-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UBDz+on838NDSneWddiZxp9nfUEVbYW6DmJCmW3cWXDodBjzND/uwBKsSbIxUy5d OxAUP+cSIXXZhX54EXIwOA== 0001005477-00-001557.txt : 20000225 0001005477-00-001557.hdr.sgml : 20000225 ACCESSION NUMBER: 0001005477-00-001557 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMECOM INC CENTRAL INDEX KEY: 0001085243 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 931207631 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: SEC FILE NUMBER: 000-28381 FILM NUMBER: 552113 BUSINESS ADDRESS: STREET 1: 440 NORTH CENTER CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8172650440 MAIL ADDRESS: STREET 1: 440 NORTH CENTER CITY: ARLINGTON STATE: TX ZIP: 76011 10SB12G/A 1 FORM 10-SB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-SB/A AMENDMENT NO. 1 --------------------------- GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------------- GAMECOM, INC. (Name of Small Business Issuer in Its Charter) TEXAS 93-1207631 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 440 NORTH CENTER ARLINGTON, TEXAS 76011 (Address of Principal Executive Offices) (Zip Code) (817) 265-0440 (Registrant's Telephone Number, Including Area Code) SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: (None) SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par value $.005 per share (Title of Class) TABLE OF CONTENTS PART I Item 1 Description of Business. Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3 Description of Property. Item 4 Security Ownership of Certain Beneficial Owners and Management. Item 5 Directors, Executive Officers, Promoters and Control Persons. Item 6 Executive Compensation. Item 7 Certain Relationships and Related Transactions. Item 8 Description of Securities. PART II Item 1 Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters. Item 2 Legal Proceedings. Item 3 Changes In and Disagreements With Accountants. Item 4 Recent Sales of Unregistered Securities. Item 5 Indemnification of Directors and Officers. PART F/S Financial Statements. PART III Item 1 Index to Exhibits. Item 2 Description of Exhibits. PART I ITEM I DESCRIPTION OF BUSINESS BUSINESS OVERVIEW GameCom, Inc. (the "Company") was organized in 1996 to operate theme concept microbrewery restaurants. In 1997, the Company acquired First Brewery of Dallas, Inc., which operated the former Hubcap Brewery & Kitchen of Dallas, Texas (later renamed The Schooner BreweryTM brewpub). As a result of several factors, including relatively strict laws that apply to craft brewers in Texas, GameCom found it difficult to develop this initial business, and closed down its microbrewery operations in early 1999. In December of 1997, GameCom acquired all rights to `Net GameLinkTM, an interactive entertainment system designed to allow a number of players to compete with one another in a game via an intranet or the Internet. Since closing its microbrewery operations GameCom has been devoting substantially all of its efforts to implementing the `Net GameLinkTM product. In February, 2000, the Company changed its jurisdiction of incorporation from Nevada to Texas. The Company maintains its principal office at 440 North Center, Arlington, Texas 76011, and its telephone number is (817) 265-0440. CLOSED MICROBREWERY OPERATIONS From 1997 to 1999, the Company operated a brewpub restaurant in Dallas, Texas under the name The Schooner Brewery (TM). The Company received a number of awards for the quality of its beer at national and regional competitions. The Company's plan was to build upon the favorable publicity resulting from these awards to develop and expand a craft brewing concept that would both serve its award-winning beer on-premises and sell the beer for off-premises consumption. The Texas laws governing craft brewing operations are highly restrictive. Under those laws an operator of a "brewpub" (manufacturer of beer for on-premises sale and consumption) was prohibited from operating a "microbrewery" (manufacturer of beer for off-premises distribution and consumption). As a result, the Company was unable to carry out its plan. In addition, the Dallas West End Historical District where the Company's restaurant was located was undergoing an economic decline at the time. The restaurant continued to accumulate net losses, and management of the Company closed its brewpub operations in early 1999 in favor of full-time exploitation of the 'Net GameLink(TM) concept. Since that time the Company's operations have been limited to development, construction and beta-testing of the initial 'Net GameLink(TM) prototype system at J. Gilligan's Bar and Grill in Arlington, Texas and the Company is not expected to have revenues from its Internet gaming business until some time in the first quarter of 2000. INDUSTRY OVERVIEW The electronic gaming industry has experienced dramatic changes over the last several years. Beginning with games played by a single user on his or her own computer, electronic games have progressed from (i) play by two or more users on a single computer, to (ii) play by many users over an intranet, to (iii) simultaneous play by even more users from locations spread throughout the world via the Internet. These changes have brought about a rapid increase in the number of interactive electronic gamers. Initial efforts to capitalize on the interactive Internet electronic games market were based on the assumption that players would be willing to pay directly to participate in these games. Pogo.com began with this business model but was unable to generate a sufficiently large group of paying customers to make the model profitable. Recent efforts in this area have instead been based on the media model, in which users do not pay for the service, but the site operator sells access to the users to advertisers. Despite the success of Internet gaming companies, an element has been lost in the process of moving from the parlor to the individual user's screen -- the element of direct social interaction. The Company believes that people like to talk to each other while they play, and a computer screen is no substitute for face-to-face communication. It has not carried out any marketing studies to confirm this belief, but both its observations of players during beta-testing of its system and articles in magazines such as Forbes and USA Today have confirmed this belief. Virtually all of the Internet gaming providers have created some means for the players to "chat" as they are playing by typing messages back and forth. But this is an inadequate substitute for the immediate presence of a live human being. Typing simply doesn't convey the excitement or nuances of meaning communicated by the human voice. In response to the desire of players for direct interaction, at least one company has constructed several large electronic gaming centers, and has announced its intention to build many others. Like the arcades frequently seen in suburban malls, these centers are intended to attract the hard-core electronic gamer who is seeking to play in a social environment. The Company's product is targeted at a market similar to that of the large electronic gaming centers, but is designed for smaller-scale and more widespread use in a neighborhood setting. The experience of the large electronic gaming centers has demonstrated that players are willing to pay to access electronic games in the company of others. 