SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
American Bingo & Gaming Corp.
---------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
AMERICAN BINGO & GAMING CORP.
1440 Charleston Highway
West Columbia, South Carolina 29169
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1999
To the Stockholders of American Bingo & Gaming Corp.:
The Annual Meeting of Stockholders (the "Meeting") of American Bingo &
Gaming Corp. (the "Company") will be held in the Company's bingo hall located at
1470 Charleston Highway, West Columbia, South Carolina 29169 on the 27TH day of
MAY, 1999, at 10:00 A.M., eastern time, for the following purposes:
1. To consider and act upon the proposed amendments to the Company's
Certificate of Incorporation and the Company's Bylaws to divide the
Company's Board of Directors into two classes;
2. To consider and act upon the proposed amendment to the Company's
Certificate of Incorporation to include provisions that address stockholder
licensing issues;
3. To elect seven members to the Company's Board of Directors;
4. To approve and adopt the Company's Stock Option Plan;
5. To ratify the appointment of King Griffin & Adamson P.C. as the Company's
independent auditors for 1999; and
6. To consider such other matters as may properly come before the Meeting or
any adjournment of the Meeting.
Only holders of record of the Company's Common Stock at the close of
business on April 1, 1999, will be entitled to notice of and to vote at the
Meeting or any adjournment of the Meeting. The stock transfer books will remain
open.
You are cordially invited to attend the Meeting. WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. If you receive more then one proxy card, it is an
indication that your shares are registered in more than one account. Please
complete, date and sign each proxy card you receive. You may revoke your proxy
----
at any time before it is voted.
Enclosed with these proxy materials is a copy of the Company's 1998 Annual
Report which contains its Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 (without exhibits).
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Andre M. Hilliou
Andre M. Hilliou
Chairman of the Board, President and
Chief Executive Officer
April 26, 1999
<PAGE>
AMERICAN BINGO & GAMING CORP.
1440 Charleston Highway
West Columbia, South Carolina 29169
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1999
This Proxy Statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies for use at the Annual Meeting of
Stockholders (the "Meeting") of American Bingo & Gaming Corp. (the "Company") to
be held on May 27, 1999, at 10:00 a.m., eastern time, and at any adjournment
thereof, for the purposes set forth in this Proxy Statement. The meeting will
be held in the Company's bingo hall located at 1470 Charleston Highway, West
Columbia, South Carolina 29169. THE ACCOMPANYING PROXY IS SOLICITED BY THE
BOARD OF DIRECTORS OF THE COMPANY. The principal executive offices of the
Company are located at 1440 Charleston Highway, West Columbia, South Carolina
29169. This Proxy Statement and the accompanying form of proxy were first
mailed to the stockholders on or about April 26, 1999.
VOTING AND REVOCABILITY OF PROXY APPOINTMENTS
The Company has fixed April 1, 1999, as the record date (the "Record Date")
for determining the stockholders entitled to notice of and to vote at the
Meeting. The Company's only class of stock currently outstanding is its Common
Stock, par value $0.001 per share (the "Common Stock"). At the close of
business on the Record Date, there were outstanding and entitled to vote
9,945,590 shares of Common Stock of the Company, with each share being entitled
to one vote on each matter submitted to the stockholders. There are no
cumulative voting rights. A majority of the outstanding shares of Common Stock
represented at the Meeting, in person or by proxy, will constitute a quorum.
All proxies will be voted in accordance with the instructions contained in
the proxies. If no choice is specified, proxies will be voted in accordance
with the recommendations of the Board as set forth in this Proxy Statement, and
at the proxy holders' discretion on any other matter that may properly come
before the Meeting. Any stockholder may revoke a proxy given pursuant to this
solicitation at any time before it is voted. A stockholder may revoke his or
her proxy by voting in person at the Meeting or submitting to the Company's
Secretary at the Meeting a subsequently dated proxy. In addition, a stockholder
may revoke his or her proxy by notifying the Secretary of the Company either in
writing prior to the Meeting or in person at the Meeting. Revocation is
effective only upon receipt of such notice by the Secretary.
Management of the Company is not aware of any other matter to be presented
for action at the Meeting other than those mentioned in the Notice of Annual
Meeting of Stockholders and referred to in this Proxy Statement. If any other
matters come before the Meeting, it is the intention of the persons named in the
enclosed proxy to vote on such matters in accordance with their judgment.
SOLICITATION
The costs of preparing, assembling and mailing the proxy materials will be
borne by the Company. Certain officers, directors and employees of the Company,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies in addition to this solicitation by mail. The
Company expects to reimburse brokers, banks, custodians and other nominees for
their reasonable out-of-pocket expenses in handling proxy materials for
beneficial owners of the Common Stock. The Company also may retain the services
of Morrow & Co., Inc. to aid in the solicitation of proxies, for which the
Company will pay a fee not to exceed $4,000 plus reimbursement of expenses.
<PAGE>
ELECTION OF DIRECTORS
Article III, Section 2 of the Company's Bylaws provides that the Board of
Directors shall consist of no less than two nor more than seven directors. The
Board of Directors is currently set at seven directors; however, at this time
the Board has six directors and one vacancy. All six of the current members of
the Board have been nominated for election to the Board at the Meeting. In
addition, a new member has been nominated to the Board to fill the existing
vacancy on the Board. If the proposal to amend the Company's Certificate of
Incorporation and Bylaws to provide for two classes of directors is approved by
the stockholders at the Meeting, the seven nominees for the Board of Directors
shall, if elected, be divided into two classes with three of the directors
serving as Class I directors for a one year term to expire at the 2000 Annual
Meeting of Stockholders, and four of the directors serving as Class II directors
for a two year term to expire at the 2001 Annual Meeting of Stockholders. The
directors who shall serve a one year term include George M. Harrison, Jr., Andre
M. Hilliou and Michael W. Mims. The directors who shall serve a two year term
include Kenneth R. Adams, James L. Hall, Grover C. Seaton III and A. Joe Willis.
However, if the proposal to amend the Company's Certificate of Incorporation and
Bylaws to provide for two classes of directors is not approved by the
stockholders at the Meeting, the persons nominated for election at the Meeting
shall, if elected, serve on the Board for a term of one year until the 2000
Annual Meeting of Stockholders and until their respective successors have been
duly elected and have qualified. The officers of the Company are elected
annually by the Board of Directors following the annual meeting of stockholders
and serve for terms of one year and until their successors are duly elected and
qualified.
The directors shall be elected by a plurality of the votes cast at the
Meeting. A "plurality" means that the individuals who receive the largest
number of votes cast are elected as directors up to the maximum number of
directors to be elected at the Meeting. Consequently, any shares not voted
(whether by abstention, broker non-vote or otherwise) will have no impact on the
election of directors. It is the intention of the persons named as proxies in
the accompanying proxy to vote FOR the election of the nominees identified
below. If any nominee is unable or fails to accept nomination or election
(which is not anticipated), the persons named in the proxy as proxies, unless
specifically instructed otherwise in the proxy, will vote for the election of
such other person as the Company's existing Board of Directors may recommend.
The table below sets forth certain information about the nominees,
including the nominee's age, position with the Company and length of time served
as a member of the Board. All of the nominees are currently serving as
directors of the Company except for Kenneth R. Adams.
<TABLE>
<CAPTION>
Name Age Position with the Company Director Since
- ------------------------------ --- ------------------------- --------------
<S> <C> <C> <C>
Kenneth R. Adams 56 None N/A
James L. Hall 58 Director July 1998
Vice Chairman of the Board
George M. Harrison, Jr. 50 and Vice President February 1998
Chairman of the Board,
President and Chief
Andre M. Hilliou 51 Executive Officer April 1998
Michael W. Mims 47 Director October 1997
Grover C. Seaton III 56 Director July 1998
A. Joe Willis 60 Director July 1998
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE SEVEN NOMINEES NAMED ABOVE.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth the name and a brief description of the principal
occupation and business experience for at least the preceding five years for
each of the seven nominees for election to the Board of Directors and the
executive officers of the Company. None of the directors or executive officers
are related.
KENNETH R. ADAMS, 56, has been nominated to join the Board of Directors
upon election by the stockholders at the Meeting. Since 1990, Mr. Adams has
owned and operated a gaming consulting firm, Ken Adams and Associates, which
2
<PAGE>
specializes in information, analysis and strategic planning for Indian tribes,
casino operations and gaming manufacturers. Mr. Adams has also been a partner
in Johnny Nolon's Casino in Cripple Creek, Colorado, since August 1997. Prior
to founding Ken Adams and Associates, Mr. Adams spent over twenty years in the
hotel-casino industry. Mr. Adams is currently the editor and publisher of the
Adams' Report, a monthly newsletter specializing in identifying trends in casino
gaming, regulation and manufacturing. He is also a founder and associate editor
of the Nevada Gaming Almanac, which is published annually. Among the numerous
boards and committees on which Mr. Adams has served or continues to serve are
the Gaming Management Advisory Board, the Nevada Gaming Almanac Board of
Directors, the Gaming Industry Association's Speakers' Bureau, the Reno Downtown
Improvement Association and the Dale Carnegie Scholarship Committee.
JAMES L. HALL, 58, has served as a member of the Board of Directors since
July 1998. Mr. Hall received a Bachelor of Science in Business from Virginia
Tech in 1963. He has also attended executive development classes at The Wharton
School of the University of Pennsylvania and the Darden Graduate School of
Business Administration of the University of Virginia. Mr. Hall worked with
AT&T and Bell Atlantic for 25 years before his retirement in 1992. Before his
retirement, he served as Director of Operations for Western Virginia for Bell
Atlantic. Mr. Hall currently owns and manages Woodsdale Farm in Fincastle,
Virginia. Mr. Hall is a prior Director of the American Red Cross Roanoke
Chapter, Past President of the Cattlemen's Association as well as the President
and Director of the Southwestern Telco Federal Credit Union.
GEORGE M. HARRISON, JR., 50, is currently the Vice Chairman of the Board
and a Vice President of the Company. Mr. Harrison served as the interim
Chairman of the Board from April 10, 1998 until July 30, 1998 and as the interim
Chief Executive Officer of the Company from April 10, 1998 until May 18, 1998.
Mr. Harrison was President of Darlington Music Co., Inc. ("DMC"), a video gaming
route operation in South Carolina which the Company acquired in December 1997.
DMC was founded by Mr. Harrison's father in 1938. Mr. Harrison also worked in
various other capacities at DMC from 1973 to 1997. Mr. Harrison is a former
President of the South Carolina Coin Operators Association. Mr. Harrison has
served as the President of the Darlington Downtown Revitalization Association,
as the Vice Chairman of the Darlington Historic Landmarks Commission, and in
various roles with the Optimist Club of Darlington and the Rotary Club of
Darlington.
ANDRE M. HILLIOU, 51, is currently serving as the Company's Chairman of the
Board, President and Chief Executive Officer. Mr. Hilliou received his
undergraduate degree in Hotel and Restaurant Administration in Quimper, France
in 1968. From 1996 to 1997, Mr. Hilliou served as Chief Executive Officer of
Aristocrat Inc., the world's second largest manufacturer and distributor of slot
machines and gaming systems. From 1987 to 1996, Mr. Hilliou served in various
positions with Showboat Inc., including as Chief Executive Officer of Showboat
Inc.'s Sydney Harbour Casino in Sydney, Australia, and as Senior Vice President
of Operations of Showboat's Casino Hotel in Atlantic City, New Jersey.
Previously, Mr. Hilliou served as a Vice President for the Golden Nugget Casino
Hotel in Atlantic City, New Jersey.
MICHAEL W. MIMS, 47, has served as a member of the Board of Directors of
the Company since October 1997. Mr. Mims received a Bachelor of Arts degree
from Furman University in 1974 and a Juris Doctor from the University of South
Carolina in 1977. Mr. Mims currently operates and shares ownership in Mims &
Dye Enterprises, L.L.C., an operator of video gaming route operations in South
Carolina. Prior to operating Mims & Dye Enterprises, Mr. Mims worked for the
Company as the Vice President of Gaming from September 1997 until November 1998.
Mr. Mims was the founder and sole owner of Gold Strike, Inc., a video gaming
business which the Company acquired in September 1997. During the past fifteen
years, and prior to the sale of Gold Strike, Inc. to the Company, Mr. Mims has
owned and operated various video gaming companies. Mr. Mims has been actively
involved in the video gaming industry in South Carolina for the last fifteen
years and has served as the President of the South Carolina Coin Operators
Association.
GROVER C. SEATON III, 56, has served as a member of the Board of Directors
since July 1998. Mr. Seaton received a Bachelor of Arts from the University of
North Carolina in 1966 and a Master of Arts from the University of South
Carolina in 1969. He received a Juris Doctor from the University of South
Carolina in 1971. He is currently the Senior Partner of Seaton & Manley, P.C.,
a law firm located in Moncks Corner, South Carolina, where he has practiced law
for over twenty-five years. Mr. Seaton is a member of the South Carolina Bar
Association and is admitted to practice before the U.S. District Court, the
Fourth Circuit Court of Appeals and the United States Supreme Court. Mr. Seaton
is a founding member of the National College for DUI Defense at the Harvard Law
School. He is also a founding member of the South Carolina Association of
Criminal Defense Lawyers.
3
<PAGE>
A. JOE WILLIS, 60, has served as a member of the Board of Directors since
July 1998. Dr. Willis received his Doctor of Chiropractic from Palmer College
of Chiropractic in 1960 and his Bachelor of Arts in 1978 from New College of
California. Dr. Willis has been in private practice since 1960. Dr. Willis is
currently the President and part owner of Willis Chiro Med, which owns over
thirty chiropractic clinics in South Carolina, North Carolina and Idaho. He is
a delegate to, and a member of, the American Chiropractic Association, and a
past member of the Board of Directors of the South Carolina Chiropractic
Association. Dr. Willis was the South Carolina Chiropractor of the Year in
1996. Dr. Willis also serves on the Board of Directors of the South Carolina
Policy Council. Dr. Willis is a member of the Board of Directors of the
Darlington Chamber of Commerce and a member of the Board of Trustees of Coker
College. Dr. Willis is also a member of the Rotary Club of Darlington.
RICHARD M. KELLEY, 54, has served as the Chief Financial Officer, Vice
President and Treasurer of the Company since June 1998. He received a Bachelor
of Science in Business and Accounting from California State University,
Northridge in 1971. Mr. Kelley served in various positions with Caesars World,
Inc. from 1976 to 1996, including Vice President/Treasurer of Caesars World,
Inc. from 1991 to 1996. From 1996 to June 1998, Mr. Kelley worked as a
consultant providing various business and financial services on corporate
business matters. Mr. Kelley worked with KPMG Peat Marwick in Los Angeles,
California for five years before joining Caesars World, Inc. Mr. Kelley is a
certified public accountant and is a member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants. Mr. Kelley is also a member of the Financial Executives Institute
and the National Association of Corporate Treasurers. Mr. Kelley is active in
community affairs and he has served in volunteer capacities with numerous
organizations.
MARIE T. PIERSON, 47, has served as the Vice President of Administration
and Acquisitions and Secretary of the Company since September 1998. Mrs.
Pierson received a Bachelor of Arts in Business and Accounting in 1989 from
Richard Stockton University. Prior to joining the Company, Mrs. Pierson worked
with Aristocrat, Inc. as Vice President of Planning, Administration and Support
Services from September 1996 until September 1998. From 1989 to September 1996,
Mrs. Pierson served in various positions with Showboat Inc., including as the
Vice President of Property/Hotel Operations for Showboat Inc.'s Sydney Harbour
Casino in Sydney, Australia, and as the Director of Hotel Operations of
Showboat's Casino Hotel in Atlantic City, New Jersey.
NANCY J. POLLICK, 52, has served as the Vice President of Operations of the
Company since November 1998. Mrs. Pollick received a Bachelor of Science in
Hotel Administration from Cornell University in 1983. Prior to joining the
Company, she worked from 1994 to 1998 as the Vice President of Hotel Operations
at Showboat's Casino Hotel in Atlantic City, New Jersey. From 1988 to 1994,
Mrs. Pollick was the Director of Food and Beverage and Vice President of Food
and Beverage for Showboat Inc.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth for the fiscal years ended December 31,
1996, 1997 and 1998, the cash compensation paid or accrued by the Company, as
well as certain other compensation paid or accrued for those years, for services
in all capacities to each person who served as the chief executive officer of
the Company at any time during 1998 and each executive officer of the Company
who earned total annual compensation, including salary and bonus, for the fiscal
year ended December 31, 1998, in excess of $100,000.
4
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
--------------------- -------
Other Securities
Name and Compen- Underlying
Principal Position Year Salary Bonus sation Options
- ------------------------ ------- ----------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
1998 $ 142,851 $ -- $ -- 300,000
Andre M. Hilliou (1) -
Chairman of the Board, 1997 $ -- $ -- $ -- --
President and Chief
Executive Officer 1996 $ -- $ -- $ -- --
George M. Harrison, Jr.
(2) - Vice Chairman of 1998 $ 127,816 $ -- $9,563(3) --
the Board and Vice
President, and Former 1997 $ 4,000 $ -- $ -- --
Interim Chief Executive
Officer 1996 $ -- $ -- $ -- --
1998 $ 73,027 $100,000 $ -- 100,000
Richard M. Kelley (4) -
Chief Financial Officer, 1997 $ -- $ -- $ -- --
Vice President and
Treasurer 1996 $ -- $ -- $ -- --
1998 $ 159,368 $ -- $ -- --
1997 $ 83,328 $ 2,813 $ -- --
Michael W. Mims (5) -
Former Vice President 1996 $ -- $ -- $ -- --
1998 $ 116,667 $ -- $ -- --
John T. Orton (6) - 1997 $ 77,500 $ 7,500 $ -- 75,000
Former Chief Financial
Officer 1996 $ 70,000 $ 7,172 $ -- 50,000
L. Gregory Wilson (7) - 1998 $ 90,625 $ -- $ -- --
Former Chairman of the
Board, Former President 1997 $ 225,000 $ 20,797 $ -- --
and Former Chief
Executive Officer 1996 $ 185,417 $ 8,606 $ -- 300,000
<FN>
(1) Mr. Hilliou began working with the Company on May 18, 1998, as the
President and Chief Executive Officer of the Company. On July 30, 1998, he was
elected as the Chairman of the Board.
(2) Mr. Harrison began working with the Company in December 1997
following the acquisition by the Company of Darlington Music Co., Inc., of which
Mr. Harrison was the President and one-third owner. Mr. Harrison served as the
interim Chairman of the Board from April 10, 1998 until July 30, 1998, and as
the interim Chief Executive Officer of the Company from April 10, 1998 until May
18, 1998.
(3) This represents contributions under the profit sharing plan for
Darlington Music Co., Inc.
(4) Mr. Kelley began working with the Company on June 29, 1998, as the
Vice President and Chief Financial Officer of the Company. On July 30, 1998, he
was elected as the Treasurer of the Company.
(5) Mr. Mims began working with the Company in September 1997 following
the acquisition by the Company of Gold Strike, Inc., of which Mr. Mims was the
President and sole owner. Mr. Mims served as a Vice President of the Company
until his resignation on November 9, 1998, at which time his employment
agreement with the Company was terminated.
(6) Mr. Orton served as the Chief Financial Officer of the Company
until June 1998. From June 1998 through the first quarter of 1999, Mr. Orton
worked for the Company on a part-time basis.
(7) Mr. Wilson served as the Chairman of the Board and Chief Executive
Officer of the Company until his resignation on April 10, 1998. After April 10,
1998, Mr. Wilson continued to serve as a Vice President of the Company until
July 24, 1998, at which time his employment agreement with the Company was
terminated.
</TABLE>
5
<PAGE>
STOCK OPTIONS
The following table sets forth the options granted during the fiscal year
ended December 31, 1998, to the executive officers listed in the Summary
Compensation Table.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year ($/share) Date
- -------------------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Andre M. Hilliou 300,000 (1) 75% $ 3.75 4/30/06
Richard M. Kelley 100,000 (2) 25% $ 2.78 6/28/05
- ---------------------
<FN>
(1) These options have the following vesting schedule: 75,000 on
February 26, 1999, 25,000 on April 30, 1999, 25,000 on July 31, 1999, 25,000 on
October 31, 1999, 25,000 on January 31, 2000, 25,000 on April 30, 2000, 25,000
on July 31, 2000, 25,000 on October 31, 2000, 25,000 on January 31, 2001, and
25,000 on April 30, 2001.
(2) These options have the following vesting schedule: 25,000 on
February 26, 1999, 12,500 on March 28, 1999, 12,500 on June 28, 1999, 12,500 on
September 28, 1999, 12,500 on December 28, 1999, 12,500 on March 28, 2000, and
12,500 on June 28, 2000.
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the executive
officers listed in the Summary Compensation Table concerning the exercise of
options during the last fiscal year and unexercised options held as of the end
of the fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End Fiscal Year End(1)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable
- -------------------- --------------- ---------------------- ------------- -------------
<S> <C> <C> <C> <C>
Andre M. Hilliou -- -- -0- /300,000 -0- / -0-
Richard M. Kelley -- -- - 0- /100,000 -0- / -0-
John T. Orton 33,733 $ 149,172 124,600 / -0- -0- / -0-
<FN>
(1) Based on the closing bid price for the Company's Common Stock on December 31,
1998 of $1.531 per share, all of the options held by Mr. Hilliou, Mr. Kelley and Mr. Orton
are out-of-the-money.
</TABLE>
COMPENSATION OF DIRECTORS
During the second half of 1998, non-employee directors of the Company
(James L. Hall, Grover C. Seaton and A. Joe Willis) received a fee of $1,000 for
their services on the Board, plus a fee of $500 for each committee meeting
attended. In addition, any of these non-employee directors who served as a
chairman of a committee during the second half of 1998 received a fee of $5,000.
6
<PAGE>
During the first half of 1998, the non-employee directors (Jeffrey L. Gilbert,
Randall J. Fein and G. George Fox) received a fee of $2,000 per month for their
services on the Board and no separate compensation for service on committees.
In April 1998, Jeffrey L. Gilbert, Randall J. Fein and G. George Fox were each
granted options for 27,000 shares of the Company's Common Stock for their
service on the Board. In addition, in February of 1998 Kraege Polan was awarded
an option grant for 50,000 shares of the Company's Common Stock for his service
on the Board. The Company also reimburses the directors for travel expenses
incurred in connection with attending meetings of the Board and committees.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
On April 30, 1998, the Company entered into a three-year employment
agreement with Andre M. Hilliou pursuant to which he agreed to serve as the
President and Chief Executive Officer of the Company for an annual gross salary
of $225,000. The agreement also provides for annual performance bonuses of up
to $50,000. This agreement contains a change in control provision which
provides that if a change in control occurs, as defined in the agreement, Mr.
Hilliou may at any time during the following twelve-month period exercise his
right to terminate the agreement and receive the full economic value of his
salary and other benefits to which he is entitled under the agreement for a
period of twelve months. In addition, upon terminating the agreement due to a
change in control, up to 50,000 of his unvested options shall immediately vest.
Mr. Hilliou is also entitled to these severance benefits and severance vesting
rights in the event his employment is terminated by the Company without "cause"
(as that term is defined in the agreement) or by Mr. Hilliou for "good reason"
(as that term is defined in the agreement). The agreement also contains certain
restrictions on Mr. Hilliou's ability to compete with the Company following
termination of his employment and it contains certain confidentiality and other
standard provisions.
On June 19, 1998, the Company entered into a two-year employment agreement
with Richard M. Kelley, which agreement was later amended on October 23, 1998.
Pursuant to this agreement, Mr. Kelley agreed to serve as the Vice President and
Chief Financial Officer of the Company for an annual gross salary of $140,000.
The agreement also provides for annual discretionary bonuses of up to $50,000.
This agreement provides that in the event Mr. Kelley's employment is terminated
by the Company without "cause" (as that term is defined in the agreement) or by
Mr. Kelley, Mr. Kelley shall receive the full economic value of his salary and
other benefits to which he is entitled under the agreement for the greater of
twelve months or the remaining term of the agreement. The agreement also
contains certain restrictions on Mr. Kelley's ability to compete with the
Company following termination of his employment and it contains certain
confidentiality and other standard provisions.
On July 27, 1998, the Company amended its employment agreement with George
M. Harrison, Jr. dated December 18, 1997. As amended, the agreement provides
that during the term of the agreement Mr. Harrison shall receive an annual gross
salary of $125,000. The agreement is for a three-year period which expires
December 18, 2000. The agreement also provides for an annual performance bonus
to be paid to Mr. Harrison in the discretion of the Board of Directors. The
agreement also contains certain restrictions on Mr. Harrison's ability to
compete with the Company following the termination of his employment and it
contains certain confidentiality and other standard provisions.
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
Section 16(a) of the Securities Exchange Act of 1934 requires (i) the
Company's directors and executive officers and (ii) persons who own more than
10% of a registered class of the Company's equity securities to file with the
Securities and Exchange Commission (the "SEC"), within certain specified time
periods, reports of ownership and changes in ownership. Such officers,
directors and stockholders are required by SEC regulations to furnish the
Company with copies of all such reports that they file.
To the Company's knowledge, based solely upon a review of copies of such
reports furnished to the Company and representations by certain officers and
directors that no other reports were required with respect to the year ended
December 31, 1998, all persons subject to the reporting requirements of Section
16(a) filed the required reports on a timely basis with respect to 1998 except
for Len A. Bussey who filed one report late regarding six transactions, J.
Richard Henry who filed one report late regarding four transactions, John T.
Orton who filed one report late regarding five transactions, L. Gregory Wilson
who filed two reports late regarding seven transactions, Michael W. Mims who
filed two reports late regarding two transactions, and Andre M. Hilliou who
filed one report late regarding one transaction.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of outstanding
shares of the Company's Common Stock beneficially owned as of March 19, 1999 by
(a) each executive officer of the Company, including each of the executive
officers listed in the Summary Compensation Table above, (b) each director and
each nominee for director of the Company, (c) all of the executive officers and
directors of the Company as a group, and (d) each person or entity known to the
Company to own more than five percent of the outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(2)
------------------------ --------------------- ----------
<S> <C> <C>
James L. Hall(3) 0 *
George M. Harrison, Jr.(3) 457,833(7) 4.60%
Andre M. Hilliou (3) 125,000(8) 1.24%
Michael W. Mims(3) 705,680 7.10%
Grover C. Seaton III(3) 0 *
A. Joe Willis(3) 9,000 *
Kenneth R. Adams(4) 0 *
Richard M. Kelley(3) 37,500(9) *
Marie T. Pierson(3) 7,500(10) *
Nancy J. Pollick(3) 25,000(11) *
John T. Orton(5) 134,600(12) 1.34%
L. Gregory Wilson(6) 1,056,728(13) 10.63%
Sally Stewart Wilson(6) 1,056,728(14) 10.63%
Executive officers and directors of
the Company as a group (9 persons) 1,367,513(15) 13.52%
<FN>
(1) Information relating to beneficial ownership of the Common Stock is based upon
"beneficial ownership" concepts set forth in rules of the SEC under Section 13(d) of the
Securities Exchange Act of 1934. Under these rules a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which includes the power to
vote or direct the voting of such security, or "investment power," which includes the power
to dispose or to direct the disposition of such security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to acquire beneficial
ownership within 60 days. Under the rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed to be a beneficial owner
of securities as to which he has no beneficial interest. For instance, beneficial ownership
includes spouses, minor children and other relatives residing in the same household, and
trusts, partnerships, corporations or deferred compensation plans which are affiliated with
the principal.
(2) Percentage is determined on the basis of 9,945,590 shares of Common Stock issued and
outstanding plus shares subject to options or warrants held by the named individual for whom
the percentage is calculated which are exercisable within the next 60 days as if outstanding,
but treating shares subject to warrants or options held by others as not outstanding. An
asterisk (*) indicates less than 1% ownership.
(3) Address is 1440 Charleston Highway, West Columbia, South Carolina 29169.
(4) Address is 210 Marsh Avenue, Reno, Nevada 89509.
(5) Address is 7203 Guava Cove, Austin, Texas 78750.
(6) Address is 1617 Watchhill Road, Austin, Texas 78703.
(7) Includes 5,000 shares owned by Mr. Harrison's wife in which he shares voting and
investing power.
(8) Includes 100,000 shares Mr. Hilliou has the right to acquire within 60 days pursuant
to the exercise of options.
8
<PAGE>
(9) Includes 37,500 shares Mr. Kelley has the right to acquire within 60 days pursuant to
the exercise of options.
(10) Includes 7,500 shares Mrs. Pierson has the right to acquire within 60 days pursuant
to the exercise of options.
(11) Includes 25,000 shares Mrs. Pollick has the right to acquire within 60 days pursuant
to the exercise of options.
(12) Includes 124,600 shares Mr. Orton has the right to acquire within 60 days pursuant
to the exercise of options.
(13) Includes 540,417 shares owned by Mr. Wilson's wife and 100,000 shares held by the
Linda Bussey Irrecoverable Trust of which Mrs. Bussey is the trustee for the benefit of Mr.
