agreement.
As provided in Section 2.3 of the Employment Agreement, DMC acknowledges that
the balance due, including accrued interest thereon, on the Promissory Note
dated February 24, 1998, by and between DMC and Harrison is hereby forgiven in
full and any obligation of Harrison to make further payments of principal and/or
interest to DMC pursuant to the Promissory Note is hereby terminated and
forgiven.
3. Severance Payment. ABG does hereby agree, as a severance payment, (i) to
-----------------
pay to Harrison $76,700 and (ii) to transfer to Harrison the property specified
on Exhibit A attached hereto, no later than two business days following the date
of this Agreement. The parties further agree that Harrison shall not receive,
and shall not be entitled to receive, any further severance or other payments or
benefits, with the expressed exception of the contribution to Harrison's account
under the DMC Profit Sharing Plan #1 accrued for the year ending August 31,
1999, which will be paid pursuant to the terms of the Employment Agreement.
4. Confidentiality. Harrison hereby acknowledges, represents and agrees
---------------
that he will maintain the confidentiality of all information obtained regarding
ABG and its subsidiaries, including but not limited to their operations,
management, financial matters, plans and other material data, and that he will
not in any fashion, form or manner, either directly or indirectly, divulge,
disclose or communicate to any person, firm, corporation or other business
entity, in any manner whatsoever, any such confidential information concerning
ABG or its subsidiaries. However, Harrison may disclose any information
required by law to be disclosed by Harrison after Harrison has notified ABG of
such requirement and given ABG the opportunity to review the information to be
disclosed.
5. Harrison Global Release. ABG and its subsidiaries hereby release
-------------------------
Harrison from any and all past, present or future claims, demands, actions,
causes of action, costs, judgments, expenses, attorney's fees, damages and all
liabilities whatsoever at law or in equity, whether known or unknown, that ABG
and its subsidiaries may have, claim to have, or have ever had, against Harrison
arising from any and all causes of action, whether intentional, wanton,
reckless, malicious, negligent, grossly negligent, or inadvertent, in contract
or in tort. In this regard, the parties to this Agreement intend for the
release provided by this Agreement to cause, to the fullest extent permitted by
law and at equity, the complete and final discharge and extinguishing of all
claims and causes of action against Harrison, whether known or unknown,
involving the parties hereto, for all time up to and including the date of this
Agreement. ABG agrees to indemnify and hold Harrison harmless from and against
- 2 -
<PAGE>
any and all costs, judgments, expenses, attorney's fees, damages or liabilities
whatsoever relating to any and all claims that may be brought against Harrison
in connection with his position as an employee of DMC, and his position as an
officer and/or director of any subsidiary of ABG, to the fullest extent
authorized by Delaware law.
6. ABG Release. Harrison hereby releases ABG and its officers and directors
-----------
and the subsidiaries of ABG and their officers and directors from any and all
past, present or future claims, demands, actions, causes of action, costs,
judgments, expenses, attorney's fees, damages and all liabilities whatsoever at
law or in equity, whether known or unknown, that he may have, claim to have, or
have ever had, against ABG and its officers and directors and the subsidiaries
of ABG and their officers and directors arising from any and all causes of
action, whether intentional, wanton, reckless, malicious, negligent, grossly
negligent, or inadvertent, in contract or in tort. In this regard, the parties
to this Agreement intend for the release provided by this Agreement to cause, to
the fullest extent permitted by law and at equity, the complete and final
discharge and extinguishing of all claims and causes of action against ABG and
its officers and directors and the subsidiaries of ABG and their officers and
directors, whether known or unknown, involving the parties hereto, for all time
up to and including the date of this Agreement.
7. DMC Profit Sharing Plan #1. The parties hereto agree that nothing in
------------------------------
this Agreement shall change, alter or affect the enforcement of the rights and
obligations of the parties under the DMC Profit Sharing Plan #1.
8. Governing Law. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the laws of the State of South Carolina.
9. Severability. If any provision of this Agreement or any portion of any
------------
provision of this Agreement is at any time deemed or declared void, voidable or
unenforceable, then such provision or portion of such provision is severable
from the remainder of this Agreement and the remainder of this Agreement shall
be fully enforced.
10. Further Assurances. The parties shall from time to time promptly
-------------------
execute and deliver such further instruments, documents or papers and perform
all acts necessary or proper to carry out and effect the terms and provisions of
this Agreement.