'NET GAMELINK(TM) SYSTEM In December, 1997, the Company acquired from Adams Bragg & Company, Inc. , a firm which had been performing public relations services for the Company, all proprietary rights in the `Net GameLink(TM) system in exchange for 425,000 shares of the Company's common stock. For financial reporting purposes, these proprietary rights were valued by the Board of Directors at $2,125. At the time of acquisition, the system was essentially little more than an idea. Over the next two years, the Company worked in cooperation with Connect Computer Group, a Texas electronics firm, to develop the hardware and communications configuration to implement this concept. The services of Connect Computer Group were performed without any out-of-pocket cash cost to the Company other than the costs of certain hardware on the basis of an unwritten understanding that if the system were successfully marketed Connect Computer would receive a significant equity position in the Company. The Company's `Net GameLinkTM system is designed for installation at a relatively modest cost in neighborhood arcade-like gaming centers and social bars. It consists of computers, a networking system, and specially-designed networked kiosks that allow the Company's patrons to play interactive 3D games with either other users at the same location or users at a remote location. The gamestations feature X86 (Intel central processing unit) compatible 3D-game hardware and software. Customers pay for their use of the system through a plastic debit card. Each card is prepaid and is credited with a certain amount of playing time. Design Goals: In designing kiosks for its system, the Company's objectives were to remove the computer look and feel from the game play experience, use state-of-the-art sound and video systems to further enhance game play, provide for connection to other kiosks at the same location through an intranet and connection to kiosks at other locations through the Internet, and provide a system that would be easy to change and update. In addition, the system had to be able to run most games on the market, permit easy access to the games by the user, and prevent the user from obtaining access to the computer's operating system. Selection of components for the system was based on performance, reliability, and price, in that order. Enclosure: The physical enclosure itself is 3 foot by 3 foot square and over six feet tall with full length windows on each closed side. The kiosk enclosure is open on one side and the windows allow the works of the systems to be seen. To further enhance the open look of the kiosk all enclosures are removed from the power supply and monitor. Each kiosk has three bays which are arranged vertically. All computer equipment is mounted in the upper bay. The mid bay is dedicated to the lighting controller/source and the lower bay holds a sub-woofer speaker, A/C wiring and un-interruptible power source. The kiosk is made from high grade particle board and all corners are machined and rounded. Game controls are mounted on two shelves in the front of the enclosure. The lower shelf is made of the same board has the enclosure and the top is made of clear plastic. Two handles provide support for the upper shelf and act as a light for the lower shelf. Computer: The computer system is based on an AMD Athlon(TM) 700 MHz processor. This is mounted on a Epox mother board with 128 megabytes of RAM (random access memory). It uses the IDE interface (one of several methods of connecting disk drives and other components to the computer's mother board) and a 4.5-gigabyte hard drive. The network connection is supplied by a 3-Com 905b 100baseT card (the faster of the two types of networking components in common use on IBM PCs). A Creative Labs 16-megabyte accelerated video card connected to a 21 inch 27 dot pitch (a measure of resolution) monitor supplies video. A Creative Labs Sound Blaster Alive sound card is used. The speakers are made by Altec Lansing and have two small high and mid range enclosures and a bass and sub-bass enclosure. Lighting: Lighting is supplied from a 150 watt light generator and distributed through a fiber optic light pipe array. The light generator has an integral dichromatic (2-color) filter that causes the light color to shift a few times each minute. The mounting plates for the motherboard, magnetic card reader, and joystick are made of a plastic material that allow light to be injected that creates a glow around the edge. Edge light fiber optic cables are used to light the inside of the kiosk and also the motherboard mounting plate. Light pipes are also run to the handles on each side of the lower front shelf. User interface: In its usual configuration, the kiosk provides for input through a keyboard, a mouse, and a joystick. The keyboard is a standard 101 key Keytronic black keyboard that is mounted on the lower shelf. The mouse is also black and is made by Keytronic. The joystick is a force feed back type manufactured by Microsoft. The joystick connections are external to the enclosure. This allows the joystick to be changed out for other types of game input devices. A magnetic card reader authenticates users and deducts the appropriate amount for the user's playing time. All input devices other than the magnetic card reader are not hard mounted for the convenience of the user. System Software: The operating system software is Microsoft Windows 98. The standard TCP/IP (a networking protocol) stack is used for network connectivity. The interface software is written in Micromedia Director, and the user database is written under MySql (a database programming language) running under Redhat 6.0 LINUX (an operating system). The games themselves are stored on a LINUX server running with SAMBA (software for integrating LINUX and Windows computers) supplying the connectivity to the Windows environment. Operation: Each kiosk is a network client of the LINUX server where all games are stored. When a user swipes his or her card through the card reader, the software on the kiosk makes a request of the database stored on the server. This database maintains a record of the amount of time the user has bought and how much he or she has used. Once the user has been authenticated and the system has verified his remaining time, the server starts the timing clock for the kiosk and allows the user to select a game. When the user's time expires the kiosk shuts down the game. Each kiosk has a full-time connection to the Internet and to the local network. Interactivity: The Company's system provides for interactive play among gamers at a single location via an intranet or at widely dispersed locations via the Internet. Because the Company's system is intended to reach players wishing to play in a social setting, the Company expects that at least initially the system's capability to allow play among gamers at a single physical location through an intranet will be more significant than its ability to enable play on a worldwide basis. However, it seems likely that in the future games will be developed that permit teams of players at one location to compete against teams located elsewhere, and the system's Internet connection will permit such play without any modification to the system. Installed Games: Each location will provide access to the user's choice of approximately 10 games at any time. The games to be offered on the Company's kiosks will not necessarily be different from those that an electronic gamer could purchase at his or her local computer store. Many gaming manufacturers are now offering their games in an interactive format. To a serious gamer, the appeal of the Company's system is likely to be the fact that the hardware components will be faster, bigger, louder, etc. than those he would have available in a home setting. For the novice, the physical attributes of the system, the stylistic kiosks, the fiber optic lighting, and the social atmosphere of playing interactive games on a physically interactive basis through an intranet is expected to be what he or she finds appealing. All locations will be accessible through the Company's computer and its home office, so that a constant evaluation of the popularity of the games available at a particular location can be continuously monitored. The games installed at each location will vary to some extent depending upon the amount of playing each receives as reported by the Company's centralized database. However, there will be a substantial overlap, since this is required in order to allow