Wilson's minor children. Pursuant to the terms of the Settlement Agreement, Compromise of
Claims and Mutual Release entered into by Mr. Wilson and the Company on February 26, 1999,
Mr. Wilson has granted an irrevocable proxy to the Company to vote all of the shares held by
him.
(14) Includes 416,311 shares owned by Mrs. Wilson's husband and 100,000 shares held by
the Linda Bussey Irrecoverable Trust of which Mrs. Bussey is the trustee for the benefit of
Mrs. Wilson's minor children. Pursuant to the terms of the Settlement Agreement, Compromise
of Claims and Mutual Release entered into by Mrs. Wilson and the Company on February 26,
1999, Mrs. Wilson has granted an irrevocable proxy to the Company to vote all of the shares
held by her.
(15) Includes 170,000 total shares the officers and directors have the right to acquire
within 60 days pursuant to the exercise of options.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1997, the Company acquired by merger Gold Strike, Inc. from
Michael W. Mims, a director and former officer of the Company. Mr. Mims was the
sole owner of Gold Strike, Inc. and pursuant to the transaction received 827,680
shares of Common Stock of the Company as consideration for the merger. Pursuant
to this acquisition, the Company assumed an operating lease for gaming
properties located in North Augusta, South Carolina. The landlord for this
lease is a partnership in which Michael W. Mims is a 50% general partner. This
lease expires in November 2001 and has certain renewal options. Monthly rental
payments under this lease are $5,270.
In December 1997, the Company acquired by merger Darlington Music Co., Inc.
("DMC"), of which George M. Harrison, Jr., a director and officer of the
Company, was the President and a one-third owner. Pursuant to the transaction,
the Company issued 1,000,000 shares of its Common Stock as consideration for the
merger, with Mr. Harrison receiving 333,333 shares. Mr. Harrison's two brothers
were the other owners of DMC. As part of the acquisition of DMC, the Company
assumed a lease for an office and game machine warehouse facility in Darlington,
South Carolina. Mr. Harrison and his two brothers are the landlords for this
property. This lease has a 15-year term which expires January 15, 2005.
Monthly rental payments for this lease are $3,500.
In connection with the acquisition of DMC, the Company loaned George M.
Harrison, Jr. and both of his brothers $81,999 pursuant to unsecured promissory
notes. These notes accrue interest at 8% per annum and are repaid in three
equal installments of $27,333 due on December 15, 1998, 1999, and 2000.
On June 4, 1998, the Company loaned Michael W. Mims $284,889 pursuant to a
promissory note and security agreement. This note accrues interest at 7% per
annum and is due in full on May 31, 2001. This note is secured by 100,000
shares of the Company's Common Stock.
On November 9, 1998, the Company reorganized its South Carolina video
gaming operations by entering into a three-year agreement with Mims & Dye
Enterprises, L.L.C. ("Mims & Dye") which effectively served to outsource the
operations of the Company's non-route video gaming operations at eight video
gaming machine centers. Mims & Dye is managed by Michael W. Mims, who is also a
50% owner of that entity. Pursuant to the agreement, seven of the eight video
gaming centers were leased or sub-leased by the Company to Mims & Dye. Under
the agreement, the Company retains ownership of the underlining video gaming
machines and all related assets. In connection with the execution of the
agreement, the Company loaned $80,000 to Mims & Dye through two promissory
notes, which notes are due in full with interest at prime plus 2% on May 9,
1999. Mr. Mims provided a personal guaranty on the notes.
9
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1998, the Company had an Audit Committee and a Compensation
Committee, as well as an Acquisition Committee and a Compliance Committee. For
1999, the Company has combined the Audit Committee and the Compensation
Committee into one committee.
In 1998, the Audit Committee was composed of James L. Hall (Chairman),
George M. Harrison, Jr. and A. Joe Willis. The Audit Committee met once in
1998. This committee has the responsibility for reviewing the financial
condition and accounting controls and determining that all audits and
examinations required by law are performed. The committee recommends to the
Board the appointment of the independent auditors for the next fiscal year,
reviews and approves the auditors' audit plans, and reviews with the independent
auditors the results of the audit and management's response thereto.
The Compensation Committee is responsible for establishing all benefit and
compensation plans for the Company. The Compensation Committee met one time in
1998. In 1998 the Compensation Committee was composed of George M. Harrison,
Jr. (Chairman), James L. Hall and Andre M. Hilliou.
The Company did not have a nominating committee in 1998. However, the
Company did appoint a Nominating Committee in February 1999 to be responsible
for nominating individuals for election to the Company's Board of Directors at
the Meeting. This Nominating Committee was composed of James L. Hall
(Chairman), Andre M. Hilliou, Grover C. Seaton III and A. Joe Willis. The
Nominating Committee met one time in 1999 to consider the nominees for the
Meeting. The Board of Directors and the Nominating Committee welcome
recommendations made by stockholders of the Company for individuals to be
included in the slate of nominees for election at the annual meeting of
stockholders. Any recommendations for the 2000 Annual Meeting of Stockholders
must comply with the requirements of the Company's Certificate of Incorporation
and should be made in writing addressed to the Company's Board of
Directors, 1440 Charleston Highway, West Columbia, South Carolina 29169.
Under the Company's Certificate of Incorporation, any such recommendations must
be delivered in writing to the Company not less than sixty days prior to the
meeting date or, if less than seventy days' notice of the meeting date is given,
ten days after notice of the meeting date is given by public disclosure.
The Board of Directors of the Company held ten meetings during the year
ended December 31, 1998. All of the directors of the Company attended at least
75% of the aggregate of such board meetings and the meetings of each committee
on which they served.
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION
AND BYLAWS TO DIVIDE THE DIRECTORS INTO TWO CLASSES
The Board of Directors believes that it would be in the best interest of
the Company to divide the directors into two classes, as nearly equal in number
as possible, so that approximately one-half of the directors will be elected at
each annual meeting of stockholders. The Board believes that by creating two
classes of directors, the Board will have more stability. In addition, having
two classes of directors also serves as a defense mechanism to an unwanted
takeover or change in control. To divide the directors into two classes
requires the adoption by the stockholders of an amendment to the Company's
Certificate of Incorporation. In addition, in order to make the classified
Board effective with and applicable to the election of directors at the Meeting,
the Company's Bylaws must also be amended to include a similar provision. A
copy of the proposed Certificate of Amendment to Certificate of Incorporation is
attached as Exhibit A and a copy of the proposed Amendment to Bylaws is attached
as Exhibit B.
If the proposed amendments to the Company's Certificate of Incorporation
and the Bylaws are adopted by the stockholders, the seven persons who are
nominated for election to the Board of Directors pursuant to this proxy
statement shall, if elected, be divided into two classes with three of the
directors elected to serve as Class I directors and four of the directors
elected to serve as Class II directors. The Class I directors shall include
George M. Harrison, Jr., Andre M. Hilliou and Michael W. Mims, whose terms shall
expire at the 2000 Annual Meeting of Stockholders. The Class II directors shall
include Kenneth R. Adams, James L. Hall, Grover C. Seaton III and A. Joe Willis,
whose terms shall expire at the 2001 Annual Meeting of Stockholders.
The affirmative vote of the majority of the outstanding shares of the
Company's Common Stock entitled to vote is required for the approval of this
Certificate of Amendment to Certificate of Incorporation and the Amendment to
Bylaws. With respect to this vote, abstentions and broker non-votes will have
the effect of a "no" vote.
Michael W. Mims, a director of the Company, has notified the Company
in writing that he intends to oppose this proposal to amend the Company's
Certificate of Incorporation and the Company's Bylaws to divide the directors
into two classes.
10
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF THE
CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION AND THE
AMENDMENT TO BYLAWS TO DIVIDE THE DIRECTORS INTO TWO CLASSES.
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION
TO INCLUDE STOCKHOLDER LICENSING PROVISIONS
Gaming operations are subject to extensive federal, state, provincial,
tribal and local laws, regulations and ordinances ("gaming laws") that are
administered by the relevant regulatory agency or agencies in each jurisdiction
(the "gaming authority"). While these gaming laws vary considerably from
jurisdiction to jurisdiction, one general concern of most gaming laws is the
responsibility, financial stability and character of those persons who own,
manage or have a financial interest in gaming operations. In certain
jurisdictions, the gaming authority is given the authority to subject any
stockholder of a company engaged in gaming operations (a "gaming company") to
the licensing requirements of the gaming laws. Generally only stockholders
owning 5% or more of the gaming company are subject to these licensing
requirements unless the gaming authority otherwise requires. In the event a
stockholder is found unsuitable or unqualified by the gaming authority, the
gaming company will be prevented from entering the jurisdiction, or if already
licensed in the jurisdiction it may lose its licenses in the jurisdiction,
unless it either complies with the gaming authority's demands in dealing with
the unsuitable stockholder or already has in place a mechanism to deal with the
unsuitable or unqualified stockholder. Mechanisms to deal with unsuitable or
unqualified stockholders, such as the proposed stockholder licensing provisions,
are commonly included in the Certificate of Incorporation of public gaming
companies.
In the event the gaming company does not already have a mechanism in place
to deal with an unsuitable or unqualified stockholder, the gaming company will
usually be required by the gaming authority to force the stockholder to sell his
or her stock in the gaming company before the gaming company will be permitted
to enter the jurisdiction or, if already licensed in the jurisdiction, before
the gaming company will be allowed to continue operating in the jurisdiction.
If, however, the gaming company already has in place a mechanism requiring such
action with regard to and from the unsuitable stockholder, the gaming company
will usually be allowed to enter the jurisdiction, or maintain its existing
licenses in the jurisdiction, while the mechanism is being utilized to deal with
the unsuitable stockholder.
As a result, the Company proposes to amend its Certificate of Incorporation
to put in place a mechanism to deal with stockholders found to be unsuitable or
unqualified by a gaming authority. A copy of the proposed Certificate of
Amendment to Certificate of Incorporation is attached as Exhibit C. This
amendment will give the Company the flexibility to expand its business into
jurisdictions in which the Company might encounter stockholder suitability
issues during the licensing process, as well as to maintain its licenses and
continue to operate its business in jurisdictions in which stockholder
suitability issues may be raised after licenses have been obtained.
Specifically, for any stockholder who (i) refuses to appear before, submit to
the jurisdiction of, or provide information to a gaming authority, (ii) refuses
to comply with a request or requirement of a gaming authority or (iii) is found
unsuitable or unqualified by a gaming authority, the Company would have the
discretion to require (unless otherwise required by the gaming authority or any
gaming law) such person to dispose of his or her securities of the Company. In
such situation, the stockholder must offer to sell to the Company the securities
of the Company that are beneficially owned by the stockholder at the market
price determined pursuant to the provisions of the amendment to the Certificate
of Incorporation. If the Company elects not to purchase the securities in whole
or in part, the stockholder may then be required to dispose of the securities
within the time period prescribed by the gaming authority. If these provisions
are in place in the Company's Certificate of Incorporation, in the event a
stockholder is found unsuitable, the Company will likely be permitted to enter
the jurisdiction, or maintain its existing licenses in the jurisdiction, while
the mechanism is being utilized to deal with the unsuitable stockholder. As
previously stated, generally only stockholders owning 5% or more of the gaming
company are subject to the licensing requirements unless the gaming authority
otherwise requires.
11
<PAGE>
The Company believes that the stockholder licensing provisions are
necessary if the Company ever expects to expand its business into jurisdictions
such as Colorado, Louisiana, Montana, Nevada, New Jersey or South Dakota. Since
the Company intends to pursue expansion opportunities wherever they may arise,
the Company believes that it is necessary to adopt the stockholder licensing
provisions at this time so that the Company will be in position to seek
licensing in any jurisdiction as soon as expansion opportunities arise. The
Company believes that the absence of such stockholder licensing provisions in
the Company's Certificate of Incorporation may hinder the Company's attempts to
obtain licenses in certain gaming jurisdictions. Accordingly, the Company
recommends that the stockholders adopt the stockholder licensing provisions.
The affirmative vote of the majority of the outstanding shares of the
Company's Common Stock entitled to vote is required for the approval of this
Certificate of Amendment to Certificate of Incorporation. With respect to this
vote, abstentions and broker non-votes will have the effect of a "no" vote.
Michael W. Mims, a director of the Company, has notified the Company in
writing that he intends to oppose this proposal to amend the Company's
Certificate of Incorporation to include stockholder licensing provisions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF THE
CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCLUDE
STOCKHOLDER LICENSING PROVISIONS.
PROPOSAL TO APPROVE THE COMPANY'S STOCK OPTION PLAN
GENERAL
The Board of Directors of the Company has established the American Bingo &
Gaming Corp. Stock Option Plan (the "Plan") attached hereto as Exhibit D. The
purpose of the Plan is to advance the interests of the Company, its subsidiaries
and its stockholders by affording certain employees, officers and directors of
the Company and its subsidiaries, as well as key consultants and advisors to the
Company or any subsidiary, an opportunity to acquire or increase their
proprietary interests in the Company. The objective of the issuance of the
stock options, restricted stock and stock appreciation rights ("SARs") under the
Plan is to promote the growth and profitability of the Company and its
subsidiaries because the grantees will be provided with an additional incentive
to achieve the Company's objectives through participation in its success and
growth and by encouraging their continued association with or service to the
Company. The following is a summary of the material features of the Plan, which
is qualified in its entirety by reference to the complete provisions of the
Plan, attached hereto as Exhibit D.
If the Plan is adopted by the stockholders, the Board of Directors intends
to abandon the Company's four existing stock option plans, which include the
1994 Stock Option Plan, the 1995 Employee Stock Option Plan, the 1996 Employee
Stock Option Plan, and the 1997 Stock Option Plan. If the Plan is adopted by
the stockholders, no further options will be granted under any of the four
existing stock option plans and these four stock option plans will only be
maintained to satisfy the outstanding stock options which were granted under
these respective plans. As of March 15, 1999, in the aggregate the four
existing stock option plans had approximately 325,000 shares available for
issuance under these plans which were not subject to outstanding option grants,
plus 1,115,000 shares available for issuance under these plans which were
subject to outstanding option grants.
COMMON STOCK SUBJECT TO THE PLAN
The current maximum number of shares of Common Stock that may be issued
under the Plan is 750,000 shares, subject to adjustment in accordance with
anti-dilution provisions contained in the Plan. All shares of Common Stock
subject to the Plan may be issued in any combination of Incentive Stock Options,
as defined within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended ("ISOs"), non-incentive stock options, restricted stock or
SARs.
TERM OF THE PLAN
The Plan shall become effective on February 26, 1999; provided, however,
that the Plan shall terminate, and all options, restricted stock or SARs
theretofore granted shall become void and may not be exercised, on June 30,
1999, if the stockholders of the Company shall not by that date have approved
the Plan's adoption. No ISO may be granted more than ten years after the
earlier of (i) the effective date of the Plan or (ii) the date the Plan is
approved by the Company's stockholders. The Plan may be abandoned or terminated
at any time by the Company's Board of Directors, except with respect to options,
restricted stock or SARs then outstanding under the Plan.
12
<PAGE>
ELIGIBILITY
The class of persons eligible to participate in the Plan shall consist of
all persons whose participation in the Plan is determined to be in the best
interests of the Company, which shall include, but not be limited to, directors,
officers and employees, including but not limited to executive personnel, of the
Company or any subsidiary, as well as key consultants and advisors to the
Company or any subsidiary.
ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee consisting of at least two
directors appointed by the Board (the "Committee"); provided, however, that with
respect to any options, restricted stock or SARs granted to an individual who is
subject to the provisions of Section 16 of the Exchange Act, the Committee shall
consist of at least two directors (who need not be members of the Committee with
respect to grants to any other individuals) who are non-employee directors, and
all authority and discretion shall be exercised by such non-employee directors.
The Committee selects the individuals to whom options, restricted stock or SARs
are to be granted, the number of shares to be granted and any other terms and
conditions specified under the Plan, including, but not limited to, the exercise
price, the times at which options or SARs shall become exercisable and the
duration of the exercise periods.
TERMS OF OPTIONS
The exercise price of each ISO issued under the Plan shall be determined by
the Committee and shall not be less than the fair market value of the Common
Stock as of the date the option is granted; provided, however, that the exercise
price of an ISO granted to any person owning at least 10% of the total combined
voting power of all classes of stock of the Company or any of its parents or
subsidiaries shall not be less than 110% of the fair market value on the date
the option is granted. The exercise price of each non-incentive stock option
shall also be determined by the Committee and shall not be less than 50% of the
fair market value of the Common Stock on the date the option is granted. The
exercise period of each option shall be determined by the Committee; provided,
however, that an ISO shall not be exercisable after the expiration of ten years
from the date of the option grant. In addition, except in the case of death or
disability, no option granted to an individual who is subject to the provisions
of Section 16 of the Exchange Act may be exercisable prior to the expiration of
six months from the date of the option grant.
In the case of ISOs, the fair market value of stock with respect to which
ISOs are exercisable for the first time during any calendar year by any
participant in the Plan may not exceed $100,000, such value being determined at
the time the options are granted, as provided by the terms of Section 422 of the
Internal Revenue Code. To the extent the value of the underlying stock
(determined in accordance with the previous sentence) exceeds $100,000, such
excess options shall be treated as non-incentive stock options.
After an option becomes exercisable, it may be exercised at any time as to
any or all full shares that have become purchasable under the terms of the
option, but at no time may an option be exercised as to less than 100 shares
unless the remaining shares that have become purchasable are less than 100
shares. The exercise price of options granted under the Plan may be made in
whole or in part through the surrender of previously held shares of Common Stock
at the fair market value thereof or through the authorization to withhold shares
of stock otherwise issuable upon exercise of the option.
No option shall be transferable other than by will or the laws of descent
and distribution, or in the case of non-incentive stock options, pursuant to a
Qualified Domestic Relations Order, and no option shall be transferable by an
individual who is subject to the provisions of Section 16 of the Exchange Act
prior to stockholder approval of the Plan. The Committee shall have the power
to specify with respect to each grant of options the effect upon such grantee's
rights of the termination of such grantee's employment or services with the
Company and the Committee may determine at the time of grant that such options
shall become exercisable on an accelerated basis following a change of control
with respect to the Company. Nothing in the Plan shall confer on any person any
right to continue in the employ of the Company or any of its subsidiaries or
shall interfere in any way with the right of the Company or any of its
subsidiaries to terminate such person's employment at any time.
13
<PAGE>
TERMS OF RESTRICTED STOCK
Until any restrictions upon restricted stock awarded to a grantee under the
Plan have lapsed, such shares shall not be transferable other than by will or
the laws of descent and distribution, or pursuant to a Qualified Domestic
Relations Order, nor shall they be delivered to the grantee. The Committee
shall have the power to specify with respect to each award of restricted stock
the effect upon such grantee's rights of the termination of such grantee's
employment with the Company. The Committee may determine at the time of award
that such restricted stock shall become fully vested following a change of
control with respect to the Company.
TERMS OF SARS
The exercise price of each SAR shall be determined by the Committee and
shall not be less than (i) 100% of the fair market value of the Common Stock on
the date the SAR is granted for a SAR issued in tandem with an ISO and (ii) 50%
of the fair market value of the Common Stock on the date the SAR is granted for
other SARs. The exercise period of each SAR shall be determined by the
Committee. The payment to the grantee for exercise of a SAR shall be made in
cash, shares of stock, or a combination of both.
During the period of continuous employment with the Company, its parent or
any subsidiary, a SAR will be terminated only if it has been fully exercised or
it has expired by its terms. Upon termination of employment, the SAR will
terminate upon the earliest of (i) the full exercise of the SAR, (ii) the
expiration of the SAR by its terms, and (iii) not more than three months
following the date of employment termination; provided, however, should
termination of employment (A) result from the death or permanent and total
disability of the grantee, the period referenced in (iii) shall be one year or
(B) be for cause, the SAR will terminate on the date of employment termination.
For purposes of the Plan, a leave of absence approved by the Company shall not
be deemed to be termination of employment unless otherwise provided in the
agreement entered into by the Company and the grantee or by the Company on the
date of the leave of absence. The Committee may determine at the time of grant
that the SAR shall become fully vested following a change of control with
respect to the Company. A grantee of a SAR shall have no rights as a
stockholder with respect to a SAR.
FEDERAL TAX CONSEQUENCES OF OPTIONS
Under current federal income tax laws, options granted under the Plan will
generally have the following consequences. The holder of a non-incentive stock
option recognizes no income for federal income tax purposes upon the grant of
such option, and the Company, therefore, receives no deduction at such time. At
the time of exercise, however, the grantee generally will recognize income,
taxable as ordinary income, to the extent that the fair market value of the
shares received on the exercise date exceeds the non-incentive stock option
exercise price. The Company will be entitled to a corresponding deduction for
federal income tax purposes in the year in which the non-incentive stock option
is exercised so long as either Section 162(m) is inapplicable or its
requirements are met. If the shares are held for at least one year and one day
after exercise, long-term capital gain will be realized upon disposition of such
shares to the extent the amount realized on such disposition exceeds their fair
market value as of the exercise date.
If a grantee is awarded an ISO, no income will be recognized for federal
income tax purposes at the time of grant or exercise, and the Company will
therefore, not receive any corresponding deduction. The excess of fair market
value of the shares of Common Stock received at the date of exercise over the
exercise price will become an item of tax preference for the grantee for
purposes of the grantee's alternative minimum tax in the year of exercise,
however. The grantee will be subject to federal income tax when the grantee
sells the shares acquired upon the exercise of the ISO. If the grantee holds
the shares for more than two years from the date of grant and more than one year
from the date the shares were transferred to that person, any gain will be taxed
as long-term capital gain. The Company will not be entitled to any deduction
for federal income tax purposes as to any amount taxed as long-term capital gain
in connection with the sale of shares acquired upon the exercise of an ISO. The
Company will, however, be entitled to a corresponding deduction for federal
income tax purposes for any amount taxed as ordinary income.
14
<PAGE>
AMENDMENT OF THE PLAN
The Board may at any time terminate the Plan, and may at any time and in
any respect amend the Plan; provided, however, that the Board (unless its
actions are approved or ratified by the stockholders of the Company within
twelve months of the date that the Board amends the Plan) may not amend the Plan
to (i) increase the total number of shares of Common Stock issuable pursuant to
ISOs under the Plan or materially increase the number of shares of Common Stock
subject to the Plan; (ii) change the class of employees eligible to receive ISOs
that may participate in the Plan or materially change the class of persons that
may participate in the Plan; or (iii) otherwise materially increase the benefits
accruing to participants under the Plan. No termination, amendment or
modification of the Plan shall adversely affect options, SARs or restricted
stock then outstanding under the Plan without the consent of the grantee or his
legal representative.
REQUIRED VOTE; RECOMMENDATION
The affirmative vote of the majority of the shares of the Company's Common
Stock present in person or represented by proxy at the Meeting and entitled to
vote is required for the approval of the Plan. With respect to this vote,
abstentions will have the effect of a "no" vote and broker non-votes will have
no effect on the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
COMPANY'S STOCK OPTION PLAN.
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors has
reappointed King Griffin & Adamson P.C. as independent auditors to audit the
financial statements of the Company for the 1999 fiscal year. King Griffin &
Adamson P.C. served as the independent auditors for the Company for the fiscal
years ended December 31, 1997 and 1998.
Weinick, Sanders, Levanthal & Co. LLP was the Company's independent
auditors for fiscal 1996. After approval by the Board, the Company dismissed
Weinick, Sanders, Levanthal & Co. LLP on April 23, 1997. Their independent
auditor's report for 1996 did not contain an adverse opinion or a disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. The Company did not have any disagreements with them on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which if not resolved to their
satisfaction, would have caused them to make reference to such matters in their
report. The firm of King Griffin & Adamson, P.C. was engaged as the Company's
new independent auditors.
A representative of King Griffin & Adamson P.C. is expected to be present
at the Meeting and will have an opportunity to make a statement, if the
representative so desires, and will be available to respond to any appropriate
questions stockholders may have.
The affirmative vote of the majority of the shares of the Company's Common
Stock present in person or represented by proxy at the Meeting and entitled to
vote is required for the ratification of the appointment of King Griffin &
Adamson P.C. as the Company's independent auditors for the 1999 fiscal year.
With respect to this vote, abstentions will have the effect of a "no" vote and
broker non-votes will have no effect on the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF KING GRIFFIN & ADAMSON P.C. AS INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS
Notices of stockholder proposals intended to be presented at the Meeting
must have been provided in writing to the Company by no later than March 27,
1999 in order to be voted on at the Meeting. With respect to stockholder
proposals for which notices were not provided to the Company by March 27,
1999, the person or persons designated as proxies in connection with the
Company's solicitation of proxies shall have the discretionary voting authority
to vote the shares of the Company's Common Stock represented by the proxy cards
returned to the Company in accordance with their judgment on such matters when
such proposals are presented at the Meeting.
15
<PAGE>
Stockholder proposals intended to be presented at the 2000 Annual Meeting
of Stockholders and included in the Company's Proxy Statement and form of proxy
for that meeting must be received by the Company in writing by no later than
December 27, 1999. Any stockholder of the Company who intends to present a
proposal at the 2000 Annual Meeting of Stockholders to be voted on at that
meeting, which proposal is not included in the Company's Proxy Statement, must
deliver written notice of such proposal to the Company by no later than sixty
days prior to the meeting date or, if less than seventy days' notice of the
meeting date is given, ten days after notice of the meeting date is given by
public disclosure. If the proposing stockholder fails to deliver written notice
of such proposal to the Company by such date, then the person or persons
designated as proxies in connection with the Company's solicitation of proxies
shall have the discretionary voting authority to vote the shares of the
Company's Common Stock represented by the proxy cards returned to the Company in
accordance with their judgment on such matters when such proposals are presented
at the 2000 Annual Meeting. Any such notice of a stockholder proposal must be
made in writing addressed to Secretary, American Bingo & Gaming Corp., 1440
Charleston Highway, West Columbia, South Carolina 29169.
OTHER MATTERS
The Board of Directors knows of no business other than that set forth above
to be transacted at the Meeting, but if other matters requiring a vote of the
stockholders arise, the persons designated as proxies will vote the shares of
Common Stock represented by the proxy cards in accordance with their judgment on
such matters.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Andre M. Hilliou
Andre M. Hilliou
Chairman of the Board, President and
Chief Executive Officer
West Columbia, South Carolina
April 26, 1999
16
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN BINGO & GAMING CORP.
American Bingo & Gaming Corp., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and directing that such proposed amendment be submitted for
consideration by the stockholders of the Corporation at the next annual meeting
of stockholders. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this Corporation be
amended by adding a new paragraph 8.c relating to dividing the Board of
Directors into two classes, which shall read as follows:
8.c. The Board of Directors shall be divided, with respect to the terms for
which the directors severally hold office, into two classes, as nearly equal in
number as possible, one class to hold office initially for a term expiring at
the next succeeding annual meeting of stockholders ("Class I") and another class
to hold office initially for a term expiring at the second succeeding annual
meeting of stockholders ("Class II"), with the members of each class to hold
office until their successors are duly elected and qualified. At each annual
meeting of the stockholders of the Corporation, the successors to the class of
directors whose term expires at such meeting shall be elected to hold office
expiring at the annual meeting of stockholders held in the second year following
the year of their election.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the proposed amendment was presented to the stockholders of the Corporation at
the 1999 Annual Meeting of Stockholders, which meeting was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to Certificate of Incorporation to be signed by Andre M. Hilliou, its
President, and attested to by Marie T. Pierson, its Secretary, as of this
________ day of ____________, 1999.
AMERICAN BINGO & GAMING CORP.
By:________________________________
Andre M. Hilliou
President
ATTEST:
By:__________________________________
Marie T. Pierson
Secretary
<PAGE>
EXHIBIT B
PROPOSED AMENDMENT TO
BYLAWS OF
AMERICAN BINGO & GAMING CORP.
In connection with the proposal to divide the Board of Directors of American
Bingo & Gaming Corp. into two classes, Article III, Section 2 of the Bylaws is
proposed to be amended to read in its entirety as follows:
Section 2. Number; Election. The Board of Directors shall consist
-----------------
of no less than two (2) nor more than seven (7) directors, who need not be
stockholders or residents of the State of Delaware. The Board of Directors
shall be divided, with respect to the terms for which the directors severally
hold office, into two classes, as nearly equal in number as possible, one class
to hold office initially for a term expiring at the next succeeding annual
meeting of stockholders ("Class I") and another class to hold office initially
for a term expiring at the second succeeding annual meeting of stockholders
("Class II"), with the members of each class to hold office until their
successors are duly elected and qualified. At each annual meeting of the
stockholders of the Corporation, the successors to the class of directors whose
term expires at such meeting shall be elected to hold office expiring at the
annual meeting of stockholders held in the second year following the year of
their election, or until their successors are duly elected and qualified.
<PAGE>
EXHIBIT C
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN BINGO & GAMING CORP.