11. Counterparts and Fax Signature Pages. It is understood and agreed that
-------------------------------------
this Agreement may be executed in duplicate counterpart originals, each of which
shall be deemed an original for all purposes. Signatures need not be in
original and a facsimile and/or copy bearing a copied or facsimile signature
shall suffice as a binding signature for this Agreement.
- 3 -
<PAGE>
12. Supersedes Prior Agreements. It is understood and agreed that this
-----------------------------
Agreement contains the entire agreement among the parties and supersedes any and
all prior agreements and arrangements or understandings among the parties
relating to the subject matter hereof. No oral understanding, statements,
promises or inducements contrary to the terms of this Agreement exist. This
Agreement cannot be changed or terminated orally.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
WITNESS:
/s/ Richard T. Copeland /s/ Thomas M. Harrison
- ------------------------------- -------------------------------
Thomas M. Harrison
WITNESS: AMERICAN BINGO & GAMING CORP.
/s/ Donna Pugh By: /s/ Daniel W. Deloney
- ------------------------------- -------------------------------
Daniel W. Deloney
President
WITNESS: DARLINGTON MUSIC CO., INC.
/s/ Donna Pugh By: /s/ Daniel W. Deloney
- ------------------------------- -------------------------------
Daniel W. Deloney
President
- 4 -
<PAGE>
EXHIBIT A
PROPERTY LISTING
[Exhibit A contains a listing of approximately 48 jukeboxes, 100 pool tables and
65 video games, none of which are video gaming machines of the type operated by
the Company.]
- 5 -
<PAGE>
EXHIBIT 10.10
SEVERANCE AGREEMENT
-------------------
This Severance Agreement (this "Agreement") is entered into as of the 17th
day of September, 1999, by and among William W. Harrison (hereinafter
"Harrison"), American Bingo & Gaming Corp., a Delaware corporation (hereinafter
"ABG"), and Darlington Music Co., Inc., a South Carolina corporation and a
subsidiary of ABG (hereinafter "DMC").
WHEREAS, Harrison is an employee of DMC;
WHEREAS, Harrison, DMC and ABG have made a collective determination that,
subject to certain terms of separation being agreed to among Harrison, DMC and
ABG, it may be in the best interest of Harrison, DMC and ABG for Harrison to
resign from all positions held with ABG and its subsidiaries; and
NOW, THEREFORE, in consideration of the mutual promises contained herein
and the terms set forth below, the parties agree as follows:
1. Resignation. Harrison hereby resigns from any and all positions held
-----------
with ABG and its subsidiaries.
2. Employment Agreement. The Employment Agreement between Harrison and DMC
---------------------
dated December 18, 1997, as amended February 25, 1998 (the "Employment
Agreement"), is hereby terminated. In connection with the termination of the
Employment Agreement, Harrison and DMC agree that the nondisclosure and
noncompete provisions contained in Article 8 of the Employment Agreement shall
survive the termination of Harrison's employment as provided for in Section 8.7
of the Employment Agreement. Furthermore, the term "Restricted Period" as
defined in Section 8.3 of the Employment Agreement is amended to read in its
entirety as follows: "For the purpose of this Agreement, the "Restricted
Period" means the period from September 17, 1999 through September 17, 2002".
Furthermore, as provided in Section 2.3 of the Employment Agreement, DMC
acknowledges that the balance due, including accrued interest thereon, on the
Promissory Note dated February 24, 1998, by and between DMC and Harrison is
hereby forgiven in full and any obligation of Harrison to make further payments
of principal and/or interest to DMC pursuant to the Promissory Note is hereby
terminated and forgiven.
3. Severance Payment. ABG does hereby agree to pay to Harrison, no later
------------------
than two business days following the date of this Agreement, $126,700 as a
severance payment. The parties further agree that Harrison shall not receive,
and shall not be entitled to receive, any further severance or other payments or
benefits, with the expressed exception of the contribution to Harrison's account
under the DMC Profit Sharing Plan #1 accrued for the year ending August 31,
1999, which will be paid pursuant to the terms of the Employment Agreement.
<PAGE>
4. Confidentiality. Harrison hereby acknowledges, represents and agrees
---------------
that he will maintain the confidentiality of all information obtained regarding
ABG and its subsidiaries, including but not limited to their operations,
management, financial matters, plans and other material data, and that he will
not in any fashion, form or manner, either directly or indirectly, divulge,
disclose or communicate to any person, firm, corporation or other business
entity, in any manner whatsoever, any such confidential information concerning
ABG or its subsidiaries. However, Harrison may disclose any information
required by law to be disclosed by Harrison after Harrison has notified ABG of
such requirement and given ABG the opportunity to review the information to be
disclosed.