interactive play between widely dispersed locations. The games for the Company's initial system were selected after discussions with its games software supplier, GT Interactive Software, a leading games manufacturer/distributor. The Company has no commitments to that supplier beyond its obligations to pay required royalties on the games it uses. Present arrangements call for payment of an annual royalty of $540 per game, and royalties have been paid through mid-July, when the existing licensing agreements expire. The Company believes that as it becomes established in multiple locations it will be in a position to achieve a strategic alliance with one of the leading games manufacturers/distributors under which the Company would receive payment from the manufacturers/distributor in exchange for being the exclusive supplier of games to the Company. The Company's first `Net GameLink(TM) entertainment system was made available for public play at Who's on First? in New York City on July 16, 1999. On November 2, 1999, the Company moved this system to J. Gilligan's in Arlington, Texas to bring it closer to the Company's principal offices. Operations are presently limited to the initial five-kiosk prototype system at J. Gilligan's. This system was installed without charge to J. Gilligan's and is expected to begin generating revenue during the first quarter of 2000 when the Company will begin charging patrons for play on the system. The Company anticipates delivery of the first system to be sold to a third party will occur near the end of the first quarter. Initially, the Company contemplates building the systems to order with delivery of the completed systems to occur approximately four weeks after the order. The Company intends to maintain the initial system at J. Gilligan's as a "test bed" for continued upgrading and improvements to its system. Hardware and Software Availability: The Company's kiosks are manufactured to the Company's design and are purchased from time to time as required. They are presently purchased from a single supplier, but no specialized equipment or knowledge beyond normal furniture-manufacturing techniques is required for their construction, and the Company does not anticipate any difficulty in acquiring these items. The computer hardware and software used in the system are standard off-the-shelf items. The computer processors are being furnished to the Company without any out-of-pocket cost by Advanced Micro Devices, Inc. in exchange for the Company's publicizing that company as its supplier. Sources of Revenue: The Company intends to provide its interactive electronic gaming service through a combination of Company-owned centers and through third parties such as social bars, which will purchase the system on the basis of a fixed initial fee and a continuing royalty. In addition, the Company expects revenue to be generated through the sale of advertising to companies who wish to reach the Company's demographic market. The Company anticipates that the cost of a system to third parties will be in the range of $5,500 to $6,500 per kiosk, including the server for each location. The Company anticipates a royalty based on the amount spent by patrons to actually play on the system equal to 40% of revenues and a royalty on the advertising generated by the system at each location equal to 50% of the advertising revenue paid to the operator. COMPETITION Competition in this industry is based primarily on the ability to deliver an exciting and realistic gaming experience beyond what the gamer would experience on his or her home computer through such items as 3-D imaging, sound and sense of motion. At the present time, price is less of a factor because of the limited number of competitors in the field. Accessibility is also a factor. The Company believes that its primary competition will be the large gaming centers being established by companies such as GameWorks. GameWorks was established by Sega Enterprises, Universal Studios, Inc. and DreamWorks SKG and was designed under the guidance of Steven Spielberg. GameWorks has far greater financial and technical resources than the Company and has created an entire establishment devoted to various forms of gaming, including virtual reality games. So far as the Company is aware, GameWorks is the only such competitor at the present time. The Company will not be able to compete with GameWorks in technology or size of facility. Instead it intends to compete by providing more but smaller facilities that will be readily accessible in the gamer's immediate neighborhood, with the companionship of the gamer's neighbors, rather than requiring substantial travel to game among strangers. Whereas GameWorks' facilities are designed to serve as a destination in and of themselves, the Company's systems will be located in third-party social establishments where the system may or may not be the main attraction for the establishment's particular patrons. In that respect, the systems will be somewhat like the games systems one sometimes sees installed in theater lobbies, where the use is incidental to the patron's primary reason for coming to the establishment. MARKETING Until such time as the Company is in a position to raise significant amounts of additional capital, its capacity for producing `NetGamelink(TM) systems will be severely limited, and its marketing efforts will be consistent with its production capacity. Initial marketing efforts are expected to consist of follow-ups by the Company's Director of Sales directed toward a limited number of individual and chain casual restaurant/bars, some of which have learned of the Company's system by observing it when it was installed at Who's on First in New York or later at J. Gilligan's Bar & Grill in Arlington, Texas. The Company is in the process of producing a promotional video of the system for distribution to potential customers, and also promotes the system by means of live streaming video on the Company's web site, showing actual real-time use of the Company's system by patrons at J. Gilligan's. Longer range plans include, subject to the availability of the necessary funds, an advertising campaign in leading restaurant/food industry publications. The Company intends to add additional marketing staff as required. EMPLOYEES At September 30, 1999 the Company employed 4 persons. The Company considers relations with its employees to be satisfactory. TRADEMARKS The Company has filed for federal registration of its "'Net GameLink(TM)" trademark, and a patent application is pending for its network-enabled gaming kiosk. There can be no assurance that a patent will issue on this application, or that if the patent is issued it will be sufficiently broad to provide meaningful protection. The time required to obtain a patent depends upon a number of factors, including the extent to which the Company is required to negotiate with the patent office as to the breadth of the patent ultimately to be issued. The Company anticipates that if the patent does issue it will not issue until some time in 2001. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains certain forward-looking statements that are subject to business and economic risks and uncertainties, and the Company's actual results could differ materially from those forward-looking statements. The following discussion regarding the financial statements of the Company should be read in conjunction with the financial statements and notes thereto. Overview. The Company was capitalized in 1996 to develop, own, and operate theme brewpub/microbrewery restaurants. Until March of 1997 when the Company acquired, and July 1, 1997 when the Company began operating, the former Hubcap Brewery & Kitchen in Dallas, Texas, the Company had no operations or revenues and its activities were devoted solely to development. However, since the acquisition was accounted for as a pooling of interests, the results of operations of Hubcap Brewery & Kitchen were carried forward into the Company's financial statements and accordingly the 1997 financial statements reflect a full year of operations of that business. In January, 1999, the Company terminated its brewpub/microbrewery restaurant operations. Future revenues and profits will depend upon various factors, including market acceptance of `Net GameLinkTM, and general economic conditions. The Company's present sole source of revenue is the future sale of `Net GameLink(TM) systems and from associated royalties. The Company has not received any revenue to date from either royalties from operations of systems it owns or the sale of its systems to others. It expects to receive the first revenue from operations of its own system during the first quarter of 2000, and to receive the first revenue from a sale of the system to a third party near the end of the first quarter of 2000. There can be no assurances that the Company will successfully implement its expansion plans, including the `Net GameLinkTM entertainment concept. The Company also faces all of the risks, expenses, and difficulties frequently encountered in connection with the expansion and development of a new business. These include limited working capital and the need to devote a substantial amount of management's time to raising capital rather than development of the business, difficulties in maintaining delivery schedules if and when volume increases, the need to develop support arrangements for systems at widely dispersed physical locations, the need to control operating and general and administrative expenses and the need to spend substantial amounts on initial advertising to develop an awareness of the Company and its products. In addition, the Company's Chief Executive Officer is a practicing attorney with no training or prior experience in managing or overseeing a public company. Results of Operations. Fiscal year ended December 31, 1998 compared to fiscal year ended December 31, 1997. The Company had no revenues from the date of inception through July 1, 1997, when it began operating the former Hubcap Brewery & Kitchen, through its wholly-owned Texas subsidiary corporation, First Brewery of Dallas, Inc. However, as noted above, results for the year reflect operations of the acquired Company prior to the acquisition. Prior to July 1, 1997, the Company had received $391,351.00 in paid-in capital, and had incurred $237,478.54 in start-up, consulting, and legal expenses associated with the formation of the Company and its development activities. For the 12 months ended December 31, 1998, the Company, through its wholly-owned subsidiary, First Brewery of Dallas, Inc., had a net loss of $1,127,018, compared to a loss of $576,520 for the 12 months ended December 31, 1997. First Brewery of Dallas, Inc. ceased operations on January 10, 1999. Increases in revenues and the related increases in costs of sales from the 1997 to the 1998 fiscal years generally reflect the Company's moderate degree of success in expanding its restaurant operations. However, as the 1998 fiscal year drew to a close revenues were declining due, at least in part, to an overall economic decline in the geographic area where the restaurant operations were located. In addition, it became clear to the Company's management that Texas's liquor control laws were such that the Company would not be able to obtain approval for the microbrewery operations which it regarded as the key to achieving profitable operations. Probably the most significant items in the Statement of Operations for the two years are the increase in interest expense from $12,776 in fiscal 1997 to $39,026 in fiscal 1998, reflecting an increased level of borrowing, primarily from shareholders, the $132,545 provision taken in fiscal 1998 for losses from discontinued operations, reflecting the determination to shut down the brewpub/microbrewery activities, and the increase in general and administrative expenses from $604,579 in 1997 to $902,192 in 1998. Out of the approximately $300,000 increase, $200,000 was attributable to consulting services in connection with development of the Company's `NetGameLink(TM) product, for which payment was made in the Company's Common. Interest expense is expected to be substantially lower for the immediate future as a result of the forgiveness of certain debt in connection with termination of the Company's brewpub/microbrewery operations in January, 1999 as described below, and the one-time issuance of stock in lieu of future interest as described under "Certain Transactions." Nine months ended September 30, 1999 compared to nine months ended September 30, 1998. These two periods are in no way comparable, since the nine months ended September 30, 1998 reflect the Company's unsuccessful efforts to develop its brewpub/microbrewery business, whereas the corresponding nine months of 1999 reflect a redirection of the Company's efforts from the discontinued business to the development of the Company's `Net GameLinkTM System. For the first nine months of 1999, the Company had essentially no revenues. Administrative costs of $272,130 for the nine months ended September 30, 1999 compared to $612,508 for the nine months ended September 30, 1998 reflect the decision in January, 1999 to terminate the brewpub/microbrewery operations. The Company recorded a $67,849 gain on the sale of equipment for the nine months ended September 30, 1999. This gain reflects the fact that, as described below, the guarantors of the Company's bank debt secured by that equipment forgave approximately $65,000 in indebtedness when they acquired the bank's security interest in that equipment upon payment of that indebtedness, and later disposed of the equipment to reimburse themselves for a portion of these payments. The $21,333 reduction in interest charges for the nine months ended September 30, 1999 reflects an agreement by holders of that indebtedness to accept a one-time issuance of common stock in lieu of accrued and future interest. Connect Computer Group, Inc., the firm which has been largely responsible for development of the Company's kiosk and computer systems ("Connect Computer"), has performed its development work on the basis of an oral understanding or "gentleman's agreement" with the Company's Chief Executive Officer that if the Company is successful in marketing the product Connect Computer will be issued a significant equity position in the Company, the amount of which is yet to be determined. The parties have not explicitly agreed upon any method for determining whether marketing of the product has been successful. Because all the uncertainty as to the number of shares which may ultimately be issued for these services, the Company has not taken any charge to earnings for such services to date. However, the Company is proceeding on the assumption that it will be obligated to honor this oral commitment and expects that it will be able to reach agreement with Connect Computer through negotiations as to both whether marketing the product has been successful and the appropriate amount of equity to be issued to Connect Computer for its assistance. At that time an appropriate charge to earnings will be made. Liquidity and Capital Resources. As of September 30, 1999 the Company's liquidity position was extremely precarious. The Company had current liabilities of $908,780, including $524,111 in trade payables, most of which were overdue, short-term notes payable of $360,500, all of which were either demand indebtedness or were payable at an earlier date and were in default, and related accrued interest on the notes. Current assets available to meet those liabilities were only $4,709. To date the Company and First Brewery of Dallas I, Ltd., the predecessor to First Brewery of Dallas, Inc., the Company's wholly-owned Texas subsidiary corporation, met their capital requirements through capital contributions, loans from principal shareholders and officers, bank borrowings, and