American Bingo & Gaming Corp., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and directing that such proposed amendment be submitted for
consideration by the stockholders of the Corporation at the next annual meeting
of stockholders. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this Corporation be
amended by adding a new paragraph 13 relating to gaming laws which shall read as
follows:
13.a. If the Corporation becomes, and for as long as it remains, either a
holding company or an intermediary holding company subject to regulation under
any Gaming Laws (as hereinafter defined), all Securities (as hereinafter
defined) of the Corporation shall be held subject to the applicable provisions
of any Gaming Laws. If any person (as hereinafter defined) which beneficially
owns Securities of the Corporation is requested or required pursuant to any
Gaming Law to appear before or submit to the jurisdiction of, or provide
information to, any Gaming Authority and either refuses to do so or otherwise
fails to comply with any request or requirement within a reasonable period of
time, or is determined or shall have been determined by any Gaming Authority not
to be suitable or qualified with respect to the beneficial ownership of
Securities of the Corporation, then, at the election of the Corporation (unless
otherwise required by any Gaming Authority or Gaming Law):
1
<PAGE>
(i) such person owning Securities in the Corporation agrees to sell to the
Corporation, and the Corporation shall have the absolute right in its sole
discretion to repurchase, any or all of the Securities of the Corporation
beneficially owned by the person, at a price determined pursuant to paragraph
13.c hereof; and/or
(ii) such person owning Securities in the Corporation agrees to otherwise
dispose of his or her interest in the Corporation within the time prescribed by
the Gaming Authority and the Corporation shall have no obligation to repurchase
any or all of the Securities of the Corporation beneficially owned by that
person.
The operation of this Article 13 shall not be stayed by an appeal from a
determination of any Gaming Authority.
b. If the Corporation intends to repurchase Securities beneficially owned by
any person referred to in paragraph 13.a above, it shall notify the person in
writing of its intention, specifying the Securities to be repurchased, the date,
time and place when the repurchase will be consummated (Repurchase Date), which
date in no event will be earlier than three business days after the date of the
notice, and the price at which the Securities will be repurchased (it being
sufficient for the purposes of this Article 13 for the Corporation to indicate
generally that the price will be determined in accordance with paragraph 13.c
hereof). If the Corporation gives the notice provided for by the preceding
sentence (Repurchase Notice), the Repurchase Notice shall be deemed to
constitute a binding agreement on the part of the Corporation to repurchase, and
on the part of the person notified to sell, the Securities referred to in the
Repurchase Notice in accordance with this Article 13. Following the Repurchase
Date (or an earlier date if required by any Gaming Authority or Gaming Law), no
dividends will be payable on and no voting rights will be available to the
holders of any Securities which are covered by the Repurchase Notice and have
not been duly delivered by the holder for repurchase by the Corporation. If
following the Repurchase Date any Securities, with respect to which a Repurchase
Notice has been given, have not been duly delivered by the holder for repurchase
by the Corporation, the Corporation shall deposit in escrow, or otherwise hold
in trust for the benefit of the holder, an amount equal to the aggregate Market
Price (as hereinafter defined) of the stock to be repurchased. The
establishment of such an account shall in no way alter the amount otherwise
payable to any person pursuant to this Article 13. All interest paid or accrued
with respect to any amount deposited in escrow or otherwise held in trust for
the benefit of the holder shall be the property of the Corporation and the
holder shall have no right or claim thereto.
2
<PAGE>
c. In the event the Corporation issues a Repurchase Notice pursuant to
paragraph 13.b hereof, the price at which the Corporation shall repurchase the
Securities covered by the Repurchase Notice shall be the Market Price on the
date of the Repurchase Notice.
d. For the purposes of this Article 13:
(i) "Affiliate" or "Associate" shall have the respective meanings ascribed
to those terms in Rule 12b-2 of the rules and regulations under the Securities
Exchange Act of 1934.
(ii) "Gaming Authority" means any government, court, or federal, state,
local, international or foreign governmental, administrative or regulatory or
licensing body, agency, authority or official which regulates, has authority
over, or otherwise asserts jurisdiction over gaming activities (or proposed
gaming activities), gaming operations or facilities conducted by the Corporation
or any of its subsidiaries or Affiliates, within any gaming jurisdictions
(domestic and foreign and the political subdivisions thereof), whether now or
hereafter existing.
(iii) "Gaming Law" means any federal, state, local, international or foreign
law, statute, order, ordinance or interpretation pursuant to which any Gaming
Authority possesses or asserts regulatory or licensing authority over gaming
activities, operations or facilities within any gaming jurisdictions (domestic
and foreign and the political subdivisions thereof), including any rules and
regulations promulgated by any Gaming Authority thereunder.
(iv) "Market Price" means the average of the last sale prices of a Security
on the Composite Tape for Nasdaq National Market Stocks for each of the 15
consecutive trading days (Valuation Period) commencing 16 trading days prior to
the date in question; provided that if the Security is not quoted on the
Composite Tape, the average last sale price shall be derived from the average
last sales prices on the Nasdaq National Market Exchange or, if the Security is
not listed on that exchange, on the principal United States securities exchange
registered under the Exchange Act on which the Security is listed or, if the
Security is not listed on any exchange, the average of the closing bid
quotations with respect to such a Security during the Valuation Period on the
Nasdaq National Market or any system then in use or, if no quotations are
available, the fair market value of the Security on the date in question as
determined by the Board of Directors in good faith.
3
<PAGE>
(v) A "person" means any individual, firm, corporation, limited liability
company, trust or other entity.
(vi) A person shall be a "beneficial owner" of any Securities which:
(a) the person, or any of its Affiliates or Associates, beneficially owns,
directly or indirectly; or
(b) the person or any of its Affiliates or Associates has (y) the right to
acquire (whether the right is exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (z) the right to vote pursuant to any agreement, arrangement or
understanding; or
(c) are beneficially owned, directly or indirectly, by any other person with
which the person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any Securities.
(vii) "Securities" means any shares of capital stock, bonds, notes,
convertible debentures, warrants or other instruments that represent a share in
the Corporation or a debt owed by the corporation.
e. A majority of the entire Board shall have the power and duty to determine
for the purposes of this Article 13 on the basis of information known to them
after reasonable inquiry, whether paragraph 13.a hereof applies to any person
who beneficially owns Securities of the Corporation so that the Corporation
shall have the right to repurchase shares of Securities held by the person or
require the disposition of the person's interest in the Corporation pursuant to
this Article 13.
4
<PAGE>
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the proposed amendment was presented to the stockholders of the Corporation at
the 1999 Annual Meeting of Stockholders, which meeting was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to Certificate of Incorporation to be signed by Andre M. Hilliou, its
President, and attested to by Marie T. Pierson, its Secretary, as of this
________ day of ____________, 1999.
AMERICAN BINGO & GAMING CORP.
By:________________________________
Andre M. Hilliou
President
ATTEST:
By:__________________________________
Marie T. Pierson
Secretary
5
<PAGE>
EXHIBIT D
AMERICAN BINGO & GAMING CORP.
STOCK OPTION PLAN
<PAGE>
AMERICAN BINGO & GAMING CORP.
STOCK OPTION PLAN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-------------------
Page
--------------------------------------
<C> <S> <C>
ARTICLEI 1
ARTICLE II 4
2.1 Name 4
--------------------------------------
2.2 Purpose 4
--------------------------------------
2.3 Effective Date 4
--------------------------------------
ARTICLE III 5
ARTICLE IV 5
4.1 Duties and Powers of the Committee 5
--------------------------------------
4.2 Interpretation; Rules 5
--------------------------------------
4.3 No Liability 5
--------------------------------------
4.4 Majority Rule 5
--------------------------------------
4.5 Company Assistance 6
--------------------------------------
ARTICLE V 6
5.1 Limitations 6
--------------------------------------
5.2 Antidilution 6
--------------------------------------
ARTICLE VI 7
6.1 Types of Options Granted 7
--------------------------------------
6.2 Option Grant and Agreement 7
--------------------------------------
6.3 Optionee Limitations 8
--------------------------------------
6.4 $100,000 Limitation 8
--------------------------------------
6.5 Exercise Price 8
--------------------------------------
6.6 Exercise Period 9
--------------------------------------
6.7 Option Exercise 9
--------------------------------------
6.8 Reload Options 10
--------------------------------------
6.9 Non-Transferability of Option 10
--------------------------------------
6.10 Termination of Employment or Service 10
--------------------------------------
6.11 Employment Rights 11
--------------------------------------
6.12 Certain Successor Options 11
--------------------------------------
6.13 Effect of Change in Control 11
--------------------------------------
ARTICLE VII 11
7.1 Awards of Restricted Stock 11
--------------------------------------
7.2 Non-Transferability 12
--------------------------------------
7.3 Lapse of Restrictions 12
--------------------------------------
7.4 Termination of Employment 12
--------------------------------------
7.5 Treatment of Dividends 12
--------------------------------------
7.6 Delivery of Shares 12
--------------------------------------
7.7 Effect of Change in Control 12
--------------------------------------
ARTICLE VIII 13
8.1 SAR Grants 13
--------------------------------------
8.2 Determination of Price 13
--------------------------------------
8.3 Exercise of a SAR 13
--------------------------------------
8.4 Payment for a SAR 13
--------------------------------------
8.5 Status of a SAR under the Plan 13
--------------------------------------
8.6 Termination of SARs 13
--------------------------------------
8.7 No Shareholder Rights 14
--------------------------------------
8.8 Effect of Change in Control 14
--------------------------------------
ARTICLE IX 14
ARTICLE X 15
10.1 Termination and Amendment 15
--------------------------------------
10.2 Effect on Grantee's Rights 15
--------------------------------------
ARTICLE XI 15
ARTICLE XII 15
12.1 Replacement or Amended Grants 15
--------------------------------------
12.2 Forfeiture for Competition 16
--------------------------------------
12.3 Plan Binding on Successors 16
--------------------------------------
12.4 Singular, Plural; Gender 16
--------------------------------------
12.5 Headings, etc., Not Part of Plan 16
--------------------------------------
12.6 Interpretation 16
--------------------------------------
Exhibit A i
SCHEDULE A v
SCHEDULE B vi
</TABLE>
AMERICAN BINGO & GAMING CORP.
STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless the
context clearly indicates to the contrary:
"Award" shall mean a grant of Restricted Stock or an SAR.
-----
"Award Agreement" shall mean an Agreement between the Company and a
----------------
Grantee relating to a grant of Restricted Stock or an SAR.
"Board" shall mean the Board of Directors of the Company.
-----
"Cause" shall mean theft or destruction of property of the Company, a
-----
Parent, or a Subsidiary, disregard of Company rules or policies, or conduct
evincing willful or wanton disregard of the interests of the Company. Such
determination shall be made by the Committee based on information presented by
the Company and the Employee and shall be final and binding on all parties
hereto.
"Change in Control" shall mean the occurrence of any of the following
------------------
events: (i) any individual or entity: (A) directly or indirectly acquiring
beneficial ownership of 35% or more of the Stock of the Company outstanding from
time to time; or (B) making a tender offer for 35% or more of the Stock of the
Company outstanding; or (ii) individuals who constitute a majority of the
Company's Board of Directors on the date of the adoption of this Plan by the
Board of Directors, or individuals elected or nominated directly or indirectly
by at least a majority of such current directors, no longer constitute a
majority of the Company's Board of Directors; or (iii) a merger, consolidation,
asset sale or other transaction involving the sale or other transfer of all or
substantially all of the business or assets of the Company.
"Code" shall mean the United States Internal Revenue Code of 1986,
----
including effective date and transition rules (whether or not codified). Any
reference herein to a specific section of the Code shall be deemed to include a
reference to any corresponding provision of future law.
"Committee" shall mean a committee of at least two Directors appointed
---------
from time to time by the Board, having the duties and authority set forth herein
in addition to any other authority granted by the Board; provided, however, that
with respect to any Options or Awards granted to an individual who is also a
Section 16 Insider, the Committee shall consist of at least two Directors (who
need not be members of the Committee with respect to Options or Awards granted
to any other individuals) who are Non-Employee Directors, and all authority and
discretion shall be exercised by such Non-Employee Directors and references
herein to the "Committee" shall mean such insofar as any actions or
determinations of the Committee shall relate to or affect Options or Awards made
to or held by any Section 16 Insider. At any time that the Board shall not have
appointed a committee as described above, any reference herein to the Committee
shall mean a reference to the Board.
"Company" shall mean American Bingo & Gaming Corp., a Delaware
-------
corporation.
"Director" shall mean a member of the Board and any person who is an
--------
advisory or honorary director of the Company if such person is considered a
director for the purposes of Section 16 of the Exchange Act, as determined by
reference to such Section 16 and to the rules, regulations, judicial decisions,
and interpretative or "no-action" positions with respect thereto of the
Securities and Exchange Commission, as the same may be in effect or set forth
from time to time.
"Employee" shall mean an employee of the Employer.
--------
"Employer" shall mean the corporation that employs a Grantee.
--------
"Exchange Act" shall mean the Securities Exchange Act of 1934. Any
-------------
reference herein to a specific section of the Exchange Act shall be deemed to
include a reference to any corresponding provision of future law.
"Exercise Price" shall mean the price at which an Optionee may
---------------
purchase a share of Stock under a Stock Option Agreement.
"Fair Market Value" on any date shall mean (i) the closing sales price
-----------------
of the Stock, regular way, on such date on the securities exchange having the
greatest volume of trading in the Stock during the thirty-day period preceding
the day the value is to be determined or, if such exchange was not open for
trading on such date, the next preceding date on which it was open; (ii) if the
Stock is not traded on any securities exchange, the average of the closing high
bid and low asked prices of the Stock on the over-the-counter market on the day
such value is to be determined, or in the absence of closing bids on such day,
the closing bids on the next preceding day on which there were bids; or (iii) if
the Stock also is not traded on the over-the-counter market, the fair market
value as determined in good faith by the Board or the Committee based on such
relevant facts as may be available to the Board, which may include, but not be
limited to, opinions of independent experts, the price at which recent sales
have been made, the book value of the Stock, and the Company's current and
future earnings.
"Grantee" shall mean a person who is an Optionee or a person who has
-------
received an Award of Restricted Stock or an SAR.
"Incentive Stock Option" shall mean an option to purchase any stock of
----------------------
the Company, which complies with and is subject to the terms, limitations and
conditions of Section 422 of the Code and any regulations promulgated with
respect thereto.
"Non-Employee Director" shall have the meaning set forth in Rule 16b-3
---------------------
under the Exchange Act, as the same may be in effect from time to time, or in
any successor rule thereto, and shall be determined for all purposes under the
Plan according to interpretative or "no-action" positions with respect thereto
issued by the Securities and Exchange Commission.
"Officer" shall mean a person who constitutes an officer of the
-------
Company for the purposes of Section 16 of the Exchange Act, as determined by
reference to such Section 16 and to the rules, regulations, judicial decisions,
and interpretative or "no-action" positions with respect thereto of the
Securities and Exchange Commission, as the same may be in effect or set forth
from time to time.
"Option" shall mean an option, whether or not an Incentive Stock
------
Option, to purchase Stock granted pursuant to the provisions of Article VI
hereof.
"Optionee" shall mean a person to whom an Option has been granted
--------
hereunder.
"Parent" shall mean any corporation (other than the Employer) in an
------
unbroken chain of corporations ending with the Employer if, at the time of the
grant (or modification) of the Option, each of the corporations other than the
Employer owns stock possessing 50 percent or more of the total combined voting
power of the classes of stock in one of the other corporations in such chain.
"Permanent and Total Disability" shall have the same meaning as given
-------------------------------
to that term by Code Section 22(e)(3) and any regulations or rulings promulgated
thereunder.
"Plan" shall mean the American Bingo & Gaming Corp. Stock Option Plan,
----
the terms of which are set forth herein.
"Purchasable" shall refer to Stock which may be purchased by an
-----------
Optionee under the terms of this Plan on or after a certain date specified in
the applicable Stock Option Agreement.
"Qualified Domestic Relations Order" shall have the meaning set forth
-----------------------------------
in the Code or in the Employee Retirement Income Security Act of 1974, or the
rules and regulations promulgated under the Code or such Act.
"Reload Option" shall have the meaning set forth in Section 6.8
--------------
hereof.
"Restricted Stock" shall mean Stock issued, subject to restrictions,
-----------------
to a Grantee pursuant to Article VII hereof.
"SAR" means a stock appreciation right.
---
"SAR Exercise Price" means the base value established by the Committee
------------------
for a SAR on the date the SAR is granted and which is used in determining the
amount of benefit, if any, paid to a Grantee.
"Section 16 Insider" shall mean any person who is subject to the
--------------------
provisions of Section 16 of the Exchange Act.
"Stock" shall mean the Common Stock, $.001 par value per share, of the
-----
Company or, in the event that the outstanding shares of Stock are hereafter
changed into or exchanged for shares of a different stock or securities of the
Company or some other entity, such other stock or securities.
"Stock Option Agreement" shall mean an agreement between the Company
------------------------
and an Optionee under which the Optionee may purchase Stock hereunder, a sample
form of which is attached hereto as Exhibit A (which form may be varied by the
Committee in granting an Option).
"Subsidiary" shall mean any corporation (other than the Employer) in
----------
an unbroken chain of corporations beginning with the Employer if, at the time of
the grant (or modification) of the Option, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50 percent or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "American Bingo & Gaming
----
Corp. Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of
-------
the Company, its Subsidiaries and its shareholders by affording certain
employees, Officers and Directors of the Company and its Subsidiaries, as well
as key consultants and advisors to the Company or any Subsidiary, an opportunity
to acquire or increase their proprietary interests in the Company. The
objective of the issuance of the Options and Awards is to promote the growth and
profitability of the Company and its Subsidiaries because the Grantees will be
provided with an additional incentive to achieve the Company's objectives
through participation in its success and growth and by encouraging their
continued association with or service to the Company.
2.3 Effective Date. The Plan shall become effective on February 26,
---------------
1999; provided, however, that the Plan shall terminate, and all Options or
Awards theretofore granted or awarded shall become void and may not be
exercised, on June 30, 1999, if the shareholders of the Company shall not by
that date have approved the Plan's adoption.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist of
all persons whose participation in the Plan the Committee determines to be in
the best interests of the Company which shall include, but not be limited to,
Directors, Officers and employees, including but not limited to executive
personnel, of the Company or any Subsidiary, as well as key consultants and
advisors to the Company or any Subsidiary.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be administered
----------------------------------
by the Committee. The Committee shall select one of its members as its Chairman
and shall hold its meetings at such times and places as it may determine. The
Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it may deem necessary. The
Committee shall have the power to act by unanimous written consent in lieu of a
meeting, and to meet telephonically. In administering the Plan, the Committee's
actions and determinations shall be binding on all interested parties. The
Committee shall have the power to grant Options or Awards in accordance with the
provisions of the Plan and may grant Options and Awards singly, in combination,
or in tandem. Subject to the provisions of the Plan, the Committee shall have
the discretion and authority to determine those individuals to whom Options or
Awards will be granted and whether such Options shall be accompanied by the
right to receive Reload Options, the number of shares of Stock subject to each
Option or Award, such other matters as are specified herein, and any other terms
and conditions of a Stock Option Agreement or Award Agreement. The Committee
shall also have the discretion and authority to delegate to any Officer its
powers to grant Options or Awards under the Plan to any person who is an
employee of the Company but not an Officer or Director. To the extent not
inconsistent with the provisions of the Plan, the Committee may give a Grantee
an election to surrender an Option or Award in exchange for the grant of a new
Option or Award, and shall have the authority to amend or modify an outstanding
Stock Option Agreement or Award Agreement, or to waive any provision thereof,
provided that the Grantee consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of the
----------------------
Plan, the Committee also shall have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option and Award Agreement, and to make
all other determinations necessary or advisable for the administration of the
Plan, including, without limitation, the amending or altering of the Plan and
any Options or Awards granted hereunder as may be required to comply with or to
conform to any federal, state, or local laws or regulations.
4.3 No Liability. Neither any member of the Board nor any member of
-------------
the Committee shall be liable to any person for any act or determination made in
good faith with respect to the Plan or any Option or Award granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee shall
--------------
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of the
Committee.
4.5 Company Assistance. The Company shall supply full and timely
-------------------
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant to
-----------
the provisions of Section 5.2 hereof, the maximum number of shares of Stock that
may be issued hereunder shall be 750,000. Any or all shares of Stock subject to
the Plan may be issued in any combination of Incentive Stock Options,
non-Incentive Stock Options, Restricted Stock, or SARs, and the amount of Stock
subject to the Plan may be increased from time to time in accordance with
Article X. Shares subject to an Option or issued as an Award may be either
authorized and unissued shares or shares issued and later acquired by the
Company. The shares covered by any unexercised portion of an Option that has
terminated for any reason, or any forfeited portion of an Award, may again be
optioned or awarded under the Plan, and such shares shall not be considered as
having been optioned or issued in computing the number of shares of Stock
remaining available for option or award hereunder.
5.2 Antidilution.
------------
(a) If (x) the outstanding shares of Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation, reorganization, recapitalization,
reclassification, combination or exchange of shares, or stock split or stock
dividend, (y) any spin-off, spin-out or other distribution of assets materially
affects the price of the Company's stock, or (z) there is any assumption and
conversion to the Plan by the Company of an acquired company's outstanding
option grants, then:
(i) the aggregate number and kind of shares of Stock for which
Options or Awards may be granted hereunder shall be adjusted proportionately by
the Committee; and
(ii) the rights of Optionees under outstanding Options and the
rights of the holders of Awards, shall be adjusted proportionately by the
Committee.
(b) If the Company is subject to a transaction in which it does
not survive, involving merger, consolidation, or acquisition of the stock or
substantially all the assets of the Company or other similar transaction, the
Committee, in its discretion, may:
(i) notwithstanding other provisions hereof, declare that all
Options granted under the Plan shall become exercisable immediately
notwithstanding the provisions of the respective Stock Option or Award
Agreements regarding exercisability, that all such Options and SARs shall
terminate 30 days after the Committee gives written notice of the immediate
right to exercise all such Options and SARs and of the decision to terminate all
Options and SARs not exercised within such 30-day period, and that all
then-remaining restrictions pertaining to Awards under the Plan shall
immediately lapse; and/or
(ii) notify all Grantees that all Options or Awards granted under
the Plan shall be assumed by the successor corporation or substituted on an
equitable basis with options, SARs or restricted stock issued by such successor
corporation.
The Company shall be deemed not to have survived a transaction if pursuant
to such transaction the Company becomes a wholly-owned subsidiary of another
entity.
(c) If the Company is to be liquidated or dissolved in connection
with a reorganization described in Section 5.2(b), the provisions of such
Section shall apply. In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall, notwithstanding other
provisions hereof, cause all then-remaining restrictions pertaining to Awards
under the Plan to lapse, and shall cause every Option outstanding under the Plan
to terminate to the extent not exercised prior to the adoption of the plan of
dissolution or liquidation by the shareholders, provided that, notwithstanding
other provisions hereof, the Committee may declare all Options and SARs granted
under the Plan to be exercisable at any time on or before the fifth business day
following such adoption notwithstanding the provisions of the respective Stock
Option or Award Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through (c) of
this Section 5.2, and the manner of their application, shall be determined
solely by the Committee. The adjustments required under this Article V shall
apply to any successors of the Company and shall be made regardless of the
number or type of successive events requiring such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan,
---------------------------
grant either Incentive Stock Options or Options which do not qualify as
Incentive Stock Options. Within the limitations provided in this Plan, both
types of Options may be granted to the same person at the same time, or at
different times, under different terms and conditions, as long as the terms and
conditions of each Option are consistent with the provisions of the Plan.
Without limitation of the foregoing, Options may be granted subject to
conditions based on the financial performance of the Company or any other factor
the Committee deems relevant.
6.2 Option Grant and Agreement. Each Option granted hereunder shall be
--------------------------
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement executed by the Company and the Optionee. The
terms of the Option, including the Option's duration, time or times of exercise,
exercise price, whether the Option is intended to be an Incentive Stock Option,
and whether the Option is to be accompanied by the right to receive a Reload
Option, shall be stated in the Stock Option Agreement. No Incentive Stock
Option may be granted more than ten years after the earlier to occur of the
effective date of the Plan or the date the Plan is approved by the Company's
shareholders.
Separate Stock Option Agreements may be used for Options intended to be
Incentive Stock Options and those not so intended, but any failure to use such
separate agreements shall not invalidate, or otherwise adversely affect the
Optionee's interest in, the Options evidenced thereby.
6.3 Optionee Limitations. The Committee shall not grant an Incentive
---------------------
Stock Option to any person who, at the time the Incentive Stock Option is
granted:
(a) is not an employee of the Company or any of its Subsidiaries;
or
(b) owns or is considered to own stock possessing at least 10% of
the total combined voting power of all classes of stock of the Company or any of
its Parent or Subsidiary corporations; provided, however, that this limitation
shall not apply if at the time an Incentive Stock Option is granted the Exercise
Price is at least 110% of the Fair Market Value of the Stock subject to such
Option and such Option by its terms would not be exercisable after five years
from the date on which the Option is granted. For the purpose of this
subsection (b), a person shall be considered to own: (i) the stock owned,
directly or indirectly, by or for his or her brothers and sisters (whether by
whole or half blood), spouse, ancestors and lineal descendants; (ii) the stock
owned, directly or indirectly, by or for a corporation, partnership, estate, or
trust in proportion to such person's stock interest, partnership interest or
beneficial interest therein; and (iii) the stock which such person may purchase
under any outstanding options of the Employer or of any Parent or Subsidiary of
the Employer.
6.4 $100,000 Limitation. Except as provided below, the Committee shall
--------------------
not grant an Incentive Stock Option to, or modify the exercise provisions of
outstanding Incentive Stock Options held by, any person who, at the time the
Incentive Stock Option is granted (or modified), would thereby receive or hold
any Incentive Stock Options of the Employer and any Parent or Subsidiary of the
Employer, such that the aggregate Fair Market Value (determined as of the
respective dates of grant or modification of each option) of the stock with
respect to which such Incentive Stock Options are exercisable for the first time
during any calendar year is in excess of $100,000 (or such other limit as may be
prescribed by the Code from time to time); provided that the foregoing
--------
restriction on modification of outstanding Incentive Stock Options shall not
preclude the Committee from modifying an outstanding Incentive Stock Option if,
as a result of such modification and with the consent of the Optionee, such
Option no longer constitutes an Incentive Stock Option; and provided that, if
the $100,000 limitation (or such other limitation prescribed by the Code)
described in this Section 6.4 is exceeded, the Incentive Stock Option, the
granting or modification of which resulted in the exceeding of such limit, shall
be treated as an Incentive Stock Option up to the limitation and the excess
shall be treated as an Option not qualifying as an Incentive Stock Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to each
---------------
Option shall be determined by the Committee. Subject to the provisions of
Section 6.3(b) hereof, the Exercise Price of an Incentive Stock Option shall not
be less than the Fair Market Value of the Stock as of the date the Option is
granted (or in the case of an Incentive Stock Option that is subsequently
modified, on the date of such modification). The Exercise Price of a
non-Incentive Stock Option shall not be less than 50% of the Fair Market Value
of the Stock on the date the Option is granted.
6.6 Exercise Period. The period for the exercise of each Option
----------------
granted hereunder shall be determined by the Committee, but the Stock Option
Agreement with respect to each Option intended to be an Incentive Stock Option
shall provide that such Option shall not be exercisable after the expiration of
ten years from the date of grant (or modification) of the Option. In addition,
no Option granted to a Section 16 Insider shall be exercisable prior to the
expiration of six months from the date such Option is granted, other than in the
case of the death or disability of the Optionee, and no Option shall be
exercisable prior to shareholder approval of the Plan.
6.7 Option Exercise.
----------------
(a) Unless otherwise provided in the Stock Option Agreement or
Section 6.6 hereof, an Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares which have become
Purchasable under the provisions of the Option, but not at any time as to less
than 100 shares unless the remaining shares that have become so Purchasable are
less than 100 shares. The Committee shall have the authority to prescribe in
any Stock Option Agreement that the Option may be exercised only in accordance
with a vesting schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the Company at
its principal office a written notice of exercise with respect to a specified
number of shares of Stock and (ii) payment to the Company at that office of the
full amount of the Exercise Price for such number of shares in accordance with
Section 6.7(c). If requested by an Optionee, an Option may be exercised with
the involvement of a stockbroker in accordance with the federal margin rules set
forth in Regulation T (in which case the certificates representing the
underlying shares will be delivered by the Company directly to the stockbroker).
(c) The Exercise Price is to be paid in full in cash upon the
exercise of the Option and the Company shall not be required to deliver
certificates for the shares purchased until such payment has been made;
provided, however, that in lieu of cash, all or any portion of the Exercise
Price may be paid by tendering to the Company shares of Stock duly endorsed for
transfer and owned by the Optionee, or by authorization to the Company to
withhold shares of Stock otherwise issuable upon exercise of the Option, in each
case to be credited against the Exercise Price at the Fair Market Value of such
shares on the date of exercise (however, no fractional shares may be so
transferred, and the Company shall not be obligated to make any cash payments in
consideration of any excess of the aggregate Fair Market Value of shares
transferred over the aggregate Exercise Price); provided further, that the Board
may provide in a Stock Option Agreement (or may otherwise determine in its sole
discretion at the time of exercise) that, in lieu of cash or shares, all or a
portion of the Exercise Price may be paid by the Optionee's execution of a
recourse note equal to the Exercise Price or relevant portion thereof, subject
to compliance with applicable state and federal laws, rules and regulations.