5. Harrison Global Release. ABG and its subsidiaries hereby release
-------------------------
Harrison from any and all past, present or future claims, demands, actions,
causes of action, costs, judgments, expenses, attorney's fees, damages and all
liabilities whatsoever at law or in equity, whether known or unknown, that ABG
and its subsidiaries may have, claim to have, or have ever had, against Harrison
arising from any and all causes of action, whether intentional, wanton,
reckless, malicious, negligent, grossly negligent, or inadvertent, in contract
or in tort. In this regard, the parties to this Agreement intend for the
release provided by this Agreement to cause, to the fullest extent permitted by
law and at equity, the complete and final discharge and extinguishing of all
claims and causes of action against Harrison, whether known or unknown,
involving the parties hereto, for all time up to and including the date of this
Agreement. ABG agrees to indemnify and hold Harrison harmless from and against
any and all costs, judgments, expenses, attorney's fees, damages or liabilities
whatsoever relating to any and all claims that may be brought against Harrison
in connection with his position as an employee of DMC, and his position as an
officer and/or director of any subsidiary of ABG, to the fullest extent
authorized by Delaware law.
6. ABG Release. Harrison hereby releases ABG and its officers and directors
-----------
and the subsidiaries of ABG and their officers and directors from any and all
past, present or future claims, demands, actions, causes of action, costs,
judgments, expenses, attorney's fees, damages and all liabilities whatsoever at
law or in equity, whether known or unknown, that he may have, claim to have, or
have ever had, against ABG and its officers and directors and the subsidiaries
of ABG and their officers and directors arising from any and all causes of
action, whether intentional, wanton, reckless, malicious, negligent, grossly
negligent, or inadvertent, in contract or in tort. In this regard, the parties
to this Agreement intend for the release provided by this Agreement to cause, to
the fullest extent permitted by law and at equity, the complete and final
discharge and extinguishing of all claims and causes of action against ABG and
its officers and directors and the subsidiaries of ABG and their officers and
directors, whether known or unknown, involving the parties hereto, for all time
up to and including the date of this Agreement.
2
<PAGE>
7. DMC Profit Sharing Plan #1. The parties hereto agree that nothing in
------------------------------
this Agreement shall change, alter or affect the enforcement of the rights and
obligations of the parties under the DMC Profit Sharing Plan #1.
8. Governing Law. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the laws of the State of South Carolina.
9. Severability. If any provision of this Agreement or any portion of any
------------
provision of this Agreement is at any time deemed or declared void, voidable or
unenforceable, then such provision or portion of such provision is severable
from the remainder of this Agreement and the remainder of this Agreement shall
be fully enforced.
10. Further Assurances. The parties shall from time to time promptly
-------------------
execute and deliver such further instruments, documents or papers and perform
all acts necessary or proper to carry out and effect the terms and provisions of
this Agreement.
11. Counterparts and Fax Signature Pages. It is understood and agreed that
-------------------------------------
this Agreement may be executed in duplicate counterpart originals, each of which
shall be deemed an original for all purposes. Signatures need not be in
original and a facsimile and/or copy bearing a copied or facsimile signature
shall suffice as a binding signature for this Agreement.
12. Supersedes Prior Agreements. It is understood and agreed that this
-----------------------------
Agreement contains the entire agreement among the parties and supersedes any and
all prior agreements and arrangements or understandings among the parties
relating to the subject matter hereof. No oral understanding, statements,
promises or inducements contrary to the terms of this Agreement exist. This
Agreement cannot be changed or terminated orally.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
WITNESS:
/s/ John Wayne Hudson /s/ William W. Harrison
- ------------------------------- -------------------------------
William W. Harrison
WITNESS: AMERICAN BINGO & GAMING CORP.
/s/ Donna Pugh By: /s/ Daniel W. Deloney
- ------------------------------- -------------------------------
Daniel W. Deloney
President
WITNESS: DARLINGTON MUSIC CO., INC.
/s/ Donna Pugh By: /s/ Daniel W. Deloney
- ------------------------------- -------------------------------
Daniel W. Deloney
President
4
<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3408142
<SECURITIES> 0
<RECEIVABLES> 1709259
<ALLOWANCES> (309137)
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<CURRENT-ASSETS> 5833313
<PP&E> 12035082
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<TOTAL-ASSETS> 17661672
<CURRENT-LIABILITIES> 690422
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0
0
<COMMON> 10177
<OTHER-SE> 15633808
<TOTAL-LIABILITY-AND-EQUITY> 17661672
<SALES> 10213416
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