certain private placement offerings. For the nine months ended September 30, 1999, the net loss was $197,687, of which only $3,038 was accounted for by non-cash adjustments for depreciation and amortization. In addition, the Company was required to repay bank and other borrowings in the amount of $189,860, resulting in total cash requirements for the nine months of approximately $384,509. To cover most of these cash requirements, the Company allowed accounts payable and accrued expenses to increase by $135,497, disposed of assets relating to the closed-down brewpub operation for $127,374, issued additional shares of its common stock to investors for approximately $110,000, and accepted a capital contribution of the value of certain employees' services for $18,750. At the time the operations of First Brewery of Dallas, Inc. were terminated, all of that subsidiary's assets were pledged to secure indebtedness to SecurityBank of Arlington, Texas. That indebtedness had been personally guaranteed by the Company's directors and by another individual. Upon termination of the brewpub/microbrewery operations the guarantors were required to repay that indebtedness to the bank, and upon such payment the bank assigned the Company's notes and the related security to the guarantors. The guarantors accepted the security in full satisfaction of the debt and subsequently disposed of the assets securing the indebtedness to third parties at a loss. The effect of these transactions is included in the $143,781 gain from discontinued operations for the 9 months ended September 30, 1999. In December, 1999, the Company borrowed $20,000 on an unsecured basis from a bank. This loan was guaranteed by the Company's Chief Executive Officer and matures on March 16, 2000. It is anticipated that the Company will place First Brewery of Dallas, Inc. into voluntary liquidation under Chapter 7 on the Bankruptcy Act. Upon the anticipated conclusion of that proceeding, the Company's consolidated balance sheet will be improved by the elimination of $431,111 in trade payables, as those amounts are owed solely by the subsidiary. It would not affect the Company's debt service requirements, as all interest-bearing debt is owed by the parent company, and not the subsidiary. Even with the expected elimination of the First Brewery indebtedness, the Company will be unable to continue its operations or to commercially exploit its `Net GameLinkTM product in the absence of substantial additional financing. Based on the interest-bearing indebtedness presently outstanding, the Company's annual debt service requirements without taking into account any payments of principal are approximately $16,700. The Company is registering its outstanding common stock under the Securities Exchange Act of 1934 with a view toward making its equity securities more attractive to potential investors, and present plans call for the Company to seek additional financing through a private offering in the first or second quarter of 2000. The Company intends to pay approximately one-half of its interest-bearing debt pro rata in mid-spring. This would reduce the Company's annual debt service requirements by one-half. At the present time it has not completed any arrangements to obtain additional financing and there can be no assurance that it will be able to raise the necessary funds. In that connection, the Company intends to place its First Brewery of Dallas, Inc. subsidiary into voluntary bankruptcy. The Company is unable to predict the effect of the anticipated bankruptcy on its ability to raise additional funds to develop its gaming operations, but efforts to raise these funds could be adversely affected by the bankruptcy. If the Company is unable to raise additional funds, holders of its debt (all of whom are stockholders except for a bank lender of $20,000) would be in a position to shut down the Company's operations. Plan of Operations Until such time as the Company is able to obtain additional financing, it plans to limit its operations by conducting marketing efforts primarily on the basis of person-to-person contact with those who have previously expressed an interest in its system and limiting expansion of its operations to delivery of systems as permitted by internally-generated cash flow. This may require that the Company accept orders for new systems only on the basis of a down payment sufficient to cover the costs of manufacture of the system, which may in turn make it difficult to market additional systems. As indicated above, the Company expects to begin receiving revenues from operation of its present system at J. Gilligan's during the first quarter of 2000. However, these revenues are not expected to be sufficient to carry out any substantial advertising and marketing. The Company intends to seek financing through a private offering as promptly as practicable after its registration becomes effective, and if it is successful to apply a substantial portion of the proceeds toward marketing its systems. The Company will attempt to raise $500,000 to $1 million in that offering, which, together with anticipated revenues, should be sufficient for operations for the next 12 months. The Company will need to hire a qualified chief operating officer, and there is no assurance that it will be able to obtain one. It does not intend to hire any other employees during the next 12 months. At the present time, all officers and employees of the Company are serving without compensation except for Mr. Olivares, and the Company expects that this will continue to be the case until it has raised additional financing. If the Company is not able to raise the necessary funds to expand sales beyond those that may be generated by person-to-person contact, it will be forced to terminate its operations entirely. ITEM 3 - DESCRIPTION OF PROPERTY The Company's executive offices are located in Arlington, Texas, at the offices of Jones & Cannon, P.C. See "Certain Relationships and Related Transactions." Although the Company has not been charged rent for its office space, there is no assurance that these offices will remain sufficient for the Company's use, or that the gratis nature of this relationship will continue. ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of February 3, 2000, certain information with respect to the Company's equity securities believed by the Company to be owned of record or beneficially by (i) each Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company's outstanding equity securities; and (iii) all Directors and Executive Officers as a group. Shareholders' Name and Address Number of Shares Owned Percent L. Kelly Jones 1,866,980 (1) 15.6 440 North Center Arlington, Texas 76011 Jim Poynter 737,260 (2) 6.2 City Center Tower II 301 Commerce Street Suite 1205 Fort Worth, Texas 76102 Kimberly Biggs 42,460 (3) 0.4 2414 Green Willow Court Arlington, Texas 76001 John Aleckner 347,400 (4) 2.9 1901 Rockcliff Court Arlington, Texas 76012 All Officers and Directors As a Group (4 Persons) 2,994,100 (1)(2)(3)(4) 25.1 - ---------------------------------------------- (1) Excludes incentive conditional options to purchase 833,000 shares of Common Stock for $4,165.00, which are not exercisable within 60 days. (2) Excludes incentive conditional option to purchase 333,000 shares of Common Stock for $1,665.00 which is not exercisable within 60 days. The Company is obligated to redeem 287,531 of these shares for a nominal amount, which would reduce Mr. Poynter's ownership to 3.9%. (3) The Company is obligated to redeem 16,559 of these shares for a nominal amount, which would reduce Ms. Biggs's ownership to 0.22%. (4) Excludes incentive conditional option to purchase 333,000 shares of restricted Common Stock for $1665.00 which is not exercisable within 60 days. The beneficial owners of securities listed above have sole investment and voting power with respect to such shares. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person. In addition to the shareholders listed above, Connect Computer Group, Inc., the firm which has been largely responsible for development of the Company's kiosk and computer systems ("Connect Computer"), has performed its development work on the basis of an oral understanding or "gentleman's agreement" with the Company's president that if the Company is successful in marketing the product Connect Computer will be issued a significant equity position in the Company, the amount of which is yet to be determined. The parties have not explicitly agreed upon any method for determining whether marketing of the product has been successful, and the agreement may not be sufficiently definite to be an enforceable contract. However, the Company is proceeding on the assumption that it will be obligated to honor this oral commitment and expects that it will be able to reach agreement with Connect Computer through negotiations as to both whether marketing the product has been successful and the appropriate amount of equity to be issued to Connect Computer for its assistance. ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The following table sets forth the names and ages of the current directors and executive officers of the Company, the principal offices and positions with the Company held by each person, and the date such person became a director or executive officer of the Company.
Date became director or Name Age Positions executive officer - ---- --- --------- ----------------------- L. Kelly Jones 46 Chief Executive Officer and Chairman of the Board of Directors March 26, 1997 John F. Aleckner, Jr. 54 President and Director March 26, 1997 W. James Poynter 44 Vice-President and Director March 26, 1997 Kimberly Biggs 33 Secretary and Treasurer March 26, 1997
The members of the Company's board of directors are elected annually and hold office until their successors are elected and qualified. The Company's officers are chosen by and serve at the pleasure of its board of directors. Each of the officers and directors have positions of responsibility with businesses other than the Company and will devote only such time as they believe necessary on the business of the Company. There are no family relationships between any of the directors and executive officers. There was no arrangement or understanding between any executive officer and any other person pursuant to which any person was selected as an executive officer. L. Kelly Jones has since 1980 been a member of the law firm Jones & Cannon, a firm which he founded and which provides legal services to the Company. Mr. Jones is certified in the area of commercial real estate law by the Texas Board of Legal Specialization and is the author of an article, "Texas Mechanics' and Materialmen's Lien Laws: A Guide Through the Maze," which appeared in the Texas Bar Journal in March of 1985. Mr. Jones' areas of practice include corporate, construction, real estate, municipal law, and commercial litigation. Mr. Jones served from 1985 through 1989 on the Arlington City Council, and on the Stephen F. Austin State University Board of Regents from 1987 through 1993, where he was chairman from 1991 through 1993. He holds a J.D. from the University of Texas and a B.A. in Political Science from Stephen F. Austin State University John F. Aleckner, Jr. is a private investor. He was elected President of the Company as of December 14, 1999. From 1983 to 1989 Mr. Aleckner was vice-president and a shareholder of Research Polymers International Corporation, a compounder of specialty plastic materials which was acquired by another Company in 1987. From 1984 to 1998, he was vice-president of marketing and sales and a principal shareholder in UVTEC, Inc., a marketer of specialty plastic compounds which was, prior to the sale of Research Polymers, affiliated through common stock ownership with Research Polymers, and which acted as a broker in connection with purchases by Research Polymers and other companies. From 1971 to 1983 he was employed by Ciba-Geigy Corporation in various sales capacities. He holds a B.S. in chemistry from Case Institute of Technology W. James Poynter has been engaged in the real estate brokerage and construction business since 1979. He is the president of Tenant Realty Advisors, Inc., a subsidiary of the Poynter Scifres Company group. Tenant Realty Advisors, Inc. is a national tenant representation firm, representing office tenants in securing new office locations throughout the United States. He holds a B.A. from the University of Pennsylvania's Wharton School of Business Kimberly Biggs has for the last 10 years been legal administrator of the Arlington law firm of Jones & Cannon (which provides legal services for the Company) as legal administrator, a position which she holds to this date. SIGNIFICANT EMPLOYEES In addition to the officers and directors identified above, the following employees play a significant role in the Company's operations. Rey Cardino, age 39, serves as Director of Sales for the Company. Mr. Cardino was employed by the Hubcap Brewery & Kitchen from prior to its opening until the operation was closed in early 1999, at which time he was the general manager of its restaurant. Prior to that time he was employed by TGI Friday. Jose Olivares, age 32, serves as Director of Technical Support for the Company. Prior to taking the position he was the principal brewer of the Company's microbrewery operations. ITEM 6 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The Summary Compensation Table shows certain compensation information for services rendered in all capacities during each of the prior three (3) fiscal years. No bonuses or stock options were granted and no additional compensation was paid or deferred.
Securities Other Under-lying Annual Restricted Options/ Compen- Stock Name and Principal Position Year Salary Bonus sation Awards SARs - --------------------------- ---- ------ ----- ------- ------ ----------- L. Kelly Jones, Chief 1998 - - - - 833,000 (1) Executive Officer and Chairman of the Board of Directors 1997 - - - - - 1996 - - - - - John F. Aleckner, Jr., 1998 333,000 (2) President and Director 1997 - 1996 - W. James Poynter, Vice- 1998 - - - - 333,000 (2) President and Director 1997 - - - - - 1996 - - - - - Kimberly Biggs, Secretary and 1998 - - - - - Treasurer 1997 - - - - - 1996 - - - - -
(1) These options, incentive in nature, provide that Mr. Jones may purchase (i) 111,000 shares at par value subject to the condition precedent that the Company's shares are trading at $1.50 per share, (ii) 361,000 shares at par value subject to the condition precedent that the Company's shares are trading at $3.00 per share, (iii) 111,000 shares at par value subject to the condition precedent that the Company's shares are publicly trading at $4.50 per share, and (iv) the balance of 250,000 shares at par value subject to the condition precedent that the Company's shares are publicly trading at $5.00 per share. These incentive stock options were granted to Mr. Jones by the Company's board of directors (Mr. Jones abstaining) on December 12, 1997 and on December 14, 1998. (2) Messrs. Poynter and Aleckner each hold an option for 333,000 shares in the Company's Common Stock. These options, incentive in nature, provide that Messrs. Poynter and Aleckner may purchaser (i) 111,000 shares at par value subject to the condition precedent that the Company's shares are trading at $1.50 per share, (ii) 111,000 shares at par value subject to the condition precedent that the Company's shares are trading at $3.00 per share, and (iii) the balance of 111,000 shares at par value subject to the condition precedent that the Company's shares are publicly trading at $4.50 per share. These incentive stock options were granted to Messrs. Poynter and Aleckner by the Company's board of directors (Messrs. Poynter and Aleckner abstaining on the grant of their stock option) on December 14, 1998. 