(d) In addition to and at the time of payment of the Exercise
Price, the Optionee shall pay to the Company in cash the full amount of any
federal, state, and local income, employment, or other withholding taxes
applicable to the taxable income of such Optionee resulting from such exercise;
provided, however, that in the discretion of the Committee any Stock Option
Agreement may provide that all or any portion of such tax obligations, together
with additional taxes not exceeding the actual additional taxes to be owed by
the Optionee as a result of such exercise, may, upon the irrevocable election of
the Optionee, be paid by tendering to the Company whole shares of Stock duly
endorsed for transfer and owned by the Optionee, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares having a Fair Market Value on
the date of exercise equal to the amount of such taxes thereby being paid, and
subject to such restrictions as to the approval and timing of any such election
as the Committee may from time to time determine to be necessary or appropriate
to satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable.
(e) The holder of an Option shall not have any of the rights of a
shareholder with respect to the shares of Stock subject to the Option until such
shares have been issued and transferred to the Optionee upon the exercise of the
Option.
6.8 Reload Options.
---------------
(a) The Committee may specify in a Stock Option Agreement (or may
otherwise determine in its sole discretion) that a Reload Option shall be
granted, without further action of the Committee, (i) to an Optionee who
exercises an Option (including a Reload Option) by surrendering shares of Stock
in payment of amounts specified in Sections 6.7(c) or 6.7(d) hereof, (ii) for
the same number of shares as are surrendered to pay such amounts, (iii) as of
the date of such payment and at an Exercise Price equal to the Fair Market Value
of the Stock on such date, and (iv) otherwise on the same terms and conditions
as the Option whose exercise has occasioned such payment, except as provided
below and subject to such other contingencies, conditions, or other terms as the
Committee shall specify at the time such exercised Option is granted; provided,
that the shares surrendered in payment as provided above must have been held by
the Optionee for at least six months prior to such surrender.
(b) Unless provided otherwise in the Stock Option Agreement, a
Reload Option may not be exercised by an Optionee (i) prior to the end of a
one-year period from the date that the Reload Option is granted, and (ii) unless
the Optionee retains beneficial ownership of the shares of Stock issued to such
Optionee upon exercise of the Option referred to above in Section 6.8(a)(i) for
a period of one year from the date of such exercise.
6.9 Non-Transferability of Option. No Option shall be transferable by
------------------------------
an Optionee other than by will or the laws of descent and distribution or, in
the case of non-Incentive Stock Options, pursuant to a Qualified Domestic
Relations Order, and no Option shall be transferable by an Optionee who is a
Section 16 Insider prior to shareholder approval of the Plan. During the
lifetime of an Optionee, Options shall be exercisable only by such Optionee (or
by such Optionee's guardian or legal representative, should one be appointed).
6.10 Termination of Employment or Service. The Committee shall have
---------------------------------------
the power to specify, with respect to the Options granted to a particular
Optionee, the effect upon such Optionee's right to exercise an Option of
termination of such Optionee's employment or service under various
circumstances, which effect may include immediate or deferred termination of
such Optionee's rights under an Option, or acceleration of the date at which an
Option may be exercised in full; provided, however, that in no event may an
Incentive Stock Option be exercised after the expiration of ten years from the
date of grant thereof.
6.11 Employment Rights. Nothing in the Plan or in any Stock Option
------------------
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.
6.12 Certain Successor Options. To the extent not inconsistent with
---------------------------
the terms, limitations and conditions of Code section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article VI, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code section 424(a).
6.13 Effect of Change in Control. The Committee may determine, at the
---------------------------
time of granting an Option or thereafter, that such Option shall become
exercisable on an accelerated basis in the event that a Change in Control occurs
with respect to the Company (and the Committee shall have the discretion to
modify the definition of a Change in Control in a particular Option Agreement).
If, at any time, the Committee finds that there is a reasonable possibility
that, within six months or less, a Change in Control will occur with respect to
the Company, then the Committee may determine that all outstanding Options shall
be exercisable on an accelerated basis.
ARTICLE VII
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant Awards of
-----------------------------
Restricted Stock, which shall be governed by an Award Agreement between the
Company and the Grantee. Each Award Agreement shall contain such restrictions,
terms, and conditions as the Committee may, in its discretion, determine, and
may require that an appropriate legend be placed on the certificates evidencing
the subject Restricted Stock.
Shares of Restricted Stock granted pursuant to an Award hereunder shall be
issued in the name of the Grantee as soon as reasonably practicable after the
Award is granted, provided that the Grantee has executed the Award Agreement
governing the Award, the appropriate blank stock powers and, in the discretion
of the Committee, an escrow agreement and any other documents which the
Committee may require as a condition to the issuance of such Shares. If a
Grantee shall fail to execute the foregoing documents within any time period
prescribed by the Committee, the Award shall be void. At the discretion of the
Committee, Shares issued in connection with an Award shall be deposited together
with the stock powers with an escrow agent designated by the Committee. Unless
the Committee determines otherwise and as set forth in the Award Agreement, upon
delivery of the Shares to the escrow agent, the Grantee shall have all of the
rights of a shareholder with respect to such Shares, including the right to vote
the Shares and to receive all dividends or other distributions paid or made with
respect to the Shares.
7.2 Non-Transferability. Until any restrictions upon Restricted Stock
-------------------
awarded to a Grantee shall have lapsed in a manner set forth in Section 7.3,
such shares of Restricted Stock shall not be transferable other than by will or
the laws of descent and distribution, or pursuant to a Qualified Domestic
Relations Order, nor shall they be delivered to the Grantee.
7.3 Lapse of Restrictions. Restrictions upon Restricted Stock awarded
----------------------
hereunder shall lapse at such time or times (but, with respect to any award to a
Grantee who is also a Section 16 Insider, not less than six months after the
date of the Award) and on such terms and conditions as the Committee may, in its
discretion, determine at the time the Award is granted or thereafter.
7.4 Termination of Employment. The Committee shall have the power to
---------------------------
specify, with respect to each Award granted to any particular Grantee, the
effect upon such Grantee's rights with respect to such Restricted Stock of the
termination of such Grantee's employment under various circumstances, which
effect may include immediate or deferred forfeiture of such Restricted Stock or
acceleration of the date at which any then-remaining restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of Restricted Stock
------------------------
is made the Committee may, in its discretion, determine that the payment to the
Grantee of any dividends, or a specified portion thereof, declared or paid on
such Restricted Stock shall be (i) deferred until the lapsing of the relevant
restrictions and (ii) held by the Company for the account of the Grantee until
such lapsing. In the event of such deferral, there shall be credited at the end
of each year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum determined by the Committee. Payment
of deferred dividends, together with interest thereon, shall be made upon the
lapsing of restrictions imposed on such Restricted Stock, and any dividends
deferred (together with any interest thereon) in respect of Restricted Stock
shall be forfeited upon any forfeiture of such Restricted Stock.
7.6 Delivery of Shares. Except as provided otherwise in Article IX
--------------------
below, within a reasonable period of time following the lapse of the
restrictions on shares of Restricted Stock, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such shares and such
shares shall be free of all restrictions hereunder.
7.7 Effect of Change in Control. The Committee may determine, at the
-----------------------------
time of granting Restricted Stock or thereafter, that such Restricted Stock
shall become fully vested in the event that a Change in Control occurs with
respect to the Company (and the Committee shall have the discretion to modify
the definition of a Change in Control in a particular Award Agreement). If, at
any time, the Committee finds that there is a reasonable possibility that,
within six months or less, a Change in Control will occur with respect to the
Company, then the Committee may determine that all outstanding Restricted Stock
shall vest on an accelerated basis.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 SAR Grants. The Committee, in its sole discretion, may grant to
-----------
any Grantee a SAR. The Committee may impose such conditions or restrictions on
the exercise of any SAR as it may deem appropriate, including, without
limitation, restricting the time of exercise of the SAR to specified periods as
may be necessary to satisfy the requirements of Rule 16b-3 of the Exchange Act.
8.2 Determination of Price. The SAR Exercise Price shall be
------------------------
established by the Committee in its sole discretion. The SAR Exercise Price
shall not be less than (i) 100% of the Fair Market Value of the Stock on the
date the SAR is granted for a SAR issued in tandem with an Incentive Stock
Option and (ii) 50% of the Fair Market Value of the Stock on the date the SAR is
granted for other SARs.
8.3 Exercise of a SAR. Upon exercise of a SAR, the Grantee shall be
--------------------
entitled, subject to the terms and conditions of this Plan and the Agreement, to
receive the excess for each share of Stock being exercised under the SAR of (i)
the Fair Market Value of such share of Stock on the date of exercise over (ii)
the SAR Exercise Price for such share of Stock.
8.4 Payment for a SAR. At the sole discretion of the Committee, the
--------------------
payment of such excess shall be made in (i) cash, (ii) shares of Stock, or (iii)
a combination of both. Shares of Stock used for this payment shall be valued at
their Fair Market Value on the date of exercise of the applicable SAR.
8.5 Status of a SAR under the Plan. Shares of Stock subject to an
-----------------------------------
Award of a SAR shall be considered shares of Stock which may be issued under the
Plan for purposes of Section 5.1 hereof, unless the Agreement making the Award
of the SAR provides that the exercise of such SAR results in the termination of
an unexercised Option for the same number of shares of Stock.
8.6 Termination of SARs. A SAR may be terminated as follows:
---------------------
(a) During the period of continuous employment with the Company,
Parent or Subsidiary, a SAR will be terminated only if it has been fully
exercised or it has expired by its terms.
(b) Upon termination of employment, the SAR will terminate upon
the earliest of (i) the full exercise of the SAR, (ii) the expiration of the SAR
by its terms, and (iii) not more than three months following the date of
employment termination; provided, however, should termination of employment (A)
result from the death or Permanent and Total Disability of the Grantee, the
period referenced in clause (iii) hereof shall be one year or (B) be for Cause,
the SAR will terminate on the date of employment termination. For purposes of
the Plan, a leave of absence approved by the Company shall not be deemed to be
termination of employment unless otherwise provided in the Agreement or by the
Company on the date of the leave of absence.
(c) Subject to the terms of the Agreement with the Grantee, if a
Grantee shall die or become subject to a Permanent and Total Disability prior to
the termination of employment with the Company, Parent or Subsidiary and prior
to the termination of a SAR, such SAR may be exercised to the extent that the
Grantee shall have been entitled to exercise it at the time of death or
disability, as the case may be, by the Grantee, the estate of the Grantee or the
person or persons to whom the SAR may have been transferred by will or by the
laws of descent and distribution.
(d) Except as otherwise expressly provided in the Agreement with
the Grantee, in no event will the continuation of the term of a SAR beyond the
date of termination of employment allow the Employee, or his beneficiaries or
heirs, to accrue additional rights under the Plan, have additional SARs
available for exercise, or receive a higher benefit than the benefit payable as
if the SAR had been exercised on the date of employment termination.
8.7 No Shareholder Rights. The Grantee shall have no rights as a
-----------------------
shareholder with respect to a SAR. In addition, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or rights except as provided in Section 5.2 hereof.
8.8 Effect of Change in Control. The Committee may determine, at the
-----------------------------
time of granting an SAR or thereafter, that such SAR shall become fully vested
in the event that a Change in Control occurs with respect to the Company (and
the Committee shall have the discretion to modify the definition of a Change in
Control in a particular Award Agreement). If, at any time, the Committee finds
that there is a reasonable possibility that, within six months or less, a Change
in Control will occur with respect to the Company, then the Committee may
determine that all outstanding SARs shall become exercisable on an accelerated
basis.
ARTICLE IX
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, or deliver any certificate for shares of Restricted Stock
granted hereunder, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which the Stock is then listed;
(b) The completion of any registration or other qualification of
such shares which the Committee shall deem necessary or advisable under any
federal or state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency or body which the Committee shall determine
to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for reasons
of administrative convenience.
Stock certificates issued and delivered to Grantees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.
ARTICLE X
TERMINATION AND AMENDMENT
10.1 Termination and Amendment. The Board may at any time terminate
---------------------------
the Plan, and may at any time and from time to time and in any respect amend the
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve months of the date
that the Board amends the Plan) may not amend the Plan to:
(a) Increase the total number of shares of Stock issuable pursuant
to Incentive Stock Options under the Plan or materially increase the number of
shares of Stock subject to the Plan, in each case except as contemplated in
Section 5.2 hereof;
(b) Change the class of employees eligible to receive Incentive
Stock Options that may participate in the Plan or materially change the class of
persons that may participate in the Plan; or
(c) Otherwise materially increase the benefits accruing to
participants under the Plan.
10.2 Effect on Grantee's Rights. No termination, amendment, or
-----------------------------
modification of the Plan shall affect adversely a Grantee's rights under a Stock
Option Agreement or Award Agreement without the consent of the Grantee or his
legal representative.
ARTICLE XI
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees, Officers or Directors of the Company or any of
its Subsidiaries.
ARTICLE XII
MISCELLANEOUS
12.1 Replacement or Amended Grants. At the sole discretion of the
--------------------------------
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or Awards or accept the surrender of outstanding Options or
Awards and grant new Options or Awards in substitution for them. However no
modification of an Option or Award shall adversely affect a Grantee's rights
under a Stock Option Agreement or Award Agreement without the consent of the
Grantee or his legal representative.
12.2 Forfeiture for Competition. If a Grantee provides services to a
----------------------------
competitor of the Company or any of its Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent, or otherwise, such
services being of a nature that can reasonably be expected to involve the skills
and experience used or developed by the Grantee while an Employee, then that
Grantee's rights under any Options outstanding hereunder shall be forfeited and
terminated, and any shares of Restricted Stock held by such Grantee subject to
remaining restrictions shall be forfeited, subject in each case to a
determination to the contrary by the Committee.
12.3 Plan Binding on Successors. The Plan shall be binding upon the
-----------------------------
successors and assigns of the Company.
12.4 Singular, Plural; Gender. Whenever used herein, nouns in the
--------------------------
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
12.5 Headings, etc., Not Part of Plan. Headings of Articles and
-------------------------------------
Sections hereof are inserted for convenience and reference; they do not
constitute part of the Plan.
12.6 Interpretation. With respect to Section 16 Insiders, transactions
--------------
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the Plan or action by the Plan administrators fails to so comply, it shall be
deemed void to the extent permitted by law and deemed advisable by the Plan
administrators.
* * * *
*
<PAGE>
Exhibit A to American Bingo & Gaming
Corp. Stock Option Plan
AMERICAN BINGO & GAMING CORP.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of this
______ day of __________________, ________, by and between American Bingo &
Gaming Corp. (the "Company") and _________________ (the "Optionee").
WHEREAS, on February 26, 1999, the Board of Directors of the Company
adopted a stock option plan known as the "American Bingo & Gaming Corp. Stock
Option Plan" (the "Plan"), and recommended that the Plan be approved by the
Company's shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in [the employ of]/[service to] the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as [an employment incentive]/[a service incentive] and to
encourage stock ownership, and also in consideration of the mutual covenants
contained herein, the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
-----------------------
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations
-----------------
and conditions stated herein, the Company hereby evidences its grant to the
Optionee, not in lieu of salary or other compensation, of the right and option
(the "Option") to purchase all or any part of the number of shares of the
Company's Common Stock, $.001 par value per share (the "Stock"), set forth on
Schedule A attached hereto and incorporated herein by reference. The Option
shall be exercisable in the amounts and at the time specified on Schedule A.
The Option shall expire and shall not be exercisable on the date specified on
Schedule A or on such earlier date as determined pursuant to Section 8, 9, or 10
hereof. Schedule A states whether the Option is intended to be an Incentive
Stock Option.
3. Purchase Price. The price per share to be paid by the Optionee for
---------------
the shares subject to this Option (the "Exercise Price") shall be as specified
on Schedule A, which price shall be an amount not less than the Fair Market
Value of a share of Stock as of the Date of Grant (as defined in Section 11
below) if the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at least
---------------
the lesser of 100 shares or the number of shares of Purchasable Stock as to
which the Option remains unexercised. In the event this Option is not exercised
with respect to all or any part of the shares subject to this Option prior to
its expiration, the shares with respect to which this Option was not exercised
shall no longer be subject to this Option.
5. Option Non-Transferable. No Option shall be transferable by an
------------------------
Optionee other than by will or the laws of descent and distribution or, in the
case of non-Incentive Stock Options, pursuant to a Qualified Domestic Relations
Order, and no Option shall be transferable by an Optionee who is a Section 16
Insider prior to shareholder approval of the Plan. During the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
------------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 13 hereof to the attention of the
President or such other officer as the Company may designate. Any such notice
shall (a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, then elects to purchase hereunder, (b) contain such information as may
be reasonably required pursuant to Section 12 hereof, and (c) be accompanied by
(i) a certified or cashier's check payable to the Company in payment of the
total Exercise Price applicable to such shares as provided herein, (ii) shares
of Stock owned by the Optionee and duly endorsed or accompanied by stock
transfer powers having a Fair Market Value equal to the total Exercise Price
applicable to such shares purchased hereunder, or (iii) a certified or cashier's
check accompanied by the number of shares of Stock whose Fair Market Value when
added to the amount of the check equals the total Exercise Price applicable to
such shares purchased hereunder. Upon receipt of any such notice and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue to the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number of shares
specified in such notice registered in the name of the person exercising this
Option.
7. Adjustment in Option. The number of Shares subject to this Option,
---------------------
the Exercise Price and other matters are subject to adjustment during the term
of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Employment. [Revise if for consulting arrangement.]
---------------------------
(a) Except as otherwise specified in Schedule A hereto, in the
event of the termination of the Optionee's employment with the Company or any of
its Subsidiaries, other than a termination that is either (i) for cause, (ii)
voluntary on the part of the Optionee and without written consent of the
Company, or (iii) for reasons of death or disability or retirement, the Optionee
may exercise this Option at any time within 30 days after such termination to
the extent of the number of shares which were Purchasable hereunder at the date
of such termination.
(b) Except as specified in Schedule A attached hereto, in the
event of a termination of the Optionee's employment that is either (i) for cause
or (ii) voluntary on the part of the Optionee and without the written consent of
the Company, this Option, to the extent not previously exercised, shall
terminate immediately and shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Exhibit A
hereto, in the event of the retirement of the Optionee at the normal retirement
date as prescribed from time to time by the Company or any Subsidiary, the
Optionee shall continue to have the right to exercise any Options for shares
which were Purchasable at the date of the Optionee's retirement [provided that,
on the date which is three months after the date of retirement, the Options will
become void and unexercisable unless on the date of retirement the Optionee
enters into a noncompete agreement with American Bingo & Gaming Corp. and
continues to comply with such noncompete agreement]. This Option does not
confer upon the Optionee any right with respect to continuance of employment by
the Company or by any of its Subsidiaries. This Option shall not be affected by
any change of employment so long as the Optionee continues to be an employee of
the Company or one of its Subsidiaries.
9. Disabled Optionee. In the event of termination of
------------------
[employment]/[consulting services] because of the Optionee's becoming a Disabled
-----
Optionee, the Optionee (or his or her personal representative) may exercise this
Option at any time within three months after such termination to the extent of
the number of shares which were Purchasable hereunder at the date of such
termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A
-------------------
with respect to the rights of the Optionee upon termination of
[employment]/[consulting services] under Section 8(a) above, in the event of the
Optionee's death while [employed by]/[serving] the Company or any of its
Subsidiaries or within three months after a termination of such
[employment]/[consulting services](if such termination was neither (i) for cause
nor (ii) voluntary on the part of the Optionee and without the written consent
of the Company), the appropriate persons described in Section 6 hereof or
persons to whom all or a portion of this Option is transferred in accordance
with Section 5 hereof may exercise this Option at any time within a period
ending on the earlier of (a) the last day of the three month period following
the Optionee's death or (b) the expiration date of this Option. If the Optionee
was [an employee of]/[a consultant to] the Company at the time of death, this
Option may be so exercised to the extent of the number of shares that were
Purchasable hereunder at the date of death. If the Optionee's
[employment]/[consulting services] terminated prior to his or her death, this
Option may be exercised only to the extent of the number of shares covered by
this Option which were Purchasable hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Board of Directors
---------------
of the Company on the date set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
----------------------------------
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate any law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 12.
13. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and
their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of South Carolina.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished shall be deemed
made or accomplished, upon actual delivery thereof to the designated recipient,
or three days after deposit thereof in the United States mail, registered,
return receipt requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the executive offices of
the Company at 1440 Charleston Highway, West Columbia, SC 29169.
(d) This Agreement may not be modified except in writing executed
by each of the parties hereto.
IN WITNESS WHEREOF, this Stock Option Agreement has been executed on
behalf of the Company and the Optionee has executed this Stock Option Agreement,
all as of the day and year first above written.
AMERICAN BINGO & GAMING CORP. OPTIONEE
By: _______________________ Signature: _________________________
Name: _____________________ Name: ______________________________
Title: ____________________ Address: ___________________________
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
AMERICAN BINGO & GAMING CORP.
AND
Dated:
1. Number of Shares Subject to Option: _____ Shares.
---------------------------------------
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
------------ -- --------------------------------
3. Option Exercise Price: $ per Share.
-----------------------
4. Date of Grant:
---------------
5. Option Vesting Schedule:
-------------------------
Check one:
( ) Options are exercisable with respect to all shares on or after
the date hereof
( ) Options are exercisable with respect to the number of shares
indicated below on or after the date indicated next to the number of shares:
No. of Shares Vesting Date
--------------- -------------
6. Option Exercise Period:
------------------------
Check One:
( ) All options expire and are void unless exercised on or before
, .
( ) Options expire and are void unless exercised on or before the
date indicated next to the number of shares:
No. of Shares Expiration Date
--------------- ----------------
7. Effect of Termination of Employment of Optionee (if different from that
-------------------------------------------------
set forth in Sections 8 and 10 of the Stock Option Agreement):
<PAGE>
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies American Bingo & Gaming Corp. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ___________________ shares of the Company's common stock, $.001 par
value per share (the "Common Stock"), pursuant to the Stock Option Agreement
(the "Agreement") between the undersigned and the Company dated ______________
Accompanying this Notice is (1) a certified or cashier's check in the amount of
$___________ payable to the Company, and/or (2) _______________ shares of the
Company's Common Stock presently owned by the undersigned and duly endorsed or
accompanied by stock transfer powers, having an aggregate Fair Market Value
(as defined in the American Bingo & Gaming Corp. Stock Option Plan) as of
the date hereof of $__________________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
Instance subject to appropriate adjustment pursuant to Section 5.2 of the
Agreement).
IN WITNESS WHEREOF, the undersigned has set his/her hand and seal,
this _____ day of ______________, _______.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR,
EXECUTOR OR PERSONAL
REPRESENTATIVE]
Signature:
Name:
Position (if other than Optionee):
<PAGE>
APPENDIX A
----------
AMERICAN BINGO & GAMING CORP.
ANNUAL MEETING OF STOCKHOLDERS - MAY 27, 1999
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard M. Kelley and Nancy J. Pollick, and
either of them, proxies of the undersigned, with full power of substitution, to
vote all Common Shares of American Bingo & Gaming Corp. (the "Company") owned by
the undersigned at the Annual Meeting of Stockholders of American Bingo & Gaming
Corp. to be held on May 27, 1999 and at any adjournments thereof, hereby
revoking any proxy heretofore given, upon the matters and proposals set forth in
the Notice of Annual Meeting and Proxy Statement dated April 26, 1999, copies of
which have been received by the undersigned. The undersigned instructs such
proxy to vote as follows:
(CONTINUED ON REVERSE SIDE)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
AMERICAN BINGO & GAMING CORP.
MAY 27, 1999
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
/X/ Please mark
votes as
in this example
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR WITHHOLD
3. To elect seven the election of AUTHORITY NOMINEES: 1. To consider and act upon the FOR AGAINST ABSTAIN
members to the all nominees to vote for all Kenneth R. Adams proposed amendments to the / / / / / /
Company's listed at night nominees listed James L. Hall Company's Certificate of
Board of (except as at right George M. Harrison, Jr. Incorporation and the Company's
Directors marked to the Andre' M. Hillou Bylaws to divide the Company's
contrary) Michael W. Mims Board of Directors into two
Grover C. Seaton, III classes
[ ] [ ] A. Joe Willis
2. To consider and act upon the
FOR the election of all nomines listed at right proposed amendment to the
(except authority is withheld with respect to each Company's Certificate of / / / / / /
nominee whose name is lined through) Incorporation to include
provisions that address
stockholder lincensing issues
4. To approve and adopt the
Company's Stock Option Plan; / / / / / /
5. To ratify the appointment of King
Griffin & Adamson P.C. as the
Company's independent auditors / / / / / /
for 1999; and
6. To consider such other matters as
may properly come before the
Meeting or any adjournment of
the Meeting
IF NO DIRECTION TO THE CONTRARY IS GIVEN, THEN THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED FOR APPROVAL OF THE FOREGOING PROPOSALS
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED
SHAREHOLDER
The proxy will use his discretion with respect to any other matters which may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN AND RETURN IN
THE ENCLOSED ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING.
SIGNATURE(S) Dated ,1999
------------------ ----------------- -----------
IF HELD JOINTLY
Important: (Please date and sign exactly as your name appears herein. For joint accounts, each joint owner should sign.
Executors, administrators, trustees, etc. should also indicate when signing.
</TABLE>
<PAGE>
Appendix B
AMERICAN BINGO & GAMING CORP.
1999 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
AMERICAN BINGO & GAMING CORP.
TOTAL SOUTH CAROLINA VIDEO GAMING MACHINES AND
LIST OF BINGO CENTER LOCATIONS AND CHARITIES
AS OF MARCH 1999
TOTAL SOUTH CAROLINA
VIDEO GAMING MACHINES - 804
- ----------------------------
TOTAL BINGO CENTERS - 20
- ----------------------------
SOUTH CAROLINA - 7
- ---------------------
Charleston (5):
----------------
- Beacon Bingo
- Lazy B Bingo
- Lucky Bingo
- Ponderosa Bingo
- Shipwatch Bingo
Columbia (2):
--------------
- American Bingo (2)
ALABAMA - 3
- -------------
Mobile (1):
------------
- Bingo Haven
Montgomery (1):
----------------
- Winner's Bingo
Chickasaw (1):
---------------
- Chickasaw Bingo
TEXAS - 10
- ------------
Abilene (1):
-------------
- Ambler Bingo
- Super Bingo to open April 1999
Austin (1):
------------
- American Bingo in Paradise
McAllen (1):
-------------
- Americana Bingo
San Antonio (1):
------------------
- Blanco Bingo
Amarillo (2):
--------------
- Hi-Plains Bingo
- Goldstar II
Lubbock (3):
-------------
- Lucky Bingo
- Goldstar Bingo
- Parkway Bingo
Odessa (1):
------------
- Strike It Rich Bingo
PARTICIPATING BINGO CHARITIES
- -------------------------------
SOUTH CAROLINA
- ---------------
Berkeley County SPCA
Canon Street YMCA
Fraternal Order of Police
H.F. Help
Pet Helpers, Inc.
United Black Fund
United Veteran's Association
ALABAMA
- -------
Alabama Association of VFD
Alabama Dance Theater
Arthritis Foundation
Chickasaw Volunteer Fire Dept. (VFD)
Drum Corp.
Fraternal Order of Police Lodge #11
Fraternal Order of Police Lodge #29
Georgetown VFD
Gifts, Inc.
Korean War Veterans Association
K.S.C.G.C. for Ronald McDonald House
Living to Win Alumni
Montgomery Exchange Club
Rural Community Fire Protection
Satsuma Football Youth Association
Semmes VFD
Snowdoun VFD
South Montgomery Co. VFD
United Care USA - Child Abuse
Wilmer VFD Auxiliary
TEXAS
- -----
ADV Housing Mgt. Services Corp., Inc.
Advocates Social Services of San Antonio, Inc.
Alamo Catholic High School
Amarillo Community Center
Amarillo Senior Citizens
Amarillo Tri-state Fair
American Legion Post #57
Amigos del Valle, Inc.
Animal Goodwill Center of San Antonio
Ask House
Austin Flyers Soccer Club
Brush Country Services, Inc.
Detox Center
Elks Lodge #201
Elsa Apostolic Church
Father Joe Znotas Memorial Scholarship Fund
Greater Amarillo Moose Lodge
Guadalupe Economic Services
Hamby Volunteer Fire Dept.
Hilltop Senior Citizens
Idalou Volunteer Fire Dept.
Keep Odessa Beautiful
Khiva Muleskinners
Khiva Oriental Band
Khiva Shriners
Knights of Columbus Council #1017
Lions Club of San Antonio Charity Fund
Managed Care Center
Marion Ross
Maverick Boys and Girls Club
Milam Children's Training Center
Military Order of the Cooties Pup Tent #36
Military Order of the Cooties Auxiliary
Non-commissioned Officers Association
Northside Lions Club
Odessa Jaycees
Respite Care of San Antonio, Inc.
Rio Grande Valley OIC Enterprises
Rio Grande Valley Sports Hall of Fame, Inc.
South Plains Economic Development
South Plains Volunteer
Substance Abuse Services
The Heritage of Odessa Foundation
White Pool House
<PAGE>
[GRAPHIC OMITED]
TO OUR STOCKHOLDERS
The past year has been a transitional period for American Bingo & Gaming,
replete with the challenges of righting the course of our business strategy, and
the excitement of targeting new growth opportunities. Following the first
quarter of 1998, seasoned gaming veterans were hired to fill senior management
positions, joined by several new independent board members. The new team
immediately targeted a number of existing issues severely constraining Company
profitability. Their corrective action, while painful, has opened the door to
future growth for American Bingo & Gaming, and has already been affirmed by a
number of 1998 achievements.
- record revenues
- the accretive acquisition of seven bingo centers
- the addition of over ninety video gaming machines ("VGMs")
- profit-enhancing restructuring of the VGM business
- realignments of various operational areas
- improved infrastructure
- a much stronger acquisition capable team
With a successful transition behind it, management looks to begin a new chapter
of significant growth at the Company. Building on a base of almost $19 million
in assets (20 bingo centers and over 800 VGMs), and a record $15 million in
annual revenues, the Company is poised to aggressively pursue its acquisition
strategy. New management added eight Texas bingo centers to the Company's
portfolio in 1998, seven of which were accretive to earnings and the eighth to
open in early 1999. Performance to date at the new centers bodes well for the
Company's future:
- April's acquisition of one hall contributed $460,000 to 1998 revenues.
- October's acquisition of six additional Texas halls contributed over
$300,000 in revenues during the last two full months of 1998.
- December's acquisition of one hall will begin operations mid-April, 1999.
<PAGE>
In November 1998, American Bingo & Gaming restructured its freestanding/bingo
center VGM operations, essentially converting the various venues operating
approximately 150 machines into route operations. As a result, the Company was
able to reduce overhead costs and operational risks, while continuing to supply
and retain ownership of VGMs, as well as control desirable locations through
leasing and subleasing arrangements. In the fourth quarter of 1998, the
Company's VGMs posted daily average revenues of approximately $73, compared to a
statewide average of $63.
Looking forward, our immediate challenge in 1999 will be to ensure the future of
video gaming in South Carolina. With a new governor in South Carolina, we must
anticipate the possibility of tax and regulatory changes, many of which may
positively impact the industry and the Company. Additionally, the Company will
continue its drive toward further expansion. Management believes that it will
be able to consummate deals that will rival the success of the 1998
acquisitions.
In summary, 1998 was a challenging but very successful year for American Bingo &
Gaming. Management faced and followed through on a number of difficult
decisions, but we have emerged stronger than ever, with a solid balance sheet,
an efficient management structure and deep expertise, all of which will work to
build value for the stockholders of American Bingo & Gaming.
Sincerely,
/s/ Andre M. Hilliou
- ---------------------
Andre M. Hilliou
President and Chief Executive Officer,
Chairman of the Board
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 1-13530
-------
AMERICAN BINGO & GAMING CORP.
-----------------------------
(Exact Name of small business issuer as specified in its charter)
Delaware 74-2723809
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1440 Charleston Highway, West Columbia, SC 29169
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (803) 796-7875
--------------
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act: Common Stock
------------
Check 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
--- ---
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of issuer's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
YES NO x
--- ---
<TABLE>
<CAPTION>
<S> <C>
Issuer's revenues for its most recent fiscal year: $15,445,456
Aggregate market value of the issuer's common stock held by non-affiliates
based on the average bid and asked price as of March 5, 1999: $14,133,498
Number of shares of the issuer's common stock outstanding as of March 5, 1999: 9,945,590
</TABLE>
Transitional Small Business Disclosure Format: Yes No x
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
The issuer's Proxy Statement for its annual meeting of stockholders scheduled to
be held on May 27, 1999, is incorporated by reference in this Form 10-KSB in
Part III Item 9, Item 10, Item 11 and Item 12.
<PAGE>
THIS REPORT CONTAINS STATEMENTS THAT CONSTITUTE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934. THESE STATEMENTS APPEAR IN A NUMBER OF
PLACES IN THIS REPORT AND INCLUDE ALL STATEMENTS REGARDING THE INTENT, BELIEF OR
CURRENT EXPECTATIONS OF THE COMPANY, ITS DIRECTORS OR ITS OFFICERS, WITH RESPECT
TO, AMONG OTHER THINGS: (I) THE COMPANY'S FINANCING PLANS; (II) TRENDS
AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS; (III) THE
COMPANY'S GROWTH STRATEGY AND OPERATING STRATEGY; AND (IV) THE DECLARATION AND
PAYMENT OF DIVIDENDS. INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS
DISCUSSED HEREIN AND THOSE FACTORS DISCUSSED IN DETAIL IN THE COMPANY'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
- -------------------------------------
BUSINESS DEVELOPMENT
American Bingo & Gaming Corp. (the "Company") was formed in 1994 as a
Delaware corporation to consummate the acquisition of charitable bingo centers
and gaming operations. The Company subsequently completed its initial public
offering in December of 1994, raising approximately $5.2 million through the
sale of 1,000,000 shares of the Company's common stock, par value $0.001 per
share (the "Common Stock"), and 1,725,000 redeemable common stock purchase
warrants. The Company used a majority of its net public offering proceeds for
expansion in 1995.
The Company substantially improved its capitalization in 1997 through two
financing transactions. In August of 1997, the Company issued 2,000 shares of
convertible preferred stock at $1,000 per share, raising $2 million in a private
equity transaction. The convertible preferred stock outstanding was converted to
common stock by December 1998. In November of 1997, the Company called all of
its outstanding redeemable common stock purchase warrants and in December of
1997 redeemed 2.3 million warrants. Each warrant was exercisable into one common
share at $5.00 per share, raising $11.5 million for the Company, or $11.1
million after associated financing costs. The Company used this capital to
finance and grow its business.
The Company has experienced substantial growth and significant changes in
the four years since its initial public offering. The Company began 1995 with
approximately $5 million in total assets and a $2 million annual revenue
runrate, and today has grown to approximately $19 million in total assets and
over $15 million in annual revenues. The Company began with six bingo centers
and no gaming operations in 1994 and today has 20 operating bingo centers and
over 800 video gaming machines ("VGMs"). The Company is planning to acquire
additional machines to meet the demand for expansion and regulatory compliance
requirements in 1999. The Company's growth accelerated dramatically in 1997 as
the Company consummated three acquisitions of video gaming businesses in South
Carolina in stock-for-stock transactions. These acquisitions accounted for $7.5
million, or 60%, of the Company's 1997 total revenues. The Company also added
ten bingo centers in South Carolina during 1997, but closed five of these
centers due to lack of profitability.
During 1998, the Company acquired eight bingo centers in Texas in three
unrelated purchase acquisitions. A Texas bingo hall acquisition was completed
in April 1998 and contributed $460,000 in revenues during 1998. Six additional
Texas halls were acquired in October 1998, which contributed $302,000 in
revenues during the last two months of 1998. The third Texas bingo transaction,
completed in late December 1998, is scheduled to begin operations near the end
of the first quarter of 1999. This transaction was comprised of the purchase of
a bingo operator's license and the assumption of an existing hall lease. In
addition to the 1998 acquisitions the Company opened two additional bingo
centers through internal development; one in South Carolina and one in Alabama.
The hall in Alabama was subsequently closed. The Company was able to cancel the
Alabama property lease, mitigating additional future costs associated with this
bingo center. The Company also terminated operations at one South Carolina
bingo center, and was able to sublease the property for the term of the
remaining lease commitment. In addition, the Company negotiated a subleasing
arrangement for the duration of the remaining lease term on a Texas bingo center
that discontinued operations in 1997. This sublease arrangement sufficiently
absorbs the costs associated with the remainder of this lease commitment.
2
<PAGE>
For the majority of 1998, the Company operated 750 VGMs in three operating
venues; routes (600), freestanding locations (90) and bingo centers (60). In
November 1998, the Company reduced overhead costs and operational risks by
restructuring the operations of the freestanding VGM locations and certain VGMs
located in bingo centers, essentially converting these operating venues into
route operations. During November and December, the Company increased the
number of operating VGMs to over 800, all in route operations.
During 1998, the Company's Board of Directors experienced significant
changes with five of the six current members of the Board having joined the
Board in 1998. Additionally, in June 1998, the corporate office was relocated
to West Columbia, South Carolina from Austin, Texas. Approximately 63% of the
Company's revenues are derived in South Carolina. Management believes that the
relocation of its corporate offices to South Carolina strengthened the Company
and the support available to its operations. This relocation resulted in an
almost completely new management team and support staff composition.
PRINCIPAL SERVICES AND MARKETS
Total U.S. gross wagering grew from $587 billion in 1996 to $639 billion in
1997. Gaming receipts comprised approximately 9.3% of the total U.S. personal
income in 1997, as compared to 6% in 1996. Total gross wagering includes all
revenues generated through parimutual, lottery, casino, bookmaking, charitable
and Indian reservation wagering. Total net wagering equals the total gross
wagering less player winnings. Within the casino segment of this market, total
non-casino video gaming gross wagering was approximately $14.4 billion in 1996
and $16.1 billion in 1997. Video gaming is currently legal in various forms in
11 states in the U.S. (Colorado, Louisiana, Michigan, Montana, Nevada, New
Jersey, Oregon, Rhode Island, South Carolina, South Dakota, and West Virginia).
All of the Company's video gaming revenues are currently earned in South
Carolina, which has approximately 34,000 VGMs in operation today, a 13% increase
in machines over 1997, with total gross wagering of over $2 billion annually and
a net wagering of approximately $678 million annually.
The Company's business is primarily focused in the non-casino video gaming
and charitable bingo niches of the U.S. market. Net wagering from non-casino
video gaming was $1.4 billion in the U.S. in 1996, increasing to $1.7 billion (a
17% increase) in 1997. Video gaming revenues comprised approximately 63% of the
Company's total revenues in 1998, with bingo related revenues providing about
37%, as compared to the ratios for 1997 of 72% and 27%, respectively. Management
intends to continue the migration to a more evenly balanced revenue mix and to
spread its risk by expanding its business into other markets in the future.
3
<PAGE>
Video gaming operations
- -------------------------
The Company's video gaming operations in South Carolina have traditionally
been divided into three operating venues, bingo centers, routes and freestanding
locations. In 1998 the Company restructured the operation of its freestanding
locations and certain of its bingo center operations and essentially converted
these operations into route operations. The Company's video gaming operations
have grown rapidly with 30 VGMs in operation at the beginning of 1997, and 714
VGMs in operation at the end of 1997. The total number of VGMs remained at this
level through October of 1998 and was increased to 800 VGMs in operation by the
end of 1998.
The Company had over 430 VGMs in route operations in 12 counties in South
Carolina prior to restructuring the operation of its freestanding locations in
November 1998, and increasing to 800 VGMs in route operations at the end of
1998. In the route business, the Company places VGMs in convenience stores,
grocery stores, restaurants, nightclubs, sports bars, laundromats, bowling
alleys and other high customer volume locations. The Company and the location
owner/operator typically split the net VGM profits, often on a 50/50 basis.
During 1997, the Company's route operation was the second most profitable
operating segment. In 1998, the Company's route operation was the most
profitable.
The Company also had over 230 VGMs in freestanding locations, primarily in
Columbia, Charleston and North Augusta, South Carolina, prior to restructuring
the operation of its freestanding locations and certain bingo center operations
in November 1998. These machines were operated as route machines in the later
part of 1998. These locations are often located in strip malls or other
high-traffic areas. This video gaming venue typically offers the best facilities
and highest level of customer service to video gaming customers and more closely
resembles a casino-style environment for its regional area. These locations also
have the highest direct operating costs of the three video gaming operating
venues due to higher rent and personnel costs, customer service and site
improvements.
The Company operated approximately 90 VGMs in bingo centers, primarily in
Charleston and Columbia, South Carolina, prior to restructuring the operation of
its freestanding locations and certain bingo center operations in November 1998.
Today, these machines are part of the route operations. There is normally
strong financial benefit derived from operating VGMs in bingo centers as these
sites were typically drawing attendance of 300-500 players per night, many of
whom also enjoy video gaming. There normally are personnel and overhead cost
economies with bingo center VGM operations compared to the freestanding
locations. In 1997 and for part of 1998, this operating venue was the most
profitable for the Company.
During the second and third quarters of 1998, the Company reviewed its
three video gaming operating venues and the resulting contributions to the
profit margin. Numerous factors were considered in this analysis including:
- - the rising cost of labor and overhead in the freestanding locations;
- - restricted hours of operation in the bingo centers;
- - growth potential in each of the venues; and
- - direct operating costs for the locations.
As a direct result of this review, the Company reduced overhead costs and
operational risks by restructuring the operations of the freestanding locations
and certain of the bingo center operations, essentially converting these
operating venues into route operations in November 1998. The Company increased
profits and streamlined operations while continuing to provide the VGMs,
maintain control of the most desirable locations through subleasing and lease
arrangements and maintain ownership of the VGMs.
4
<PAGE>
Bingo operations
- -----------------
Bingo is derived from an Italian game created in 1530. Bingo was introduced
in the U.S at an Atlanta carnival in 1929. At that time, bingo was played with
cards covered with beans and called "beano," which later changed to bingo. Bingo
changed to paper cards and colorful daubers in the 1980s as a way to allow
players to play more cards at a time. In the 1990s bingo started to evolve again
with the advent of electronic "card-minders," which allow players to play up to
600 bingo cards simultaneously. Electronic card-minders allow a player to use a
keyboard, touch-screen or light pen to mark numbers on a video monitor or on a
hand-held portable unit. The Company began introducing card-minders into its
bingo centers in 1996, which have generally been successful. Management believes
that card-minders are easier to play, allow more bingo to be played, reduce
paper costs, appeal to younger players, and increase the average spend per
player. Management has continued to introduce this technology in its Texas and
Alabama operations and is exploring being among the first to do so in South
Carolina.
The Company's bingo operations are located in South Carolina, Alabama and
Texas. In South Carolina, total charitable bingo gross revenues for 1996 were
$79 million, declining to $69 million in 1997. Management attributes this
decline to two factors; a change in the charitable bingo laws in October of
1997, and the introduction of Indian-operated bingo in South Carolina in the
third quarter of 1997. Texas (with $485 million in 1996 and $492 million in
1997 charitable bingo gross revenues) is the largest charitable bingo dollar
producing state in the U.S., but is generally less profitable for commercial
lessors than other states due to more restrictive lessor rent limits. In 1997,
an overall U.S. average of 74.3% of total bingo receipts were paid back to the
players in the form of prizes, with 13.6% of total receipts paid for expenses
and 3.2% for taxes, leaving 8.9% of total receipts for the charities. The
Company's rental payments are a portion of the 13.6% charities pay for expenses,
with labor and supply costs also comprising a significant portion of charity
expenses. From its rental collections, the Company, in turn, covers the costs of
its bingo property rents, property management, utilities, supplies, insurance,
repairs and maintenance, security, licenses, taxes and other overhead costs to
earn a profit. By virtue of their fixed cost structure (guaranteed prize
payouts, fixed rent, labor and overhead, etc.), bingo centers have substantial
direct operating costs. Thus, even small changes in attendance can significantly
affect a bingo center's profitability for the Company and the charities. When a
bingo center does not draw the necessary attendance to cover its fixed costs,
the Company will likely not be able to collect any rent, and ultimately the
center may be shut down. This dynamic has caused the Company to close several
centers in the past.
Total charitable bingo industry receipts were $4.0 billion in the U.S. in
1996 and $3.9 billion in 1997. It is estimated that charitable bingo represents
5% of the total consumer spending of gaming dollars. North American charitable
bingo receipts have been primarily flat since 1993 based on the proliferation of
competing Indian games, casinos, lotteries and other forms of gaming. In 1995,
there were 64,000 charitable bingo centers in North America with over 60,000
organizations licensed to operate bingo. In 1997, there were over 70,000
charitable bingo centers with over 65,000 licensed organizations. Bingo players
are traditionally members of the older population that have more disposable
income and time. According to International Gaming and Wagering Business
magazine August 1998 edition, "Baby Boomers are now entering bingo's 50+ core
demographic; if charitable bingo halls simply maintain their existing
penetration of this age group, the number of players will rise over the next
decade".
As a charitable bingo commercial lessor, the Company provides investment
capital, facility set up, maintenance and management support for charities that
utilize bingo for fundraising. The Company derives bingo revenues from rental,
paper sales and entrance fee payments received from participating charities that
conduct bingo sessions at the Company's centers. Additional revenues are also
derived from bingo center vending and concession operations, pull-tab sales,
dauber sales and other miscellaneous revenues.
5
<PAGE>
Charities operate bingo centers and ultimately determine their financial
and operational success. The Company, by virtue of its substantial initial and
ongoing investment in bingo centers, operates in an advisory role regarding
bingo center operations. Both the Company and the charity have a mutual interest
in the success of a bingo center and positive lessor-charity relations are
critical to a bingo center's success. The Company helps its participating
charities develop and market bingo programs, hire employees, review results and
maintain financial controls. When a bingo center is financially successful,
there is very low charity turnover. Marginal or unprofitable bingo centers
generally have higher charity turnover. The Company maintains short-term leases
with its charities in order to ensure continual charity interest in the success
of a center.
The Company presently has twenty operating bingo centers with 70 charities
operating within these bingo centers, and the Company is currently looking for
opportunities to acquire additional centers. There can be no assurance, however,
that the Company will be able to acquire additional centers. The Company today
has seven centers in South Carolina, three in Alabama and ten in Texas. The
Company closed five start-up bingo centers during 1997 and two in 1998 due to
lack of profitability. The Company intends to grow its bingo operations through
acquisitions of operating bingo centers. Acquisitions typically cost more than
start-ups, but have less risk due to greater predictability of financial results
and no dilution of existing bingo markets.
COMPETITION
Since non-casino video gaming operations and charitable bingo centers are
typically low capital operations, there is not a significant financial barrier
to entry in these markets on a small scale; however, only well-capitalized
entrants can compete in these industries on a large-scale level. Also, rigorous
regulatory requirements, legal complexities and perpetual political pressures
serve to reduce the entry of many would-be competitors in these markets.
Bingo serves as a fun, social gathering for most players, and, as a result,
they tend to be loyal to their chosen center. Within the charitable bingo
industry, the Company competes with many other bingo centers in South Carolina,
Alabama and Texas. Since bingo prize payouts are often legally limited and
consistent among competing bingo centers, competition is normally focused on a
center's location, parking, amenities, and customer service. The Company
operates its bingo centers within the parameters of applicable laws and
regulations. The Company thus seeks to provide the most desirable bingo centers
in its respective markets in order to generate and build long-term player
loyalty. Additional competition within the bingo market also comes from bingo
centers directly owned and run by charities. In general, however, such centers
have not been able to compete with commercial centers due to generally lower
bingo prize payouts, smaller and less desirable facilities and amenities, and
fewer bingo sessions. During the last half of 1998, the Company experienced
significant direct competition at certain South Carolina locations, and average
attendance at each session declined as a result. The Company believes that
appropriate marketing and operating strategies can generally reverse this
short-term trend. Indian bingo is also a growing segment within the bingo
industry that has significant competitive advantages, including fewer regulatory
restrictions and lower taxes.
Within the gaming industry, the Company competes with many other operators
in South Carolina. Today, with 800 VGMs in operation, the Company has
approximately 2% of the total operating VGMs in South Carolina. The Company has
been ranked as one of the top 10 VGM operators in South Carolina. The Company
operates in the bingo center, route, and freestanding location venues of the
South Carolina gaming market and competes with many other private operators in
these markets. The major competitors in the Company's geographical locations are
Collins Entertainment, Tim's Amusements, McDonald's Amusements and American
Amusements. Although most VGMs are virtually the same, the Company believes that
its capitalization, desirable locations and experienced management team give it
a competitive advantage over many other operators within these market segments.
In 1997, the South Carolina daily average machine gross revenue was $63. The
Company's machines averaged $73 in the fourth quarter of 1998. Legalization of
VGMs in near-by states could materially affect the Company's operations in South
Carolina.
6
<PAGE>
Additional competition for gaming dollars comes from other sectors of the
gaming industry such as casinos, riverboats, lotteries, card rooms, jai alai and
pari-mutuel wagering. The Company is aware of this competition and locates its
bingo and gaming centers in areas believed to have a higher insulation level
from this type of competition. The Company also recognizes additional potential
competition from internet gaming.
The Company believes that bingo and video gaming patrons represent unique
value-oriented customers for whom a few hours of video gaming or bingo
entertainment can cost much less than other forms of gaming entertainment. In
fact, an evening of bingo entertainment typically costs only $10 - $50 and
provides payouts that rival the average slot machine. In addition, most other
forms of gaming do not provide the high degree of social interaction value
traditionally associated with bingo.
GOVERNMENT AND OTHER REGULATIONS
The $639 billion U.S. gaming industry is highly regulated and monitored and
the Company's operations are no exception. The Company is committed to being
compliant with all regulatory requirements and laws that govern the operation of
its business.
Charitable bingo regulations vary from state to state and control the level
of prize payouts, entrance fees and payments made to commercial landlords and
promoters. Licensing requirements and costs also vary from state to local
levels. The Company's bingo operations are currently regulated in; South
Carolina by the Department of Revenue, in Texas by the Texas Lottery Commission,
and in Alabama at the county level. To conduct charitable bingo, the state
and/or local regulating authorities must license the charitable lessor and its
associated charities, who are responsible for the direct operation of bingo
centers, employment and payment of personnel, and maintenance of financial
accounts and records. Regulations generally prohibit management control by the
lessor, which removes the Company from staffing obligations and expenses. In
addition, most states require that participating charities be responsible for
all marketing activities and expenses. Most states also limit the amount of
rent that a lessor can charge a charity for use of a bingo center and equipment.
Most states also limit the number of bingo sessions that may be conducted in a
week, as well as the prize money that can be paid out per session.
In 1997, about 74.3% of total U.S. bingo center receipts were paid to the
players as prizes, with 13.6% going to expenses such as rent, labor and
supplies, 3.2% going for taxes and charities netting about 8.9%. The Company
earns its return from the rental portion of the 13.6% of expenses. Significant
changes in the South Carolina charitable bingo laws in October 1997 affected the
results of operations in 1998 resulting in decreased revenues in 1998. These
changes require the charity to pay a direct tax of 16.5% of the total program
value, thereby reducing the amount of the charity proceeds available for payment
to their commercial lessors and promoters.
In video gaming, the rules and regulations under which the Company operates
change frequently and require the Company to monitor continually the legislative
processes that affect these regulations. The Company expends considerable time
and financial resources managing its various regulatory compliance activities,
and expects the gaming industry to continue to be highly regulated. In fact,
President Clinton has formed the "National Gambling Impact Study Commission" to
measure the social and economic impacts of consumer spending on gambling, with a
report due in 1999. Management believes that this report may recommend
increased regulation and taxation for the gaming industry, perhaps on a national
level.
Presently, in South Carolina, a video gaming operator must buy a machine
license from the state for each VGM. Each VGM license currently costs $4,000
for a two-year period, which would currently total over $3.2 million every two
years for the Company's 800 VGMs in South Carolina. There are currently no
additional taxes on VGMs in South Carolina, although it is likely that variable
taxes may be implemented in the future to replace or modify the current
licensing structure. There are also very specific regulations regarding the
operation of the VGMs in South Carolina, including, among others:
7
<PAGE>
- - Only state-authorized machines can be operated;
- - Machines cannot operate on Sundays;
- - Machines cannot pay out net prizes of more than $125 per player per day in
winnings;
- - There cannot be more than five machines per gameroom;
- - Each gameroom must have its own cashier/attendant;
- - Each gameroom must have a separate utility meter, firewall and exit.
These regulations, while burdensome, do serve to protect the South Carolina
gaming market from larger, national casino operators. Certain of these
limitations are currently being considered for revision or elimination by the
South Carolina legislature and thus these regulations may be changed
significantly in the near future. It is expected that additional regulations
will be placed on the operation of VGMs in South Carolina in the future. With
the election of a new governor in South Carolina in November 1998, new
regulations could include background checks for operators, online connection for
reporting of the VGMs to the State Department of Revenue, and a new revenue tax
and/or licensing structure.
The Company is currently preparing to comply with the South Carolina
regulatory requirements for online reporting for each VGM. Connection to this
reporting system is forecasted for the third quarter of 1999. Specifications
for the equipment necessary for this reporting include both hardware and
software purchases during 1999. The Company has identified all equipment that
would require software upgrades and replacement. The Company has allocated
approximately $1.9 million of its 1999 capital budget to include these
procurements; $700,000 in VGM purchases, $600,000 for software upgrades and
$400,000 for peripheral on-line connection equipment.
The recent election of a new governor in South Carolina and the recent
decision by the South Carolina Supreme Court that video gaming machines do not
violate the South Carolina Constitution are significant events. These events
increase the likelihood that South Carolina's current regulatory system and
licensing requirements will be substantially altered in the near future.
However, at this time management cannot predict the changes which may be imposed
or the impact that such changes may have on the Company's operations and
profitability.
EMPLOYEES
As of March 1, 1999, the Company had 41 full-time equivalent employees.
The Company, under state bingo laws, has no employees involved in the actual
operation of the charitable bingo centers, as the charities are responsible for
hiring the employees to operate the bingo centers. No employee of the Company is
represented by a labor union or is subject to a collective bargaining agreement.
Note: the Company has relied on the following sources for industry
information used in this report: International Gaming & Wagering Business
(August 1997 & 1998); National Association of Fundraising Ticket Managers (1997,
1996 and 1995 Charity Gaming in North America Reports).
8
<PAGE>
ITEM 2 - DESCRIPTION OF PROPERTY
- -------------------------------------
The Company's principal executive offices are located at 1440 Charleston
Highway, West Columbia, South Carolina, 29169. The Company leases space for the
majority of its bingo operations in Texas, Alabama and South Carolina and in
turn subleases its bingo centers to various charities. The Company is
responsible for real estate taxes, insurance, common area maintenance and repair
expenses on certain of its leases. The Company owns three of its bingo centers
and its corporate headquarters in South Carolina. The Company believes that the
condition of its leased and owned properties is good. No single property, leased
or owned, amounts to 10% or more of the Company's total assets.
The following table summarizes the Company's leased properties as of March 1,
1999.
<TABLE>
<CAPTION>
State City Location Purpose Location Name Status
- ------------ ------------- ---------------- -------------- ---------------------------
<S> <C> <C> <C> <C>
Alabama Mobile Bingo Hall Bingo Haven Operating
Mobile Bingo Hall Chickasaw Operating
Montgomery Bingo Hall Charity Bingo Operating
South Charleston Bingo Hall Beacon I Operating
Carolina
Charleston Bingo Hall Lucky I Operating
Charleston Bingo Hall Lucky II Operating
Charleston Bingo Hall Shipwatch Operating
Charleston Bingo Hall Ponderosa Operating
Charleston Bingo Hall Beacon II Closed - lease expires 4/00
Charleston Bingo Hall Lazy B/OB Closed/Subleased- lease
expires 4/99
Columbia Bingo Hall Garners Ferry Closed lease expires 7/99
Road
Darlington Video Gaming DMC Operating
North Augusta Bingo Hall RedWing Closed Subleased to video
gaming route operation
North Augusta Video Gaming Double 7's Subleased - part of route
operations
North Augusta Video Gaming Golden Palace Subleased part of route
operations
North Augusta Video Gaming Lucky 4 Subleased part of route
operations
Texas Abilene Bingo Hall Ambler Operating
Abilene Bingo Hall West Texas Opens 3/99
Amarillo Bingo Hall Lavaca Operating
Amarillo Bingo Hall Samaritan Operating
Austin Bingo Hall Fortune Closed - lease expires 8/99
Austin Bingo Hall Paradise Operating
Brownsville Bingo Hall Americana IV Closed/Subleased
Lubbock Bingo Hall Lucky Operating
Lubbock Bingo Hall Meeks Operating
Lubbock Bingo Hall Parkway Operating
McAllen Bingo Hall Americana I Operating
Odessa Bingo Hall Strike It Rich Operating
San Antonio Bingo Hall Blanco Operating
</TABLE>
9
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
- ------------------------------
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 the
Circuit Court in Florida, alleging breach of contract on these purchases.
Furtney 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 of 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 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. Other issues in this case
are 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.