2000 INCENTIVE STOCK OPTION PLAN In February, 2000, the Board of Directors adopted, and a majority of the stockholders approved, the Company's 2000 Incentive Stock Option Plan, subject to approval of stockholders at the next annual meeting. The purpose of the plan is to enable the Company to attract, retain and motivate key employees who are important to the success and growth of the Company's business, and to create a long-term mutuality of interest between the stockholders of the Company and those key employees by granting them options to purchase the Company's Common Stock. Options granted under the plan may be either incentive stock options or non-statutory options. The Plan is to be administered either directly by the Board, or by a committee consisting of two or more outside directors (the "Committee"). Under the plan, options may be granted to key employees of the Company. The option price is to be fixed by the Committee at the time the option is granted. If the option is intended to to be an incentive stock option, the purchase price is to be not less than 100% of the fair market value of the Common Stock at the time the option is granted, or, if the person to whom the option is granted is the owner of 10% or more of the Company's Common Stock, 110% of such fair market value. The Committee is to specify when and on what terms the options granted to key employees are to become exercisable. However, no option may be exercisable after the expiration of 10 years from the date of grant or five years from the date of grant in the case of incentive stock options granted to a holder of 10% or more of the Company's common stock. In the case of incentive stock options, the aggregate fair market value of the shares with respect to which the options are exercisable for the first time during any calendar year may not exceed $100,000 unless this limitation has ceased to be in effect under Section 422 of the Internal Revenue code. In the event of a change of control of the Company, all outstanding options become immediately exercisable in full. In the event of an employee's death, or following the employee's retirement at or after age 65 or before age 65 with the consent of the Committee, outstanding options may be exercised for a period of one year from the applicable date of death or retirement. If the employee's employment is terminated for reasons other than death or retirement, the options remain exercisable for a period of three months after such termination unless termination was for cause, in which case all outstanding options are immediately canceled. 1,500,000 shares of Common Stock have been initially authorized for issuance under the Plan. Under the Plan, eligible individuals may, at the discretion of the Committee, be granted options to purchase shares of Common Stock. However, no eligible individuals may be granted options for more than 500,000 shares in any calendar year. The option price and number of shares covered by an option will be adjusted proportionately in the event of a stock split, stock dividend, etc., and the Committee is authorized to make other adjustments to take into consideration any other event which it determines to be appropriate to avoid distortion of the operation of the Plan. In the event of a merger or consolidation, option holders will be entitled to acquire the number and class of shares of the surviving corporation which they would have been entitled to receive after the merger or consolidation if they had been the holders of the number of shares covered by the options. If the Company is not the surviving entity in a merger and consolidation, the Committee may in its discretion terminate all outstanding options, and in that event option holders will have 20 days from the time they received notice of termination to exercise all their outstanding options. The Plan terminates 10 years from its effective date unless terminated earlier by the Board of Directors or the stockholders. Proceeds of the sale of shares subject to options under the Plan are to be added to the general funds of the Company and used for its general corporate purposes. The Company has not granted any options under the Plan. COMPENSATION OF DIRECTORS No Director receives or has received any compensation from the Company for service as a member of the Board of Directors. ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Jones, the president of the Company, is also president of Jones & Cannon, a Texas professional corporation, which has provided legal services to the Company and which may continue to provide legal services to the Company in the future. During the fiscal year ended December 31, 1998 the Company incurred legal fees of $66,331 to that firm. The Company currently owes Jones & Cannon an amount in excess of $83,550 for legal services rendered. Jones & Cannon has also been providing the limited amount of office space required by the Company and certain clerical and other services required for the Company's operations without charge under an oral agreement with Mr. Jones. In December, 1997, the Company agreed to redeem at par value an aggregate of 1,505,399 shares of the Common Stock held by the ten former shareholders of First Brewery of Dallas, Inc., a company the Company had acquired in April, 1997. The aggregate redemption price was to have been $7,527.02. That redemption was to have occurred no later than March 31, 1998. However, the Company did not have sufficient funds to honor this commitment and is currently in default under the agreement. Messrs. Jones, Poynter, and Aleckner and Ms. Biggs were among those whose shares were to have been redeemed. In February, 2000, the Company and Messrs. Jones and Aleckner agreed that the shares that were to have been redeemed from those two individuals would not be redeemed. The Company anticipates that the remaining shares will be redeemed during the first quarter of 2000. During the period from July, 1997 through May, 1998 Mr. Jones, the president of the Company, lent the Company an aggregate of $90,000 for use as operating capital. Of this amount, $65,000 was subsequently eliminated when Mr. Jones accepted in full satisfaction of that debt certain equipment securing bank debt which Mr. Jones had guaranteed, leaving a balance of $25,000. This indebtedness is evidenced by an unsecured demand promissory note at an annual interest rate of 12% per annum. ITEM 8 - DESCRIPTION OF SECURITIES The Company changed its jurisdiction of incorporation from Nevada to Texas in February, 2000. The Company's Articles of Incorporation, as in effect following the change, authorize the issuance of 50 million shares of Common Stock, of a par value of $.005 per share, of which 11,922,150 shares were issued and outstanding as of January 31, 2000, and 2,000,000 shares of Preferred Stock, par value $0.005 per share, none of which has been issued. COMMON STOCK Holders of shares of Common Stock are entitled to one vote for each share on all matters to be voted on by the shareholders. Holders of Common Stock have no cumulative voting rights. Holders of shares of Common Stock are entitled to share ratably in dividends, if any, as may be declared, from time to time by the Board of Directors in its discretion, from funds legally available therefor. In the event of a liquidation, dissolution, or winding up of the Company, the holders of shares of Common Stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. Holders of Common Stock have no preemptive rights to purchase the Company's common stock. There are no conversion rights or redemption or sinking fund provisions with respect to the common stock. The Company's common stock is covered by a Securities and Exchange Commission rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors, generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company's securities and may also affect the availability ability of purchasers of the Company's stock to sell their shares in the secondary market. It may also cause fewer