In 1997, the South Carolina Department of Revenue and the South Carolina
Law Enforcement Division brought a declaratory judgment action against various
organizations whose members have beer and wine permits and also offer video
poker for play. The suit was also brought against certain businesses in the
video poker industry. Neither the Company nor any subsidiary is a named
defendant in this case. The plaintiffs have styled the case as a class action
and have requested that the court declare that the South Carolina Code prohibits
beer and wine from being sold at establishments that provide video poker
machines for play. At issue in the case is whether a specific South Carolina
statute (S.C. Code Section 61-4-580(3)) prohibits a beer and wine permit holder
from also offering video poker for play. The plaintiffs have filed a motion that
the case be certified as a class action and have filed a motion for summary
judgment. The defendants are vigorously defending the case. If this case were to
be decided in favor of the Department of Revenue, it would likely have a
material adverse effect on the financial position and operations of the Company.
10
<PAGE>
Additionally, on June 30, 1998, the South Carolina Department of Revenue
announced that as of August 1, 1998, it would no longer allow beer and wine
permits at any location that also offers video poker, based on its
interpretation of the South Carolina statute noted above. However, in two
separate state court cases, two state Circuit Court judges have entered
injunctions prohibiting the Department of Revenue from enforcing its
interpretation of the South Carolina statute at issue at the current time. At
the current time, the Department of Revenue is issuing beer and wine permits for
locations which also offer video poker. If this issue were to be decided in
favor of the Department of Revenue, it would likely have a material adverse
effect on the financial position and operations of the Company.
On September 9, 1998, the Company filed a lawsuit in the Court of Common
Pleas for the Fifth Judicial Circuit in Columbia, South Carolina, against two
former directors, Greg Wilson and Robert Hersch, Investors Associates, Inc.,
which previously served as the Company's underwriter, and two former employees,
Roy Stevens and Paul Hermelink. On February 26, 1999, the Company and Greg
Wilson entered into a settlement with respect to this lawsuit and other issues
and thus Greg Wilson has since been dismissed with prejudice from this lawsuit.
The lawsuit seeks to recover both actual and punitive damages, as well as the
return of profits wrongfully obtained and the return of assets, including common
stock of the Company, wrongfully acquired, pursuant to various causes of action.
On September 30, 1998, Greg Wilson and various family members filed suit against
the Company in the Court of Chancery for the State of Delaware, which lawsuit
was also dismissed with prejudice in connection with the settlement with Greg
Wilson and various family members discussed above.
On December 17, 1998, 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 Eleventh Judicial Circuit in Lexington, 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, seeks the reassignment of a lease agreement
which secures a promissory note issued by the Company to the plaintiff, and
seeks to have a receiver appointed to take control of the Company during the
pendency of this lawsuit. The Company believes that this lawsuit is completely
without merit and will defend itself vigorously. This lawsuit is in the early
stages and discovery has not yet commenced. 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 legislature and the Governor of South Carolina are
currently considering legislation that could significantly overhaul the
regulatory framework for video poker in South Carolina and impose significantly
higher taxes. Although it is anticipated that some legislation will be adopted
in 1999, the details of such legislation and the impact of such legislation is
not known at the current time. However, any such legislation, if adopted, could
have a material adverse effect on the financial position and operations of the
Company.
11
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------------------
There were no matters submitted to a vote of the stockholders of the
Company during the fourth quarter of 1998.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ---------------------------------------------------------------------------
MARKET INFORMATION
The Company's Common Stock is traded on the NASDAQ SmallCap Market System
under the symbol "BNGO". The following table shows the range of reported high
and low closing bid prices for the Company's Common Stock for the periods
indicated as reported on the NASDAQ Summary of Activity monthly reports.
<TABLE>
<CAPTION>
Fiscal 1998: High Low Fiscal 1997: High Low
- -------------- ------ -------- -------------- ------- ------
<S> <C> <C> <C> <C> <C>
First Quarter $6 5/8 $ 3 1/8 First Quarter $2 5/16 $1 1/4
Second Quarter $ 4 $2 11/16 Second Quarter $4 7/16 $1 1/2
Third Quarter $3 1/8 $ 1 3/4 Third Quarter $ 7 7/8 $ 4
Fourth Quarter $ 3 $ 1 5/16 Fourth Quarter $10 1/2 $ 5
</TABLE>
SECURITY HOLDERS
As of March 5, 1999, the approximate number of record holders of the
Company's Common Stock was 129 and the approximate number of beneficial
shareholders was 2,679.
DIVIDENDS
The Company has never paid, and currently has no intention to pay, any
dividends on its Common Stock. The Company paid a 7% annual dividend on a
quarterly basis on its convertible preferred stock, which was fully converted to
Common Stock by December 1998.
RECENT SALES OF UNREGISTERED SECURITIES
On March 25, 1998, the Company issued 29,630 unregistered shares of Common
Stock to Hal D. Ryan as partial consideration for the acquisition by the Company
of Ambler Bingo, Inc., which operates a bingo facility in Abilene, Texas. On
October 30, 1998, the Company issued 128,000 unregistered shares of Common Stock
to Gary Mike Ehler as partial consideration for the acquisition by the Company
of six corporations which operate six bingo halls, with three of the bingo halls
located in Lubbock, Texas, two located in Amarillo, Texas, and one located in
Odessa, Texas. In addition, during 1998 the Company issued a total of 2,381
unregistered shares of Common Stock to four employees of the Company pursuant to
the Company's Employee Stock Purchase Plan, which stock was issued at a price of
$2.55 per share. Each of the issuances of stock identified above was considered
by the Company to be exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) as a transaction by an issuer not involving any public
offering.
12
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- --------------
OVERVIEW
American Bingo & Gaming Corp. was incorporated in 1994 to pursue bingo and
gaming business opportunities. The Company believes that the North American
non-casino video gaming and charitable bingo markets are highly fragmented, are
overlooked by larger gaming companies, and are therefore attractive for
consolidation. In fact, the Company is the largest public company consolidating
the charitable bingo center industry in the U.S. The Company's strategy is to
continue to rapidly grow its gaming and bingo operations through acquisitions,
developments and internal growth.
The Company's financial results from its gaming and bingo operations are
determined by a number of factors:
- - attendance and customer spending at the Company's facilities;
- - number of facilities in operation and idle properties;
- - payout percentage paid by the Company's VGMs;
- - lessor rents and allowable number of sessions conducted at the bingo
centers;
- - operating costs and overhead costs;
- - competitor locations;
- - market conditions; and
- - government rules and regulations.
The Company's freestanding video gaming operations have substantial
personnel and operating costs and the Company's bingo centers have substantial
rental costs. As a result of these high fixed costs, the financial results of
these two business segments are particularly leveraged by customer attendance
and spending. The Company's financial results are also subject to seasonal
factors, with cooler months generally better than warmer months. These factors
are a key element behind management's desire to continue to grow revenues and
diversify operations through expansion and venue diversification.
The Company's South Carolina video gaming route operations continue to be
the major contributor to revenues. Texas and Alabama bingo expansions and
existing operations also have improved profitability, which was offset by South
Carolina bingo losses. The Company will continue to look for improvement in
profitability through diversification of revenues and continued expansion both
internal and external.
During the second and third quarters of 1998, the Company reviewed its
three business video gaming venues and the resulting contributions to the profit
margin. As a result of this review, the Company reduced overhead costs and
operational risks by restructuring the operations of the freestanding and bingo
center locations, essentially converting these operating venues into route
operations in November 1998. By doing this, the Company intends to increase
profits and streamline operations while continuing to maintain control of the
most desirable locations through subleasing and lease arrangements and maintain
ownership of the VGMs. This reorganization also allowed the new management team
and Board of Directors to focus on other improvements within the Company, and
manage its growth.
The Company expects 1999 to be a more profitable year in terms of its
gaming and bingo segments. The Company's 1999 results of operations and its
financial condition could be negatively affected if video gaming were abolished
or adversely modified in South Carolina.
13
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1998 TO FISCAL 1997 (Note: Fiscal 1997 results have been
restated to incorporate the historical financial operations of Gold Strike,
Lucky 4 and Darlington Music Company 1997 pooled acquisitions.)
The Company reported a net loss of $2.6 million for the year ended December
31, 1998 as compared to net income in 1997 of $1.7 million. The loss in 1998
was primarily attributable to changes in the South Carolina bingo market and the
related cost of several idle properties on which the Company was paying rent but
generating no value, write off of uncollectible accounts receivable and unusual
corporate office relocation and other expenses.
The Company expects overall earnings from operations to increase in 1999 as
a result of the reorganization of the video gaming segment, expansion of the
bingo segment in Texas and a reduction in future lease obligations primarily in
South Carolina for closed or marginal bingo locations.
Revenues
- --------
During 1998, the Company acquired eight bingo centers in Texas in three
unrelated purchase acquisitions. The Ambler Bingo Hall acquisition was
completed in March 1998 and contributed $460,000 in revenues during 1998. Six
additional halls were acquired in October 1998 as a single transaction, which
contributed $302,000 in revenues during 1998.
Total revenues increased by 26% to $15.4 million in fiscal 1998 from $12.2
million in fiscal 1997. Approximately $10 million, or 63%, of 1998 revenues
were generated by the Company's South Carolina video gaming operations, versus
$8.9 million, or 72%, in 1997. Approximately $4.9 million, or 31%, of 1998
revenues were comprised of charitable bingo rental receipts, paper sales and
promoter fees, as compared to $2.9 million, or 24%, in 1997. The balance of
revenues for each year was comprised of, supplies, vending, concessions and
other miscellaneous sales. During 1998, approximately 33% of the Company's bingo
related revenues were generated in South Carolina, 31% in Alabama and 36% in
Texas, compared to 43%, 35% and 22%, respectively, in 1997.
1998 revenues derived from South Carolina bingo operations decreased over
1997 as a direct result of changes in the bingo laws in October of 1997 and
increased competition. During the second half of 1998, the Company experienced
significant direct competition at certain South Carolina locations with
attendance declining an average of twenty people per session, or 6%. The Company
believes that appropriate marketing and operating strategies can reverse this
trend. Significant tax changes in the South Carolina charitable bingo laws in
1997 also affected the results of operations in 1998. These changes require the
charity bingo's to pay a direct tax of 16.5% of the total program value. The
combination of these events reduces the amount of the charity proceeds available
for payment to commercial lessors and promoters.
Costs and expenses
- --------------------
Total costs and expenses were $17.8 million in fiscal 1998 as compared to
$11.0 million in fiscal 1997, an increase of 62%. This increase includes $4.0
million of write-offs and other unusual charges, or 23% of total costs and
expenses. These write-offs and unusual charges relate to asset write-downs
principally on non-performing bingo properties, future operating lease
obligations on idle or unprofitable bingo centers, corporate office relocation,
staff recruiting, legal and other unusual charges. Direct salaries and other
compensation totaled $2.2 million in 1998 versus $2.0 million in 1997,
consisting primarily of the Company's labor-intensive freestanding video gaming
business in South Carolina during the first ten months of 1998. Rent and
utilities totaled $2.4 million in 1998 versus $1.9 million in 1997, an increase
14
<PAGE>
of 27%, which resulted from the increase in the number of bingo and gaming
centers under lease. Direct operating costs totaled $2.4 million in 1998 versus
$1.6 million in 1997. Direct operating costs increased approximately $800,000
to 15% of total revenues in 1998 compared to 13% of total revenues in 1997. The
Company's video gaming licenses increased approximately $500,000 and the Company
had $2.5 million in fixed asset acquisition (mainly gaming machines) and
improvements in 1998 which increased license expense and depreciation costs to
$1.4 million and $2.1 million, respectively, compared to $900,000 million and
$1.1 million, respectively, in 1997. General and administrative expenses
totaled $4.8 million in 1998 versus $3.6 million in 1997. This increase in
costs includes approximately $1.1 million pertaining to write-offs and other
unusual charges as discussed below. The actual increase in general and
administrative costs before write-offs and other unusual charges was
approximately $124,000, or 3%, over 1997. The Company plans to continue
reducing operating and administrative expenses relative to revenues in 1999 in
order to improve profitability from its operations.
The Company recorded $15,000 of net interest and other income in fiscal
1998 versus $257,000 in 1997. This is the result of the liquidation of
investments considered susceptible to increased market risk, and from increased
interest costs from the Company's use of a margin line of credit during 1998,
offset partially by increased interest income.
The Company's income tax expense for 1998 was $263,000 versus $204,000 in
1997. Taxes for 1998 consisted largely of state tax obligations, primarily in
South Carolina and additional federal income taxes related to a prior
acquisition. Income taxes, in 1997, were primarily federal and state income
taxes paid by Darlington Music Company prior to acquisition by the Company, in
addition to state income taxes related to the Company's other subsidiaries.
As a result of management's operational and asset reviews during 1998, the
Company recorded approximately $4 million of asset write-downs and other charges
as follows:
Asset write-offs recorded in 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Write-offs related to idle or unprofitable bingo centers:
Leasehold improvements $ 660,000
Goodwill 436,000
Future operating lease obligations 555,000
Discontinued "8-Liner" gaming machines 204,000
----------
Total asset write-offs 1,855,000
----------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Other significant unusual charges recorded in 1998 include the following:
<S> <C>
Uncollectible bingo advances, deposits and receivables 1,054,000
Allowance for doubtful bingo accounts receivable 110,000
Uncollectible gaming advances, deposits and receivables 87,000
Expense recognition for company stock warrants issued in
February 1998 for consulting and investment banking services 221,000
Previously capitalized legal, financial relations costs,
and realized, unrecognized investment losses 340,000
Travel, recruiting and personnel costs due to relocations 370,000
----------
Total unusual charges 2,182,000
----------
Total write-offs and charges $4,037,000
==========
</TABLE>
The Company recorded write-offs for impairment of goodwill and leasehold
improvements of $1.1 million, write-offs of future operating lease obligations
related to idle or unprofitable bingo centers of $555,000 ($273,000 of this
amount is for 1998 lease obligations and $282,000 for post l998 lease
obligations) and write-offs and provisions for doubtful accounts of $1.2
million. The asset write-offs increased general and administrative expenses by
$204,000. The unusual charges increased general and administrative expenses by
$931,000.
COMPARISON OF FISCAL 1997 TO FISCAL 1996 (Note: Fiscal 1997 and 1996 results
have been restated to incorporate the historical financial operations of Gold
Strike, Lucky 4 and Darlington Music Company from 1997 pooled acquisitions).
Revenues
- --------
Total revenues increased by 58% to $12.2 million in fiscal 1997 from $7.7
million in fiscal 1996. Approximately $8.9 million, or 72%, of 1997 revenues
was generated by the Company's South Carolina video gaming operations, versus
$5.0 million, or 65%, in 1996. Approximately $2.9 million, or 24%, of 1997
revenues was comprised of charitable bingo rental payments, paper sales and
promoter fees, as compared to $2.5 million, or 32%, in 1996. The balance of
revenues for each year was comprised of paper, supplies, vending, concessions
and other sales.
Costs and Expenses
- --------------------
Total costs and expenses were $11.0 million in fiscal 1997 as compared to
$7.3 million in fiscal 1996, an increase of 50%, which was less than the
Company's 58% revenue growth in 1997. Salaries and other compensation totaled
$2.0 million in 1997 versus $900,000 in 1996, up largely due to the significant
expansion of the Company's labor-intensive freestanding video gaming business in
South Carolina in 1997. Rent and utilities totaled $1.9 million in 1997 versus
$1.1 million in 1996, up due to the increase in the number of bingo and gaming
centers under lease. Direct operating costs totaled $1.6 million in 1997 versus
$1.4 million in 1996. Depreciation and amortization totaled $2.0 million in
fiscal 1997 versus $1.4 million in fiscal 1996. This increase was primarily due
to increased video gaming license amortization from the Company's expansion in
the South Carolina video gaming markets. The Company added over $2.0 million in
video gaming licenses, and $3.6 million in asset acquisitions, improvements, and
capitalized costs in 1997, which significantly increased amortization and
depreciation costs. General and administrative expenses totaled $3.6 million in
1997 versus $2.6 million in 1996. These costs increased due to the significant
expansion of the Company's gaming business.
16
<PAGE>
The Company recorded $257,000 of net interest and other income in fiscal
1997 versus $726,000 in 1996. Fiscal 1996 included a favorable write-off of
$865,000 of Florida acquisition liabilities no longer deemed an obligation
offset by $417,000 of write-offs for asset impairments of the Company's South
Texas operations.
The Company's income tax expense for 1997 was $204,000 versus $73,000 in
1996. Tax loss carryforwards from 1994 and 1995 significantly reduced income
tax expense in 1997 and 1996. Taxes for 1997 were led by income taxes paid by
Darlington Music Company prior to acquisition by the Company. Management
expects taxes to increase in the future assuming the generation of taxable
income and depletion of tax loss carryforwards.
Fiscal 1997 results included an extraordinary benefit of approximately
$602,000 ($398,000 net of taxes) for the reduction of a note payable to the
former operator of the Company's South Carolina properties. In addition, this
gain was offset by expenses related to write-offs of capitalized start-up costs
for South Carolina investments of over $400,000 from the early adoption of a new
accounting policy requiring immediate expensing of start-up costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $4 million at the end of 1998. Cash at
December 31, 1998 represented approximately 21% of the Company's total assets of
$19.0 million. Cash decreased in 1998 compared to 1997 primarily due to the
conversion of previously outstanding preferred stock issued in 1997 and related
cash payments of $1.1 million, repurchase of approximately 360,000 treasury
shares for $1.1 million, payoff of a margin line of credit of $1.5 million, and
other operational and reorganization expenses. The Company's liquidity also
decreased during 1998 as the result of three bingo acquisition transactions in
which the Company used $3.4 million in cash. The Company invested $2.5 million
in property and equipment in 1998. Cash flows from operational activities
totaled $800,000 in 1998 versus $1.2 million in 1997.
Cash used in investing activities totaled $5.8 million in 1998 as compared
to $2.5 million in 1997. Cash used in investing activities was principally $2.5
million related to equipment purchases, $3.4 million for bingo center
acquisitions and $500,000 used in connection with notes receivable, offset by
$400,000 from the sale of property and equipment.
Cash used in financing activities totaled $3.0 million in 1998 compared to
cash provided by financing activities of $11.9 in 1997. The principle source in
1997 was a warrant call of 2.3 million common stock purchase warrants in
December 1997 that grossed $11.5 million and netted $11.1 for the Company. Cash
used related to financing activities in 1998 included $1.1 million in Company
treasury stock purchases, $1.1 million paid in connection with preferred stock
conversions, $100,000 for preferred stock dividends paid, and $800,000 in net
cash paid to reduce notes payable and capital lease obligations. Cash received
related to financing activities also includes $50,000 related to stock options
which were exercised and stock purchases under the Employee Stock Purchase Plan.
At December 31, 1998, the Company had $19.0 million in total assets with
total liabilities of less than $2.9 million and $16.0 million of shareholders'
equity. Total assets include $4.0 million in cash, $1.7 million of net accounts
and notes receivable, $6.3 million of property and equipment, $4.8 million of
intangible assets, $1.5 million in prepaid video gaming licenses and $700,000 of
other prepaid and other assets. Total liabilities primarily consist of note and
capital lease obligations of $2.3 million.
The Company's ongoing operational funding requirements include video gaming
licenses on new and existing machines which are funded by cash at a cost of
$4,000 for a two year license and is required for each of the Company's VGMs.
There are currently no additional taxes on VGMs in South Carolina, although it
is possible that variable taxes may be implemented in the future to replace or
modify the current licensing structure. 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.
The Company estimates that it will invest $5.3 million for capital
expenditures relating to its existing operations in 1999. Approximately $1.9
million will be invested into computer hardware and software products and
applications to expand and enhance its financial software applications and to
convert its video gaming reporting system to comply with South Carolina's
17
<PAGE>
impending on-line system. The Company will continue to invest in additional
video game machines and has planned to spend over $800,000 for these capital
purchases. Approximately $2.4 million will be invested in gaming license
renewals and increases. Funding for these capital expenditures will be from
cash on-hand as well as from cash provided by operating activities and financing
arrangements.
The Company also intends to invest in the continued growth and
diversification of its business venues. The Company intends to expand within
the video gaming and charitable bingo markets and continue to evaluate
acquisition opportunities on an ongoing basis. As with the Company's prior
acquisitions, funding for these acquisitions, as determined by the nature of
each acquired business or entity, will be with cash, common stock, notes payable
or a combination thereof. The Company is also considering establishing a line
of credit specifically directed toward acquisition funding.
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") and Statement of Financial Accounting
Standards No. 132, "Employers' Disclosure about Pensions and Other
Post-Retirement Benefits - an amendment to FASB Statement No. 87, 88 and 106"
("SFAS 132"). Adoption of these statements had no effect on the Company's
consolidated financial position or results of operations.
Recent pronouncements of the Financial Accounting Standards Board ("FASB")
which are not required to be adopted at this date include, Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal quarters
of all fiscal years beginning after June 15, 1999. Based upon current data the
adoption of this pronouncement is not expected to have a material impact on the
Company's consolidated financial statements.
YEAR 2000 ISSUE
This issue is the result of computer programs that have been written using
two digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year rather than the year 2000 resulting in system failures or
miscalculations. Management has conducted a comprehensive review of its computer
systems to identify potential problems that could be caused by the Year 2000
issue. Management believes that, with an upgrade to its existing financial
software, 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. The upgrade to the financial software is provided under the
18
<PAGE>
Company's existing maintenance contract and is scheduled for installation after
the close of the first quarter of 1999. Furthermore, as a result of compliance
with South Carolina's reporting requirements for VGMs, the Company has required
suppliers of that equipment to provide certification of Year 2000 compliance.
Other than these reporting requirements, the VGMs are not date dependent or
driven and therefore do not present a Year 2000 issue. However, if the Company'
computer systems or equipment 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 is currently in the process of certifying
that the vendors and suppliers of its critical components and services are Year
2000 compliant and the Company expects certification to be completed by April
1999. The Company will rely on Year 2000 compliance on the part of public
utility providers and all state and local regulatory agencies, although
non-compliance could materially adversely affect the Company's operations and
financial condition.
ITEM 7 - FINANCIAL STATEMENTS
- ---------------------------------
The independent auditors' report, consolidated financial statements and
notes thereto included on the following pages are incorporated herein by
reference.
<TABLE>
<CAPTION>
<S> <C>
Report of King Griffin & Adamson P.C. F- 2
Consolidated Balance Sheet F- 3
Consolidated Statements of Operations F- 4
Consolidated Statements of Stockholders' Equity F- 5
Consolidated Statements of Cash Flows F- 6 - F- 7
Notes to Consolidated Financial Statements F- 8 - F- 29
Schedule II-Valuation and Qualifying Accounts F- 30
</TABLE>
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- ---------------------
None
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(A) OF THE
- --------------------------------------------------------------------------------
EXCHANGE ACT
- -------------
In response to this item, the information included on pages 2 through 4 and
pages 7 through 8 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 27, 1999 is incorporated herein by reference.
ITEM 10 - EXECUTIVE COMPENSATION
- ------------------------------------
In response to this item, the information included on pages 4 through 7 of
the Company's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 27, 1999 is incorporated herein by reference.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
In response to this item, the information included on pages 8 through 9 of
the Company's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 27, 1999 is incorporated herein by reference.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------------
In response to this item, the information included on pages 9 through 10 of
the Company's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 27, 1999 is incorporated herein by reference.
19
<PAGE>
ITEM 13 - EXHIBITS, LISTS AND REPORTS ON FORM 8-K
- ----------------------------------------------------------
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
<C> <S>
3.1 Certificate of Incorporation of the Company dated September 8, 1994, as amended October 17,
1994, and further amended July 31, 1997 and August 13, 1998.
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Quarterly Report on Form 10-QSB filed by the Company on August 14, 1998 for the quarter
ended June 30, 1998).
4.1 Rights Agreement dated August 4, 1998, between the Company and American Stock Transfer &
Trust Company (incorporated by reference to Exhibit 1 of the Registration Statement on Form 8-
A filed by the Company on August 13, 1998).
4.2 Form of Subscription Agreement used in connection with issuance of Series A Convertible
Preferred Stock to Plazacorp Investments Limited, P.R.I.F. #4, David Heller and Sam Reisman
on August 1, 1997.
10.1* Amended and Restated 1994 Stock Option Plan.
10.2* Amended and Restated 1995 Employee Stock Option Plan.
10.3* 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12 of the Annual
Report on Form 10-KSB filed by the Company for the year ended December 31, 1994).
10.4* Amended and Restated 1996 Employee Stock Option Plan.
10.5* Amended and Restated 1997 Stock Option Plan (incorporated by reference to Exhibit 10.5 of
the Quarterly Report on Form 10-QSB filed by the Company on August 14, 1998 for the quarter
ended June 30, 1998).
10.6 Agreement and Plan of Reorganization dated August 13, 1997, by and among the Company,
Gold Strike Acquisition Corporation, Gold Strike, Inc. and Michael W. Mims (incorporated by
reference to Exhibit 10.6. of the Quarterly Report on Form 10-QSB filed by the Company on
August 14, 1998 for the quarter ended June 30, 1998).
10.7 Agreement and Plan of Reorganization dated November 12, 1997, by and among the Company,
Darlington Music Acquisition Corporation, Darlington Music Co., Inc. and George M. Harrison,
Jr., Thomas M. Harrison and William W. Harrison (incorporated by reference to Exhibit 10.7 of
the Quarterly Report on Form 10-QSB filed by the Company on August 14, 1998 for the quarter
ended June 30, 1998).
20
<PAGE>
10.8 Acquisition Agreement dated October 30, 1998 by and between the Company and Gary Mike
Ehler, for the acquisition of Strike It Rich Bingo, Inc. (excluding the Exhibits thereto, which the
Company shall submit supplementally if requested by the SEC), which Acquisition Agreement is
the same form of contract used for the acquisition by the Company from Gary Mike Ehler of
The Samaritan Associates, Inc., Meeks Management Company, Lavaca Enterprises,
Incorporated, Lucky Bingo, Inc., and Parkway Bingo, Inc. (incorporated by reference to Exhibit
2.1 of the Quarterly Report on Form 10-QSB filed by the Company on November 12, 1998 for
the quarter ended September 30, 1998). Attached to the Acquisition Agreement is a schedule
summarizing the significant differences between this Acquisition Agreement and the Acquisition
Agreements used for the acquisition of the other five entities.
10.9* Employment Agreement dated December 18, 1997 with George M. Harrison, Jr., as amended
February 25, 1998 and as further amended July 27, 1998 (incorporated by reference to Exhibit
10.13 of the Quarterly Report on Form 10-QSB filed by the Company on August 14, 1998 for
the quarter ended June 30, 1998).
10.10* Employment Agreement dated April 30, 1998 with Andre Marc Hilliou (incorporated by
reference to Exhibit 10.14 of the Quarterly Report on Form 10-QSB filed by the Company on
August 14, 1998 for the quarter ended June 30, 1998).
10.11* Employment Agreement dated June 19, 1998 with Richard M. Kelley, as amended October 23,
1998.
10.12* Employment Agreement dated September 28, 1998 with Marie T. Pierson (incorporated by
reference to Exhibit 10.3 of the Quarterly Report on Form 10-QSB filed by the Company on
November 12, 1998 for the quarter ended September 30, 1998).
10.13* Employment Agreement dated November 2, 1998 with Nancy Pollick.
10.14* Consulting Agreement dated November 9, 1998 with Michael W. Mims.
10.15 Mutual Release and Settlement Agreement dated July 24, 1998 with L. Gregory Wilson
(incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K filed by the
Company on August 4, 1998).
10.16 Severance Agreement dated July 24, 1998 with L. Gregory Wilson (incorporated by reference to
Exhibit 99.3 of the Current Report on Form 8-K filed by the Company on August 4, 1998).
10.17 Settlement Agreement, Compromise of Claims and Mutual Release dated February 26, 1999, by
and among Gregory Wilson, Sally Stewart Wilson, Linda Bussey, the Linda Bussey Irrevocable
Trust, Len Bussey, Barbara Wilson and the Company (incorporated by reference to Exhibit 99.1
of the Current Report on Form 8-K filed by the Company on March 4, 1999).
10.18 Promissory Note dated February 24, 1998, with George M. Harrison, Jr. (incorporated by
reference to Exhibit 10.20 of the Quarterly Report on Form 10-QSB filed by the Company on
August 14, 1998 for the quarter ended June 30, 1998).
10.19 Promissory Note and Security Agreement dated June 4, 1998 with Michael W. Mims
(incorporated by reference to Exhibit 10.19 of the Quarterly Report on Form 10-QSB filed by
the Company on August 14, 1998 for the quarter ended June 30, 1998).
10.20 Master Coin Machine Agreement dated November 9, 1998, by and among the Company, Gold
Strike, Inc., Mims & Dye Enterprises, LLC, Michael W. Mims and Danny C. Dye.
21
<PAGE>
10.21 Promissory Note dated November 9, 1998, between Gold Strike, Inc. and Mims & Dye
Enterprises, LLC.
10.22 Guaranty Agreement dated November 9, 1998 with Michael W. Mims and Danny C. Dye.
10.23 Promissory Note dated February 18, 1999 between the Company and Mims & Dye Enterprises,
LLC.
10.24 Settlement Agreement dated January 27, 1997 with the State of Florida (incorporated by
reference to Exhibit 10.21 of the Quarterly Report on Form 10-QSB filed by the Company on
August 14, 1998 for the quarter ended June 30, 1998).
10.25 Form of Stock Purchase Warrant used in connection with warrant grant to Gaines Berland, Inc.,
Peter Blum, Steven Blumberg and Lisa Evanchuk on February 6, 1998.
10.26 Form of Common Stock Purchase Warrant used in connection with issuance of Series A
Convertible Preferred Stock to Plazacorp Investments Limited, P.R.I.F. #4, David Heller and
Sam Reisman on August 1, 1997.
10.27 Form of Registration Rights Agreement used in connection with issuance of Series A
Convertible Preferred Stock to Plazacorp Investments Limited, P.R.I.F. #4, David Heller and
Sam Reisman on August 1, 1997.
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule (for SEC use only).
* Denotes a management contract or compensatory plan or arrangement.
</TABLE>
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1998.
22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March 15, 1999
AMERICAN BINGO & GAMING CORP.
---------------------------------
(Registrant)
By: /s/ Andre M. Hilliou
---------------------------------
Andre M. Hilliou
Chairman of the Board, President and Chief
Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- -------------------------------- --------------
<S> <C> <C>
/s/ Andre M. Hilliou Chairman of the Board, President
- ---------------------------
Andre M. Hilliou and Chief Executive Officer March 15, 1999
/s/ Richard M. Kelley Vice President, Treasurer and
- ---------------------------
Richard M. Kelley Chief Financial Officer March 15, 1999
/s/ George M. Harrison, Jr. Vice Chairman of the Board and
- ---------------------------
George M. Harrison, Jr. Vice President March 05, 1999
/s/ James L. Hall
- ---------------------------
James L. Hall Director March 15, 1999
/s/ A. Joe Willis
- ---------------------------
A. Joe Willis Director March 07, 1999
/s/ Grover C. Seaton III
- ---------------------------
Grover C. Seaton III Director March 08, 1999
/s/ Michael W. Mims
- ---------------------------
Michael W. Mims Director March 11, 1999
</TABLE>
23
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page No
- ---------------------------------------------------- -----------
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 1998 F-3
Consolidated Statements of Operations
Years Ended December 31, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1998 and 1997 F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-29
SCHEDULE II - Valuation and Qualifying Accounts F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
American Bingo & Gaming Corp.
We have audited the accompanying consolidated balance sheet of American Bingo &
Gaming Corp. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1998 and 1997. Our audits also included the
financial statement schedule listed in the Index at F-1. These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
stan-dards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of mate-rial misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant esti-mates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Bingo &
Gaming Corp. and Subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997,
in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ King Griffin & Adamson P.C.
- ------------------------------------
King Griffin & Adamson P.C.
Dallas, Texas
February 12, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
------
<S> <C>
Current Assets:
Cash and cash equivalents $ 3,953,401
Accounts receivable net of allowance for
doubtful accounts of $109,595 379,396
Notes receivable - current portion ($81,999 to related parties),
net of allowance for doubtful accounts of $195,595 464,260
Prepaid license expense - current portion 1,059,628
Other prepaid expenses 542,105
------------
Total Current Assets 6,398,790
------------
Property and Equipment - at cost, net of accumulated
depreciation and amortization 6,257,849
Other Assets:
Notes receivable, net of current portion ($468,654 to related parties) 876,631
Prepaid license expense, net of current portion 439,764
Intangible assets, net 4,837,874
Other non-current assets 171,664
------------
Total Other Assets 6,325,933
------------
TOTAL ASSETS $18,982,572
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------
Current Liabilities:
Notes payable - current portion $ 846,211
($93,199 to related parties)
Capital leases payable - current portion 411,891
Trade accounts payable 140,310
Accrued expenses and other current liabilities 398,928
------------
Total Current Liabilities 1,797,340
------------
Long-term Liabilities:
Notes payable, net of current portion
($248,689 to related parties) 942,793
Capital leases payable, net of current portion 147,405
------------
Total Long-term Liabilities 1,090,198
------------
Stockholders' Equity:
Common stock, $.001 par value,
authorized 20,000,000 shares,
issued 9,849,582 shares 9,850
Additional paid-in-capital 23,166,076
Treasury stock - 231,300 shares (686,399)
Accumulated deficit (6,394,493)
------------
Total Stockholders' Equity 16,095,034
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,982,572
============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Video gaming $ 9,738,085 $ 8,874,257
Bingo 4,855,532 2,921,386
Other 851,839 427,492
------------ ------------
TOTAL REVENUES 15,445,456 12,223,135
------------ ------------
COSTS AND EXPENSES:
Direct salaries and other compensation 2,150,424 2,028,874
Rent and utilities ($105,240 and $76,930 to related parties) 2,352,043 1,851,228
Direct operating costs 2,375,751 1,586,824
Depreciation and amortization 2,087,477 1,103,952
License expense 1,398,636 852,317
Write-offs of future operating lease obligations
related to idle or unprofitable bingo centers 282,270 -
Write-offs and provisions for doubtful accounts 1,202,467 -
Write-offs for impairment of goodwill and leasehold improvements 1,109,845 -
General and administrative 4,838,085 3,568,915
------------ ------------
TOTAL COSTS AND EXPENSES 17,796,998 10,992,110
------------ ------------
OPERATING INCOME (LOSS) (2,351,542) 1,231,025
OTHER INCOME AND EXPENSES:
Interest and investment income ($34,000 and $0 from related parties) 518,400 115,301
Interest expense ($23,201 and $0 to related parties) (313,206) (47,113)
Other income and (expense) (190,730) 189,331
------------ ------------
TOTAL OTHER INCOME AND EXPENSES 14,464 257,519
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM (2,337,078) 1,488,544
PROVISION FOR INCOME TAXES 263,144 203,688
------------ ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (2,600,222) 1,284,856
EXTRAORDINARY ITEM:
Gain on extinguishment of debt of $602,327,
net of income taxes of $204,791 --- 397,536
------------ ------------
NET INCOME (LOSS) $(2,600,222) $ 1,682,392
============ ============
EARNINGS PER SHARE:
Basic
Net income (loss) before extraordinary item $ (.29) $ .17
Extraordinary item --- .06
------------ ------------
Net income (loss) $ (.29) $ .23
============ ============
Diluted
Net income (loss) before extraordinary item $ (.29) $ .16
Extraordinary item --- .05
------------ ------------
Net income (loss) $ (.29) $ .21
============ ============
Weighted average shares outstanding - basic 9,299,908 7,160,612
Weighted average shares outstanding - diluted 9,299,908 8,133,786
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Addtl.
Addtl. Paid-in
- Common Stock - Paid-in Capital- Treasury Preferred
Description Shares Value Capital Warrants Stock Stock
- ------------------------------------------- ----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at 1/1/97 6,792,622 $ 6,348 $10,024,002 $ 1,026,750
Issuance of common stock pursuant to
Employee Stock Purchase Plan 10,767 11 20,439
Issuance of common stock for services 74,000 74 86,871
Issuance of common stock for stock
purchase agreement 300,000 300 205,950
Exercise of employee stock options 200,000 200 347,133
Issuance of common stock to employees 50,000 50 46,825
Subsidiary owner distributions
Purchase of subsidiary treasury stock (444,448) (651,300)
Issuance of preferred stock 1,829,880 20
Issuance of common stock for purchase
of bingo halls 9,969 10 49,990
Preferred dividends paid in cash
Redemption of warrants 2,293,995 2,294 12,150,332 (1,026,750)
Net income for the year ended 12/31/97
----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 9,286,905 9,287 24,110,122 --- --- 20
----------- ------------ ------------ ------------ ------------ ------------
Issuance of common stock pursuant to
Employee Stock Purchase Plan 2,381 2 6,071
Issuance of warrants for services 221,616
Exercise of employee stock options 33,733 34 38,934
Cancellation of common stock (1,666) (2) 2
Redemption of preferred stock and preferred
stock dividends for cash and issuance of
common stock 498,599 499 (1,063,182) (20)
Preferred dividends paid in cash
Repurchase and cancellation of warrants
and other warrant costs (48,561)
Issuance of common stock for purchase
of bingo halls 29,630 30 89,970
Repurchase of common stock under stock
buyback program (359,300) (1,075,295)
Purchase of bingo halls with treasury stock 128,000 (188,896) 388,896
Net loss for the year ended 12/31/98
----------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 9,618,282 $ 9,850 $23,166,076 --- $ (686,399) ---
=========== ============ ============ ============ ============ ============
Accumulated
Description Deficit Total
- ------------------------------------------- ------------ -----------
<S> <C> <C>
Balance at 1/1/97 $(4,941,637) $ 6,115,463
Issuance of common stock pursuant to 20,450
Employee Stock Purchase Plan
Issuance of common stock for services 86,945
Issuance of common stock for stock 206,250
purchase agreement
Exercise of employee stock options 347,333
Issuance of common stock to employees 46,875
Subsidiary owner distributions (402,169) (402,169)
Purchase of subsidiary treasury stock (651,300)
Issuance of preferred stock 1,829,900
Issuance of common stock for purchase
of bingo halls 50,000
Preferred dividends paid in cash (35,000) (35,000)
Redemption of warrants 11,125,876
Net income for the year ended 12/31/97 1,682,392 1,682,392
------------ -----------
Balance at December 31, 1997 (3,696,414) 20,423,015
------------ -----------
Issuance of common stock pursuant to
Employee Stock Purchase Plan 6,073
Issuance of warrants for services 221,616
Exercise of employee stock options 38,968
Cancellation of common stock ---
Redemption of preferred stock and preferred
stock dividends for cash and issuance of
common stock (1,983) (1,064,686)
Preferred dividends paid in cash (95,874) (95,874)
Repurchase and cancellation of warrants
and other warrant costs (48,561)
Issuance of common stock for purchase
of bingo halls 90,000
Repurchase of common stock under stock
buyback program (1,075,295)
Purchase of bingo halls with treasury stock 200,000
Net loss for the year ended 12/31/98 (2,600,222) (2,600,222)
------------ -----------
Balance at December 31, 1998 $(6,394,493) $16,095,034
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net income (loss) $(2,600,222) $ 1,682,392
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Write-off of long-lived assets 1,349,862 ---
Depreciation and amortization 2,087,477 926,481
Provision for uncollectible receivables 109,595 ---
Loss (gain) on disposal of property and equipment 858,397 (158,903)
Compensation for common stock and warrant issues 221,616 133,822
Gain on debt extinguishment --- (602,327)
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable 89,913 (444,767)
Prepaid licenses (50,551) (622,967)
Other prepaid expenses and current assets (396,802) (47,863)
Trade accounts payable (72,023) 24,321
Accrued expenses and other current liabilities (775,568) 310,439
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITES 821,694 1,200,628
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions (3,360,000) ---
Intangible expenditures --- (909,768)
Property and equipment expenditures (2,539,630) (1,364,839)
Repayments of notes receivable ($81,999 and $0 from related parties) 246,540 190,505
Issuance of notes receivable ($281,786 and $245,996 to related parties) (498,391) (355,782)
Reductions of notes receivable allowance (35,800) (58,978)
Proceeds from sale of property and equipment 420,135 ---
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (5,767,146) (2,498,862)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (404,945) (346,735)
Payments on notes payable ($62,931 and $0 from related parties) (916,505) (526,316)
Proceeds from notes payable 520,833 100,000
Proceeds from issuance of common stock --- 367,783
Proceeds from warrant call, net of conversion costs --- 11,125,876
Repurchase and cancellation and other warrant costs (48,561) ---
Purchase and cancellation of subsidiary treasury stock --- (251,300)
Purchase of treasury stock (1,075,295) ---
Distribution and dividends to stockholders (95,874) (437,169)
Proceeds from employee stock purchase plan issuances 6,073 ---
Proceeds from options exercises 38,968 ---
Payments related to redemption of preferred stock (1,062,703) ---
Proceeds from issuance of preferred stock --- 1,829,900
------------ ------------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (3,038,009) 11,862,039
------------ ------------
NET INCREASE (DECREASE) IN CASH (7,983,461) 10,563,805
CASH AT BEGINNING OF YEAR 11,936,862 1,373,057
------------ ------------
CASH AT END OF YEAR $ 3,953,401 $11,936,862
============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended
December 31,
--------------------
1998 1997
-------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments:
Interest $313,206 $ 47,113
======== ==========
Income taxes $624,889 $ 442,005
======== ==========
Non-cash transactions:
Issuance of common stock and warrants for employment, services,
and consulting fees $221,616 $ 133,822
======== ==========
Acquisition of business in exchange for note payable
($400,000 and $0 from related parties) $400,000 $ 400,000
======== ==========
Acquisition of property and equipment in exchange
for notes payable $439,007 $1,093,140
======== ==========
Gain on extinguishment of debt $ --- $ 602,327
======== ==========
Acquisition of property under capital leases $ --- $1,235,812
======== ==========
Acquisition of businesses in exchange for common stock $290,000 $ 256,250
======== ==========
Purchase of treasury stock through asset distribution $ --- $ 400,000
======== ==========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
American Bingo & Gaming Corp. actively participates in the non-casino gaming
market and U.S. Charitable bingo market. The Company's corporate headquarters
is located in West Columbia, South Carolina, and the Company operates primarily
through wholly owned subsidiaries in South Carolina, Texas and Alabama. The
Company generates the majority of its revenues from video gaming operations in
South Carolina, and also earns revenues from bingo centers in all three states.
PRINCIPLES OF CONSOLIDATION:
- -----------------------------
The accompanying consolidated financial statements include the accounts of
American Bingo & Gaming Corp. and its subsidiaries (herein collectively referred
to as the "Company"). All significant intercompany accounts and transactions
have been eliminated on consolidation.
RECLASSIFICATIONS:
- -----------------
Certain items in the financial statements have been reclassified to maintain
consistency and comparability for all periods presented herein.
MANAGEMENT ESTIMATES:
- ---------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
- ----------------------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash is at risk to the
extent that it exceeds Federal Deposit Insurance Corporation insured amounts
(approximately $2 million at December 31, 1998). To minimize concentration and
credit risk, the Company places its cash with high credit quality institutions.
ACCOUNTS RECEIVABLE:
- --------------------
Accounts receivable consist principally of amounts due from charitable
organizations which conduct bingo events at the Company's various bingo centers,
and are generally payable within one month of the event. Receivables also
include rent due from operators of concessions located within bingo centers.
Video gaming receivables generally consist of temporary advances in connection
with video gaming route locations. Accounts receivable are not secured.
Management provides an allowance for doubtful accounts, which reflects its
estimate of the uncollectable receivables. In the event of non-performance, the
maximum exposure to the Company is the recorded amount of receivables, net of
allowance for doubtful accounts, at the balance sheet date.
F-8
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED).
PREPAID LICENSES:
- -----------------
Prepaid licenses consist of video gaming, bingo and other operational licenses
which are reviewed periodically to ensure their continued usefulness and ongoing
commercial value. Video gaming licenses, the largest component of the Company's
prepaid licenses, are required for the Company to operate its South Carolina
video gaming machines. Video gaming licenses currently cost $4,000 per license
for a two-year period, and are expensed over this period. The value of such
licenses can be affected by regulatory issues and changes. The Company has
recorded the net unrealized cost of its licenses as prepaid assets.
PROPERTY AND EQUIPMENT:
- ------------------------
The cost of equipment, furniture and fixtures is depreciated over the estimated
useful lives of the assets ranging from four to seven years, using the
straight-line method. Leasehold improvements are amortized over the lesser of
the term of the lease or the esti-mated useful lives. The buildings are
amortized over thirty-nine years, which approximates their estimated useful
lives. Building improvements are amortized over their estimated useful lives
ranging from seven to fifteen years. Upon sale, retirement or abandonment of
assets, the related cost and accumulated deprecia-tion are eliminated from the
accounts and gains or losses are re-flected in income. Repairs and maintenance
expenditures, which do not extend asset lives, are expensed as incurred.
INTANGIBLE ASSETS:
- ------------------
Intangible assets, which primarily consist of goodwill and non-compete covenants
resulting from the acquisition of bingo entities, are periodically reviewed by
management to evaluate the future economic benefits or potential impairments,
which may affect their recorded values. Goodwill, which represents the excess
of the cost of assets acquired over the fair market value of those tangible
assets on the date of their acquisition, is amortized over various periods
ranging from three to ten years, consistent with the estimated useful life of
the goodwill. Non-compete covenants are amortized over the periods of the
stated benefits, ranging from one to five years, and are monitored for
contractual compliance. If the projected undiscounted future cash flows related
to the intangible assets are less than the recorded value, the intangible asset
is written down to fair value.
REVENUE RECOGNITION:
- --------------------
The Company generates revenues from the following sources:
(I) VIDEO GAMING:
Video gaming revenues are recorded from the net "handle" of the Company's
video gaming machines. The net "handle" is the total player spend less prizes
paid by the machines. Video gaming revenues are derived from video gaming
machines in bingo centers, freestanding locations and route operations. The
video gaming revenues are split with route location owners, and operators of
bingo centers and freestanding locations. The Company retains a percentage of
all video gaming revenues generated in accordance with Coin Machine Agreements
between the Company and the owners and operators. Video gaming revenues can
vary depending on customer attendance and spending, games available, and the
timing of prize payouts, which occur at random.
(ii) BINGO:
Bingo rents, paper sales and head tax payments are received from charitable
organizations through various sub-lease agreements of the Company's bingo
centers. Revenues are determined by customer attendance, spending and prize
payouts, as well as state regulations which may dictate the number of bingo
sessions a charity can conduct and rent limits that can be paid to a commercial
lessor, such as the Company.
F-9
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED).
(iii) OTHER:
Other revenues are earned from gaming license fee collections, concessions,
vending machines, bingo supplies, pool tables and jukebox proceeds, and other
sources.
INCOME TAXES:
- -------------
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the tax bases and
financial reporting carrying amounts of assets and liabilities. The Company
periodically evaluates its deferred tax assets and adjusts any related valuation
allowance based on the estimate of the amount of such deferred tax assets which
the Company believes does not meet the "more-likely-than-not" recognition
criteria.
PER SHARE DATA:
- ----------------
Basic earnings (loss) per share of common stock is calculated by dividing income
(loss) from continuing operations by the weighted average number of common
shares actually outstanding during each period. Diluted earnings (loss) per
share of common stock is calculated by dividing net income (loss) by the fully
diluted weighted average number of common shares outstanding during each period,
which includes dilutive stock options and convertible shares.
STOCK BASED COMPENSATION:
- --------------------------
The Company measures compensation cost for its stock based compensation plans
under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees". The difference, if any, between the
fair value of the stock on the date of grant over the exercise price for the
stock is accrued over the related vesting period. SFAS No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123") requires companies that continue to use
APB 25 to account for its stock-based compensation plan to make pro forma
disclosures of net income (loss) and earnings (loss) per share as if SFAS 123
had been applied (see Note 14).
COMPREHENSIVE INCOME:
- ---------------------
The Company has no components of other comprehensive income. Accordingly, net
income equals comprehensive income for all periods.
NEW ACCOUNTING STANDARDS:
- --------------------------
SFAS No. 133: In June 1998, the Financial Accounting Standards Board issued
Standard No. 133 ("SFAS 133") - "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133 is effective beginning in 2000. The adoption of SFAS 133
is not expected to have a material impact on the financial position or results
of operations of the Company.
SOP 98-5: In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-5, "Reporting on the Costs of Start-up Activities". This statement is
required to be adopted for fiscal years beginning after December 15, 1998 and
requires the expensing of all start-up costs, as defined, as they are incurred.
The Company has voluntarily applied accounting policies consistent with SOP 98-5
for the years ended December 31, 1998 and 1997.
F-10
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS.
On December 18, 1998, the Company acquired West Texas Bingo, Inc. for $60,000
cash. At the same time, the Company entered into a three year property lease in
Abilene, Texas, commencing in February 1999. The Company is currently
renovating this lease location and anticipates charitable bingo operations to
begin near the end of the first quarter of 1999. The $60,000 purchase price was
allocated to the fair value of the bingo license. The acquisition has been
accounted for under the purchase method of accounting.
On November 9, 1998, the Company reorganized its South Carolina video gaming
operations. The Company entered into a three year Master Coin Machine Agreement
("Agreement") with a third party operator that served to outsource the
operations of the Company's non-route video gaming operations at eight video
game machine centers. Under the agreement, the Company has agreed to provide
the video game machines to be used at these video game centers and to lease or
sublease such centers to the operator where appropriate. In return, the Company
receives a fixed percentage of the gross revenues earned from these operations.
The operator assumes all financial responsibility and liability for these
operations under the Agreement, while the Company retains all ownership rights
to the underlying video game machines and all related assets.
On October 30, 1998, the Company acquired six bingo centers in Texas. Three of
the centers are in Lubbock, two in Amarillo, and one in Odessa. The total
purchase price for this acquisition was $3.0 million which included $2.8 million
cash and 128,000 shares of the Company's Common Stock valued at $200,000, based
on the closing share price on October 30, 1998. The fair value of assets
acquired and liabilities assumed included net operating assets of $284,640,
goodwill of $2,515,360 and non-compete agreements of $200,000. The acquisitions
have been accounted for under the purchase method of accounting.
On March 25, 1998, the Company acquired Ambler Bingo, a bingo center in Abilene,
Texas. Total consideration for the acquisition was $990,000, and included
$500,000 cash, $400,000 of notes, and 29,630 shares of Company Common Stock
valued at $90,000 based on the closing price on March 25, 1998. The fair value
of assets acquired and liabilities assumed resulted in net operating assets of
$31,923, goodwill of $833,077, and a non-compete agreement of $125,000. The
acquisition has been accounted for under the purchase method of accounting.
Unaudited pro forma financial information for the years ended December 31, 1998
and 1997, as though the Ambler and the six Texas halls acquisitions had occurred
January 1, 1997, is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Revenues $16,969,657 $14,185,556
============ ===========
Net income (loss) $(2,049,043) $ 1,942,762
============ ===========
Basic earnings (loss) per share $ (.22) $ .27
============ ===========
</TABLE>
At the end of 1997, the Company closed its double bingo center in Brownsville,
Texas and sublet the property to a federal government agency for the balance of
the lease life.
On December 18, 1997, the Company acquired Darlington Music Company, Inc.
("DMC"), a South Carolina video gaming route business. The acquisition was
consummated in a stock-for-stock transaction, with the Company exchanging
1,000,000 shares of its common stock for 100% of the issued and outstanding
shares of DMC. There was no cash or other consideration. This acquisition was
accounted for as a pooling of interests, and DMC's historical financial results
have been combined with the Company's financial results. A principal in this
acquisition is a director of the Company.
F-11
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - MATERIAL ACQUISITIONS, OPENINGS, CLOSINGS AND REORGANIZATIONS
- ------------------------------------------------------------------------------
(CONTINUED).
- ------------
In November of 1997, the Company cancelled a stock purchase agreement with the
manager of its West Columbia, South Carolina bingo and gaming property due to
poor financial performance and construction cost over-runs on new developments.
The Company and the manager mutually agreed to reduce the Company's note payable
balance to the manager from $657,000 to $100,000, plus past due payments of
$45,000, resulting
in a one-time extraordinary gain of approximately $602,000 for the Company. The
gain on extinguishment of debt is reflected as an extraordinary item net of
income taxes of approximately $205,000. The Company also canceled the
employment agreement with this manager. In exchange, the Company agreed to
reduce the lock-up on this manager's 300,000 shares of Company stock from two
years to one year. The Company retained all other assets acquired in the
original stock purchase agreement. The Company originally entered into this
stock purchase agreement in early 1997, while at the same time acquiring a South
Carolina corporation, related equipment and minority lease ownership rights. In
exchange, the Company provided the manager with $1.0 million of consideration,
including a note for $740,000, 300,000 shares of Company Common Stock valued at
$206,000, and cash of $50,000. The purchase price exceeded the net tangible
asset value acquired, resulting in goodwill of approximately $1,016,000, which
is being amortized on a straight-line basis over five years.
On October 9, 1997, the Company acquired Lucky 4, Inc. ("Lucky 4") a South
Carolina corporation engaged in the video gaming business. This acquisition was
consummated in a stock-for-stock transaction, with the Company exchanging
358,000 shares of its common stock for 100% of the issued and outstanding shares
of Lucky 4. There was no cash or other consideration. This acquisition was
accounted for as a pooling of interests, and Lucky 4's historical financial
results have been combined with the Company's financial results.
In August of 1997 the Company acquired two bingo centers in Charleston, South
Carolina, Beacon I and Beacon II, for cash and stock consideration totaling
$175,000. The Company recorded this acquisition as a purchase. The Company
closed the Beacon II center at the end of 1997 due to lack of profitability.
The Company wrote off the remaining goodwill during 1998 due to poor performance
of Beacon I.
On August 25, 1997, the Company acquired Gold Strike, Inc. ("Gold Strike"), a
South Carolina corporation engaged in the video gaming business. This
acquisition was consummated in a stock-for-stock transaction, with the Company
exchanging 827,680 shares of its common stock for 100% of the issued and
outstanding shares of Gold Strike. There was no cash or other consideration.
This acquisition was accounted for as a pooling of interests, and Gold Strike's
historical financial results have been combined with the Company's financial
results. A principal in this acquisition is a director of the Company.
In June of 1997 the Company acquired four bingo centers in Charleston, South
Carolina. The Company acquired the Lucky, Shipwatch, Ponderosa and Sea Galley
bingo centers for $1.2 million, comprised of $750,000 in cash, $400,000 in
notes, and 9,969 shares of Company stock valued at $50,000. The Company
recorded these acquisitions as purchases. The purchase price exceeded the net
tangible asset value resulting in the recording of goodwill of approximately
$1.0 million, amortized on a straight-line basis over three to five years,
consistent with the remaining property lease periods. The Company subsequently
closed the Sea Galley center due to lack of profitability. During the fourth
quarter of 1998, the Company reassessed the value of the goodwill based on
expected future cash flows. As a result of this analysis, in conjunction with
considered cash flow projections, market and business risks, the Company wrote
off the residual goodwill associated with the Shipwatch and Ponderosa bingo
centers at December 31, 1998. The remaining goodwill, related to the Lucky
bingo center, is not considered to be impaired and will continue to be
amortized, on a straight-line basis, over the remaining property lease period.
All acquisitions accounted for as purchases reflect the operations of the
acquired entities from the respective dates of acquisition. The results of
operations for all entities accounted for as poolings are included for all
periods presented.
F-12
<PAGE>
- ------
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment at December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 189,671
Buildings 379,342
Building and leasehold improvements 2,350,265
Video gaming machines and bingo equipment 7,044,703
Equipment, furniture and fixtures 1,040,743
Automobiles 302,425
------------
11,307,149
Less: Accumulated depreciation and amortization (5,049,300)
------------
Property and equipment, net $ 6,257,849
============
</TABLE>
Property and equipment at December 31, 1998 includes $1.3 million of assets held
under capital leases, related accumulated amortization of $293,000. Related
amortization expense charged to operations for the years ended December 31,
1998 and 1997 was $184,000 and $109,000, respectively.
Depreciation and amortization expense charged to operations for the years ended
December 31, 1998 and 1997 was $1,445,000 and $798,000, respectively.
NOTE 4 - INTANGIBLE ASSETS.
Amortization expense charged to operations for the years ended December 31, 1998
and 1997 was $642,000 and $306,000, respectively.
Intangible assets at December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Goodwill $5,095,436
Covenants not to compete 553,891
-----------
5,649,327
Less: Accumulated amortization (811,453)
-----------
Intangible assets, net of accumulated amortization $4,837,874
===========
</TABLE>
F-13
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES RECEIVABLE.
<TABLE>
<CAPTION>
<S> <C>
Receivables from the sale of the Company's Florida bingo centers:
- -----------------------------------------------------------------
A promissory note due in equal monthly installments of $21,000 for 6 months of
the year and $11,000 for 6 months of the year, including interest at 12% per
annum, maturing October 2001, secured by certain assets $ 815,514
Various other promissory notes due in monthly installments of $5,400 to $13,300,
including interest at 9% to 12% per annum, due on demand,
secured by certain assets and personal property 47,150
Other Receivables:
- ------------------
A promissory note, with a related party, due on maturity, including interest at 7%
per annum, maturing May 2001, secured by pledged Company common stock 296,353
Three promissory notes, with related parties, due in equal annual installments of
81,999, plus simple interest 8%, maturing May 2001, un-secured 163,997
A promissory note, with a third party, due on maturity, including interest at 10%
per annum, maturing May 1999, secured by personal property 80,667
Various other promissory notes, with third parties, due in monthly installments of
100 to $4,000, including interest at 6% to 10% per annum, maturing from May
1999 to September 2001, secured by personal property 132,805
-----------
1,536,486
Less: Allowance for doubtful accounts (195,595)
-----------
Notes receivable, net of allowance for doubtful accounts $1,340,891
===========
</TABLE>
The financial statements include an allowance for collectibility of the Florida
notes receivable of $195,595. The creditor is depositing note payments into an
escrow account pending resolution of litigation (see Note 16). At December 31,
1998 the amount held in escrow is $126,517. If the Company were unable to
collect on the notes, and is unable to sell the underlying assets at their
estimated fair market value, the amount realized could be substantially less
than net amount of $493,402 (which is the note balance at December 31, 1998 of
$815,514 less the allowance and escrow accounts).
F-14
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - WRITE-OFFS AND CHARGES.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), the Company recognizes impairment losses when
facts and circumstances indicate that the carrying amount of an asset may not be
recoverable. In such cases, the difference between management's estimate of
discounted future cash flows and carrying value of the asset is recorded as an
impairment.
In the second and fourth quarters of 1998, the Company recorded approximately $4
million of asset write-downs related to future operating lease obligations on
idle or unprofitable bingo centers, corporate office relocation, and other
unusual charges to reduce non-performing assets to their net realizable values.
<TABLE>
<CAPTION>
Asset write-offs recorded in 1998 in accordance with SFAS 121 consist
of the following:
<S> <C>
Leasehold improvements $ 660,000
Goodwill 436,000
Future operating lease obligations 555,000
Discontinued "8-Liner" gaming machines 204,000
----------
Total asset write-offs 1,855,000
----------
Other significant unusual charges recorded in 1998 include the following:
Uncollectible bingo advances, deposits and receivables 1,054,000
Allowance for doubtful bingo accounts receivable 110,000
Uncollectible gaming advances, deposits and receivables 87,000
Expense recognition for company stock warrants issued in
February 1998 for consulting and investment banking services 221,000
Previously capitalized legal, financial relations costs,
and realized, unrecognized investment losses 340,000
Travel, recruiting and personnel costs due to relocations 370,000
----------
Total unusual charges 2,182,000
----------
Total unusual charges $4,037,000
==========
</TABLE>
The asset write-offs increased general and administrative expenses by $204,000.
The unusual charges increased general and administrative expenses by $931,000.
NOTE 7 - EXTRAORDINARY ITEM.
In November 1997, the Company and a former bingo and gaming center manager in
South Carolina mutually agreed to amend their stock purchase agreement. Under
this agreement, the Company's note payable to this manager was reduced from
$657,000 to $100,000, and $45,000 of past due payments were forgiven, creating a
one-time extraordinary gain of $602,000, ($398,000 net of taxes) in 1997. In
exchange, the Company agreed to reduce the lockup on the manager's 300,000
shares of Company stock from two years to one year. The Company retained all
other assets acquired in this acquisition.
F-15
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTES PAYABLE.
Notes payable at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Installment note payable to a third party, due in monthly installments of $17,728,
including interest at 6%, maturing June 1999 $ 104,533
Installment note payable to a financial institution, due in monthly installments of
15,615, including interest at 7.75%, maturing December 1999, secured by certain
equipment 175,874
Installment note payable to a third party, due in monthly installments of $13,570,
including interest at 13.6%, maturing January 2001, secured by certain equipment 334,165
Installment note payable to a third party, due in monthly installments of $5,009,
including interest at 13.5%, maturing January 2001, secured by certain equipment 104,842
Installment note payable to a third party, due in monthly installments of $1,525,
including interest at 13.3%, maturing March 2001, secured by certain equipment 35,234
Installment note payable to a third party, due in monthly installments of $2,240,
including interest at 13.9%, maturing April 2001, secured by certain equipment 53,340
Installment note payable to a third party, due in monthly installments of $4,220,
including interest at 12.7%, maturing June 2001, secured by certain equipment 107,919
Installment note payable to a third party, due in monthly installments of $10,162,
including interest at 13.1%, maturing December 2001, secured by certain equipment 295,803
Installment note payable to a third party, due in monthly installments of $7,069,
including interest at 12.5%, maturing January 2002, secured by certain equipment 208,345
Installment note payable to a related party, due in monthly installments of $9,765,
including interest at 8%, maturing May 2002 338,949
Installment note payable to an individual, due on demand, non-interest bearing,
unsecured 30,000
-----------
1,789,004
Less current installments (846,211)
-----------
Notes payable, net of current portion $ 942,793
===========
</TABLE>
Principle payments on notes payable for each of the next five fiscal years and
thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years Ending December 31,
- -------------------------
1999 $ 846,211
2000 553,101
2001 356,424
2002 33,268
Thereafter ---
----------
$1,789,004
==========
</TABLE>
F-16
<PAGE>
======
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - OBLIGATIONS UNDER CAPITAL LEASES.
In 1997, the Company entered into obligations under capital leases totaling
$1,235,812. The capital lease obligations are due in monthly and quarterly
installments ranging from $991 to $57,450, including interest at 11.67% to
14.3%, and final maturity of June 2000.
Future minimum payments due under capital lease obligations are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years Ending December 31,
- -------------------------
1999 $ 456,079
2000 169,537
----------
Total future minimum lease payments 625,616
Less amount representing interest (66,320)
----------
Present value of minimum lease payments 559,296
Less current installments (411,891)
----------
Obligations under capital leases, net of current portion $ 147,405
==========
</TABLE>
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS.
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments", requires
disclosure about the fair value of all financial assets and liabilities for
which it is practical to estimate. Cash, accounts receivable, accounts payable,
accrued liabilities and other liabilities are carried at amounts that reasonably
approximate their fair values.
The carrying amount and fair value of notes receivable and notes payable at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
---------------- -----------
<S> <C> <C>
Notes receivable $ 1,340,891 $ 1,362,935
Capital leases payable 559,296 559,296
Notes payable 1,789,004 1,767,653
</TABLE>
The fair values of the Company's fixed rate notes receivable and notes payable
have been estimated based upon relative changes in the Company's borrowing rates
since origination of the fixed rate debt.
F-17
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES.
A reconciliation of the expected federal income tax (benefit) based on the U.S.
Corporate income tax rate of 34% to actual for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---------- ----------
Expected income tax (benefit) $(884,075) $ 506,105
Amounts not deductible for federal income tax purposes 53,730 11,631
State income taxes, net of federal income tax 163,806 63,036
Exercise of stock options --- (204,000)
Effective tax on unincorporated business acquired --- (207,860)
Additional income taxes related to DMC (acquisition
accounted for as a pooling) 99,336 ---
Effect of change in 1997 net operating loss 207,374 ---
Change in valuation allowance 622,973 34,776
---------- ----------
$ 263,144 $ 203,688
========== ==========
The provision for income taxes consists of the following:
1998 1997
---------- ----------
Current year income taxes:
Federal $ 99,336 $ 140,652
State 163,808 63,036
Deferred income taxes:
Federal --- ---
State --- ---
---------- ----------
$ 263,144 $ 203,688
========== ==========
</TABLE>
Deferred tax assets and liabilities as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current deferred tax asset $ 110,900
Current deferred tax liability ---
Valuation allowance for current deferred tax asset $ (110,900)
------------
Net current deferred tax asset ---
============
Non-current deferred tax asset $ 1,377,063
Non-current deferred tax liability (30,103)
Valuation allowance for non-current deferred tax asset (1,346,960)
------------
Net non-current deferred tax asset $ ---
============
</TABLE>
The current deferred tax asset results primarily from differences in contingency
and valuation reserves for financial and federal income tax reporting purposes.
The non-current deferred tax asset results from differences in amortization of
goodwill and the non-compete agreements, and asset write-off and reserves for
financial and federal income tax reporting purposes and the deferred tax benefit
of net operating losses. The non-current deferred tax liability results from
differences in depreciation of fixed assets for financial reporting purposes and
federal income tax purposes. The net deferred tax asset has a 100% valuation
allowance due to the uncertainty of generating future taxable income.
F-18
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES (CONTINUED).
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $2.1 million that begin expiring in
the year 2009. The utilization of the net operating loss is subject to
limitations in accordance with 382 of the Internal Revenue Code.
During 1997, the Company deducted, for income tax purposes, approximately
$600,000 related to employee stock options exercised which were not deductible
for financial reporting purposes. The related tax benefit of this permanent tax
difference, approximately $204,000, has been recorded as additional paid-in
capital. However, a valuation allowance has been established for the benefit
due to the uncertainty of generating future taxable income, which is included in
the above valuation allowance for non-current deferred tax assets. In the event
that the Company generates future taxable income, the related allowance will be
reduced and the full benefit will be recognized as an increase to equity.
NOTE 12 - SHAREHOLDERS' EQUITY.
During 1998 the Company issued 498,599 shares of its common stock and paid
$1,062,703 in cash and $1,983 derived from converted preferred dividends in
connection with the redemption of all outstanding preferred shares to common
stock. These common shares were issued at the $4.00 per share floor price or at
the existing fair market value above the floor price accumulated deficit. The
Company recorded a reduction of $1,063,182 to additional paid-in capital related
to these conversions and redemptions. Preferred stock dividends of $95,874 were
paid during 1998 and recorded against accumulated deficit for preferred share
dividends due prior to the redemption dates.
During 1998 the Company repurchased and cancelled 76,475 warrants for $38,237
and incurred additional warrant exercise costs of $10,321 related to the 1997
warrant call.
On October 30, 1998, the Company issued 128,000 shares of treasury stock related
to the acquisition of the six bingo centers in Texas. These shares were valued
at the existing fair market value of $1.56 per share, totaling $200,000. The
net effect of the issuance of treasury stock was recorded as a $388,896
reduction of treasury stock and a $188,896 reduction to additional paid-in
capital. All of the shares issued are subject to Company re-sale lockup
agreements of one to three years.
The Company issued 2,381 shares of its common stock in July 1998 pursuant to
purchases under the Company's Employee Stock Purchase Plan. These shares were
issued at $2.55 per share, pursuant to the Plan purchase price for the six-month
plan period of January 1 through June 30, 1998. The Company recognized $6,071
in equity proceeds through voluntary payroll deductions pursuant to these plan
purchases.
The Company's Board of Directors authorized the Company to purchase up to 1.0
million shares of its common stock in open market or privately-negotiated
transactions over an unlimited period of time, beginning in the second quarter
of 1998. The Company repurchased 359,300 of its common shares for $1,075,295
through its stock buyback program during the second and third quarters of 1998.
The price per share to repurchase these shares ranged from $2.12 to $3.75. At
December 31, 1998, the Company holds 231,300 treasury shares with a cost of
$686,399 which equates to an average price per share of approximately $2.97.
F-19
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED).
On March 25, 1998, the Company issued 29,630 shares of common stock as partial
consideration related to the acquisition of Ambler Bingo. These shares were
valued at the existing fair market value of $3.04 per share, totaling $90,000.
During the first quarter of 1998 the Company issued 33,733 shares of its common
stock pursuant to employee stock option exercises. These option shares were
exercised and issued at $1.17 per share and resulted in an increase to
additional paid-in capital of $38,968.
In February 1998, the Company entered into a one year agreement for financial
consulting and investment banking services in exchange for warrants to purchase
100,000 shares of the Company's common stock at an exercise price of $3.88 per
share. The warrants vest and become fully exercisable on February 6, 1999 and
expire on February 4, 2004. The Company recorded expense of $221,616 during
1998 related to these warrants. This amount represents managements estimate of
the fair value of these warrants at the date of grant using a Black-Scholes
pricing model with the following assumptions: applicable risk-free interest rate
based on the current treasury-bill interest rate at the grant date of 6%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's common stock of 84%; and an expected life of the warrant of 3 years.
In December 1997, the Company redeemed 2,293,995 of its Redeemable Common Stock
Purchase Warrants pursuant to the Company's warrant call in November of 1997.
Each warrant was converted into one share of Company common stock at the price
of $5.00 per share. The Company grossed $11.5 million from this transaction,
and netted $11.1 million after associated financing costs.
The Company issued 2,495,649 shares of its common stock in 1997 for various
acquisitions in South Carolina. In December, the Company issued 1,000,000
shares in the stock-for-stock acquisition of the Darlington Music Company video
gaming route business. In October, the Company issued 358,000 shares in the
stock-for-stock acquisition of the Lucky 4 video gaming business. In September,
the Company issued 827,680 shares in the stock-for-stock acquisition of Gold
Strike video gaming business, and issued 9,969 shares in the acquisition of two
bingo centers. Early in the first quarter of 1997, the Company issued 300,000
shares in a stock purchase acquisition of a bingo center, equipment and various
corporations. All of the shares issued for these acquisitions, excluding the
9,969 tranche, were subject to Company re-sale lockup agreements of one to three
years.
The Company granted 50,000 shares of its common stock in January of 1997 to
employees as an annual bonus for 1997. These shares were valued at the existing
fair market value of $.94 per share.
The Company issued 2,000 preferred shares in August of 1997 at $1,000 per share
in a private equity transaction, grossing $2.0 million and netting $1.83 million
after associated financing costs. The net proceeds from this transaction were
recorded as equity. These shares are convertible into Company common shares
under a variable pricing formula ranging from $4.00 to $5.50 per share.
Conversion rights on these shares were fully vested at April 1, 1998. These
shares pay an annual dividend of 7% on a quarterly basis on the unconverted
principle balance. As of April 6, 1998, approximately 500 shares or 25% of the
total preferred shares had been converted into approximately 90,000 common
shares.
F-20
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED).
The Company issued 200,000 shares of its common stock in 1997 pursuant to
employee stock option exercises from June through September. These option
shares were exercised and issued at various prices from $1.00 to $2.50 per
share, netting $347,000 in equity proceeds for the Company.
The Company issued 74,000 shares of its common stock in the first quarter of
1997 for various professional, lobbying, and legal services rendered. These
shares were valued at the existing fair market value of $1.09 per share.
The Company issued 10,767 shares of its common stock in July and December of
1997 pursuant to purchases under the Company's Employee Stock Purchase Plan.
These shares were issued at the existing fair market value of $1.17 and $3.53,
respectively, per share, for the six-month plan periods ended in June and
December, respectively, netting the Company over $20,000 in equity proceeds
through voluntary payroll deductions.
NOTE 13 - EARNINGS PER SHARE.
A reconciliation of basic to diluted earnings (loss) per share is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1998 1997
-------------------------- -----------------------
Basic Diluted Basic Diluted
<S> <C> <C> <C> <C>
Numerator:
- --------------------------------------
Net income (loss) $(2,600,222) $(2,600,222) $1,284,856 $1,284,856
less preferred dividends (97,857) (97,857) (58,333) ---
------------ ------------ ----------- ----------
Income (loss) available to
common stockholders $(2,698,079) $(2,698,079) $1,226,523 $1,284,856
============ ============ =========== ==========
Denominator:
- --------------------------------------
Weighted average shares outstanding 9,299,908 9,299,908 7,160,612 7,160,612
Effect of dilutive securities:
Preferred stock --- --- --- 220,620
Stock options and warrants --- --- --- 752,554
------------ ------------ ----------- ----------
Weighted average shares outstanding 9,299,908 9,299,908 7,160,612 8,133,786
============ ============ =========== ==========
Earnings (loss) per share before
extraordinary item $ (.29) $ (.29) $ .17 $ .16
============ ============ =========== ==========
</TABLE>
F-21
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - ACCOUNTING FOR STOCK BASED COMPENSATION.
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") in accounting for its stock options. At December 31,
1998, the Company has implemented four shareholder approved stock option plans.
These plans are intended to comply with Section 422 of the Internal Revenue Code
of 1986, as amended. The plans collectively provide for the total issuance of
2,000,000 common shares over ten years from the date of each plan's approval.
At December 31, 1998, a total of 1,175,600 options are outstanding under these
plans. An additional 141,525 options for shares are outstanding to
non-employees outside of these plans as of the end of 1998.
A summary of the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
Employee Stock Plans Other Compensatory Combined Total
------------------ ---------------- ---------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
---------- ------ -------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Outstanding at 12/31/96 1,059,999 $ 1.59 --- $ --- 1,059,999
Granted 526,667 1.00 218,000 4.53 744,667
Exercised (200,000) 1.72 --- --- (200,000)
Forfeited --- --- --- --- ---
---------- ------ -------- ------ ---------------
Outstanding at 12/31/97 1,386,666 2.89 218,000 4.53 1,604,666
Granted 531,000 3.36 --- --- 531,000
Exercised (33,733) 1.18 --- --- (33,733)
Forfeited (708,333) 3.60 (76,475) 5.50 (784,808)
---------- ------ -------- ------ ---------------
Outstanding at 12/31/98 1,175,600 $ 2.43 141,525 $ 4.00 1,317,125
========== ====== ======== ====== ===============
</TABLE>
The fair value of options issued during 1998 and 1997 was $1,305,753 and
$711,591, respectively.
The following table summarizes information about options outstanding at December
31, 1998 and 1997 under the Employee Stock Plan:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- ----------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
---------------- ----------- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1998: $ 0.96 - $6.16 1,175,600 4.7 years $ 2.43 710,422 $ 2.19
1997: $ 0.96 - $6.25 1,386,666 3.9 years $ 2.89 430,001 $ 1.53
</TABLE>
F-22
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - ACCOUNTING FOR STOCK BASED COMPENSATION (CONTINUED).
The following table summarizes information about other compensatory stock
options outstanding at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- ----------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
---------------- ----------- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1998: $ 3.00 - $5.50 141,525 3.4 years $ 4.00 141,585 $ 3.99
1997: $ 3.00 - $5.50 218,000 3.2 years $ 4.53 85,000 $ 3.00
</TABLE>
The options granted in 1998 and 1997 have exercise prices which approximate fair
value and accordingly, no compensation cost has been recognized for the
compensatory stock options in the consolidated financial statements. Had
compensation cost for the Company's stock options been determined consistent
with FASB statement No. 123, "Accounting for Stock Based Compensation", the
Company's net income (loss) and net income (loss) per share would have been
decreased (increased) to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1998 1997
----------- ------------
<S> <C> <C> <C>
Net income (loss) As reported $(2,600,222) $1,682,392
Pro forma $(2,900,623) $1,069,196
Basic earnings per share As reported $ (.29) $ .23
Pro forma $ (.32) $ .15
Diluted earnings per share As reported $ (.29) $ .21
Pro forma $ (.32) $ .13
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for
grants in 1998; dividend yield of 0%, expected volatility of 84%, risk free
interest rates estimated at 6.0%, and an expected life of 3 years. The
following assumptions were used for grants in 1997; dividend yield at 0%,
expected volatility at 76%, risk free interest rates estimated at 6.0%, and an
expected life of 1-3 years.
F-23
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - RELATED PARTY TRANSACTIONS.
At December 31, 1998, notes receivable included promissory notes receivable from
related parties totaling $460,000. The interest rates range from 7.0% - 8.0%
with maturity dates ranging from December 15, 1998 to May 31, 2001. Interest
income related to these notes recorded by the Company was $34,000 for the year
ended December 31, 1998.
In March 1998 the Company acquired Ambler Bingo. In conjunction with this
purchase, 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, and
entered into a three-year employment agreement with the seller. 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 year ended December 31, 1998, the
Company recognized $23,200 of interest expense to this obligation.
In December 1997, 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
Company Director and Officer, and two immediate family members of the related
party. The lease originated on January 15, 1990 for a 15 year term with monthly
rental payments of $3,500. For the years ended December 31, 1998 and 1997, the
Company has expensed $42,000 for rental payments to the related parties under
this lease.
As a part of the Company's 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 Director of the Company is a
50% general partner. This lease expires November 2001, with renewal options. The
monthly rental payments under this lease are $5,270. For the years ended
December 31, 1998 and 1997, the Company has expensed $63,240 and $34,930
respectively for rental payments to the related party under this lease.
On November 9, 1998, the Company reorganized its South Carolina video gaming
operations by entering into a three year Agreement with an operator, effectively
outsourcing the operations of the Company's non-route video gaming operations at
eight video gaming machine centers. The operator is owned and managed by a
shareholder and former officer, Director and employee of the Company, and a
second shareholder and former employee of the Company. In addition, at seven of
the eight centers, the Company has entered into a lease or a sublease with the
operator which provides for the monthly payment of rent by the operator. Under
the Agreement, the Company retains ownership of the underlying video gaming
machines and all related assets. In connection with the execution of the
Agreement, the Company loaned $80,000 to the operator, due in full, with
interest accruing at prime-plus 2%, due upon maturity in May 1999.
F-24
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES.
(a) Operating Leases:
The Company is obligated under various operating leases. Generally, the leases
provide for minimum annual rentals as well as a proportionate share of the real
estate taxes and certain common area charges. Minimum annual rentals under
these leases are as follows:
<TABLE>
<CAPTION>
Years Ending Minimum
December 31, Rentals
- ------------ ----------
<S> <C>
1999 $2,073,802
2000 1,815,831
2001 1,319,310
2002 710,413
2003 and thereafter 2,012,951
----------
Total minimum annual rentals $7,932,307
==========
</TABLE>
Rent expense for the years ended December 31, 1998 and 1997 amounted to $2.6
million and $1.5 million, respectively.
(b) Legal:
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
the Circuit Court in Florida, alleging breach of contract on these purchases.
Furtney 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.
F-25
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
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 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. Other issues in this case
are 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.
In 1997, the South Carolina Department of Revenue and the South Carolina Law
Enforcement Division brought a declaratory judgment action against various
organizations whose members have beer and wine permits and also offer video
poker for play. The suit was also brought against certain businesses in the
video poker industry. Neither the Company nor any subsidiary is a named
defendant in this case. The plaintiffs have styled the case as a class action
and have requested that the court declare that the South Carolina Code prohibits
beer and wine from being sold at establishments that provide video poker
machines for play. At issue in the case is whether a specific South Carolina
statute (S.C. Code Section 61-4-580(3)) prohibits a beer and wine permit holder
from also offering video poker for play. The plaintiffs have filed a motion
that the case be certified as a class action and have filed a motion for summary
judgment. The defendants are vigorously defending the case. If this case were
to be decided in favor of the Department of Revenue, it would likely have a
material adverse effect on the financial position and operations of the Company.
Additionally, on June 30, 1998, the South Carolina Department of Revenue
announced that as of August 1, 1998, it would no longer allow beer and wine
permits at any location that also offers video poker, based on its
interpretation of the South Carolina statute noted above. However, in two
separate state court cases, two state Circuit Court judges have entered
injunctions prohibiting the Department of Revenue from enforcing its
interpretation of the South Carolina statute at issue at the current time. At
the current time, the Department of Revenue is issuing beer and wine permits for
locations which also offer video poker. If this issue were to be decided in
favor of the Department of Revenue, it would likely have a material adverse
effect on the financial position and operations of the Company.
On September 9, 1998, the Company filed a lawsuit in the Court of Common Pleas
for the Fifth Judicial Circuit in Columbia, South Carolina, against two former
directors, Greg Wilson and Robert Hersch, Investors Associates, Inc., who
previously served as the Company's underwriter, and two former employees, Roy
Stevens and Paul Hermelink. On February 26, 1999, the Company and Greg Wilson
entered into a settlement with respect to this lawsuit and other issues and thus
Greg Wilson has since been dismissed with prejudice from this lawsuit. The
lawsuit seeks to recover both actual and punitive damages, as well as the return
of profits wrongfully obtained and the return of assets, including common stock
of the Company, wrongfully acquired, pursuant to various causes of action. On
September 30, 1998, Greg Wilson and various family members filed suit against
the Company in the Court of Chancery for the State of Delaware, which lawsuit
was also dismissed with prejudice in connection with the settlement with Greg
Wilson and various family members discussed above.
F-26
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED).
- ----------------------------------------------------------
On December 17, 1998, 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 Eleventh Judicial Circuit in Lexington, 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, seeks the reassignment of a lease agreement
which secures a promissory note issued by the Company to the plaintiff, and
seeks to have a receiver appointed to take control of the Company during the
pendency of this lawsuit. The Company believes that this lawsuit is completely
without merit and will defend itself vigorously. This lawsuit is in the early
stages and discovery has not yet commenced. 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 legislature and the Governor of South Carolina are currently
considering proposing legislation that could significantly overhaul the
regulatory framework for video poker in South Carolina and impose significantly
higher taxes. Although it is anticipated that some legislation will be proposed
in 1999, the actual legislation has not yet been presented in the legislature
and thus the nature and impact of such legislation is not known at the current
time. However, any such legislation, if adopted, could have a material adverse
effect on the financial position and operations of the Company.
In the normal course of its business, the Company is subject to litigation.
Management of the Company, based on discussions with its outside legal counsel,
does not believe any claims, 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 17 - YEAR 2000.
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 the 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 is currently in the process of
certifying that the vendors and suppliers of its critical components and
services are Year 2000 compliant and the Company expects certification to be
completed by April 1999. 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.
F-27
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SEGMENTS.
The Company adopted Statement of Financial Accounting Standards No.
131,"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in the fiscal year ended December 31, 1998. SFAS 131 establishes
standards for reporting information regarding operating segments in annual
financial statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders. SFAS 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess performance.
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 accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies except that depreciation and amortization are allocated to
each segment from functional department totals based on certain assumptions
which include, among other things, revenues. Also, the Company's CODM does not
view segment results below operating profit (loss), therefore, net interest
income, other income, and the provision for income taxes are not broken out by
segment below.
The Company's 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. These segments were identified
based on the different nature of the services and legislative monitoring and, in
general, the type of customers for those services.
A summary of the segment financial information reported to the CODM is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 9,738,085 $ 4,855,532 $ 851,839 $ 15,445,456
Depreciation and Amortization 986,818 1,041,236 59,423 2,087,477
Segment profit (loss) 1,643,301 (1,203,841) (3,039,682) (2,600,222)
Segment Assets 7,380,853 10,754,901 846,818 18,982,572
Capital expenditures by segment 1,883,194 605,752 50,684 2,539,630
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------
Video Gaming Bingo Adjustment Consolidated
------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue $ 8,874,257 $2,921,386 $ 427,492 $ 12,223,135
Depreciation and Amortization 345,102 758,850 - 1,103,952
Segment profit (loss) 1,299,664 1,500,639 (1,117,911) 1,682,392
Capital expenditures by segment 1,551,025 942,095 107,531 2,600,651
</TABLE>
The adjustments represent video gaming and bingo concession and other income,
depreciation and amortization related to corporate assets, corporate losses,
corporate assets and corporate capital expenditures to reconcile segment
balances to consolidated balances. None of the other adjustments are
significant.
F-28
<PAGE>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - SUBSEQUENT EVENTS.
On February 26, 1999 the Company entered into a settlement agreement, compromise
of claims and mutual release with the Company's former president and chief
executive officer and members of his family. Under the terms of the agreement
the Company will receive the net proceeds from the sale of 200,000 shares of the
Company's common stock owned by the former president and $1,300 as consideration
for the founder's stock originally issued to the former president. Also, the
former president and family members will sell 1.1 million shares of the
Company's common stock over a five year period beginning June 1, 1999 at a
predetermined liquidation rate.
F-29
<PAGE>
<TABLE>
<CAPTION>
AMERICAN BINGO & GAMING CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION and QUALIFYING ACCOUNTS
For the Years Ended December 31, 1998 and 1997
Charged Charged
Balance to costs & to other Balance
January 1, Expenses Accounts Deductions December 31,
----------- -------- ----------- ----------- -------------
1998
- -------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for notes receivable $ 231,395 --- 35,800(1) --- $ 195,595
Allowance for doubtful accounts $ --- 109,595 --- --- $ 109,595
1997
- -------------------------------
Allowance for notes receivable $ 290,773 --- 59,378(1) --- $ 231,395
Allowance for doubtful accounts $ --- --- --- --- $ ---
<FN>
(1) Allowance was reduced to reflect net realizable value.
</TABLE>
F-30
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
ANDRE M. HILLIOU
Chairman of the Board, President and Chief Executive Officer
GEORGE M. HARRISON, JR.
Vice Chairman of the Board and Vice President
JAMES L. HALL
Director
Retired Executive, Bell Atlantic
MICHAEL W. MIMS
Director
President, Mims & Dye Enterprises, L.L.C.
GROVER C. SEATON III
Director
Senior Partner, Seaton & Manley, P.C.
A. JOE WILLIS
Director
President, Willis Chiro Med
RICHARD M. KELLEY
Chief Financial Officer, Vice President and Treasurer
MARIE T. PIERSON
Vice President of Acquisitions, Administration and Secretary
NANCY J. POLLICK
Vice President of Operations
- --------------------------------------------------------------------------------
KING GRIFFIN & ADAMSON P.C.
Independent Auditors
Dallas, TX
AMERICAN STOCK TRANSFER & TRUST COMPANY
Transfer Agent
40 Wall Street
New York, NY 10005
(212) 936-5100
AMERICAN BINGO & GAMING CORP.
is a NASDAQ Company
(Symbol: BNGO)
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of American Bingo & Gaming Corp. will be held
at 10:00 a.m. on Thursday, May 27, 1999 at the bingo hall located at 1470
Charleston Highway, West Columbia, South Carolina 29169.
<PAGE>