brokers to be willing to make a market in the Company's common stock and it may affect the level of news coverage the Company receives. PREFERRED STOCK The Company is authorized to issue 2,000,000 shares of Preferred Stock with such voting rights, designations, preferences, limitations and relative rights as may be determined by the Board of Directors. Although the Company has no current plans to issue any shares of Preferred Stock, the issuance of Preferred Stock or of rights to purchase Preferred Stock could be used to discourage an unsolicited acquisition proposal. In addition, the possible issuance of Preferred Stock could discourage a proxy contest, make more difficult the acquisition of a substantial block of the Company's Common Stock, or limit the price that investors might be willing to pay in the future for shares of the Company's Common Stock The Company believes that the Preferred Stock will provide the Company with increased flexibility in structuring possible future financing and acquisitions, and in meeting other corporate needs that might arise. Having such authorized shares available for issuance will allow the Company to issue shares of Preferred Stock without the expense and delay of a special stockholders' meeting. The authorized shares of Preferred Stock, as well as shares of Common Stock, will be available for issuance without further action by stockholders, unless such action is required by applicable law or the rules of any stock exchange on which the Company's securities may be listed. CERTAIN ANTI-TAKEOVER PROVISIONS Under the Company's Articles of Incorporation, the power to alter, amend, suspend or repeal the Company's bylaws requires the affirmative vote of not less than a majority of the "Continuing Directors" of the Company. A Continuing Director is a member of the Board who is not an affiliate or associate of a holder of 10% or more of the Company's voting stock ("Related Person") and who was a member of the Board of Directors immediately prior to the time the 10% or more holder became the beneficial owner of 10% or more of such voting stock. The Articles of Incorporation also require that shareholder votes be taken only at a meeting, and prohibit action by written consent. In addition, the Company may not effect a "Business Combination" in which a Related Person has an interest without the vote of at least 80% of its voting stock (voting as a single class) including the vote of not less than 50% of the outstanding shares of voting stock not beneficially owned by the Related Person. The additional voting requirements described in this paragraph does not apply if the Board of Directors by a vote of not less than a majority of the Continuing Directors then holding office expressly approves in advance of the acquisition of shares that resulted in the Related Person's becoming such, or approves the Business Combination before the Related Person became a Related Person. Those requirements also do not apply if certain conditions are met, including among other things, that the cash or fair market value of property received by holders in the Business Combination is not less than the highest price per share paid by the Related Person in acquiring any of its shares, and the Related Person does not receive the benefit of any loans, advances, guarantees or other financial assistance or tax advantages provided by the Company except proportionately as a shareholder, and that the transaction be covered by a fairness opinion of a reputable investment banking firm if deemed advisable by a majority of the Continuing Directors. The term "Business Combination" includes among other things a merger, consolidation or share exchange involving the Company or a subsidiary, a sale, mortgage or other disposition of a substantial part of the Company's assets, the issuance of additional securities, a reclassification which would increase the voting power of a Related Person or a liquidation or dissolution of the Company. These provisions might discourage an unsolicited acquisition proposal that could be favorable to stockholders. They could also discourage a proxy contest, make more difficult the acquisition of a substantial block of the Company's Common Stock or limit the price that investors might be willing to pay in the future for shares of the Company's Common Stock. The Company is also subject to Article 13 of the Texas Business Corporation Act. That Article prohibits the Company from engaging in a business combination with an affiliated shareholder, generally defined as a person holding 20% or more of the Company's outstanding voting stock, during the three-year period immediately following the affiliated shareholder's share acquisition date, unless the business combination or acquisition by the affiliated shareholder was approved by o the Company's Board of Directors before the affiliated shareholder's share acquisition date, or o two-thirds of the holders of the outstanding voting shares of the Company not beneficially owned by the affiliated shareholder at a meeting of shareholders and not by written consent, called for that purpose not less than six months after the affiliated shareholder's share acquisition date. Transfer Agent. Continental Stock Transfer, Inc. of New York is the Company's transfer agent. CONVERTIBLE PROMISSORY NOTES/PROMISSORY NOTES The Company has outstanding $100,000 in principal amount of its Convertible Promissory Notes. These notes bear interest at the rate of 12 percent per annum, call for monthly payments of interest, and mature May 10, 1998 (the "Convertible Promissory Notes"). The holder of each Convertible Promissory Note has a non-assignable option to purchase 7,500 shares of Common Stock at par value. Alternatively, each holder has the right to convert his Convertible Promissory Note at the rate of 1.25 shares of Common Stock for each $1.00 in principal amount of notes. The Company has outstanding $25,000 in principal amount of a promissory note due to L. Kelly Jones upon demand. This note bears interest at the rate of 12 percent per annum. The Company has outstanding $235,500 in principal amount of promissory notes payable to other shareholders, all of which are in default. These notes provide for an initial issuance of shares of common stock in lieu of interest, all of which (913,000 shares) have been issued. Accordingly, no additional interest is accruing on these notes. However, $103,500 in principal amount of such promissory notes provide for a per diem issuance of common stock as a penalty for late payment. To date, the per diem issuance would be in excess of 2,000,000 shares of the Company's Common Stock. The Company has received an opinion from counsel, Richard L. Wright, P.C., that the penalty provisions are unenforceable as illegal usury under applicable Texas law. The Company believes that upon full payment of these promissory notes along with non-usurious monetary interest, this matter of additional shares for late payment by the Company will be amicably resolved between the Company and the holder of these promissory notes. However no assurance can be given in that regard. PART II ITEM I - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS MARKET INFORMATTON The Company's Common Stock is quoted under the symbol "GAMZ" on the OTC Electronic Bulletin Board. The following table sets forth the high and low bid prices for shares of the Company Common Stock for the periods noted, as reported by the OTC Electronic Bulletin Board. Quotations are on an as-adjusted basis to reflect a 1 for 5 reverse split effected in 1997 and reflect inter dealer prices, without retail markup, mark down or commission and may not represent actual transactions. BID PRICES YEAR PERIOD HIGH LOW 1997 First Quarter $0.50 $0.50 Second Quarter 0.25 0.25 Third Quarter 1.25 0.25 Fourth Quarter 1.25 0.25 1998 First Quarter 1.25 0.25 Second Quarter 2.25 0.25 Third Quarter 0.50 0.25 Fourth Quarter 0.875 0.375 1999 First Quarter 0.6875 0.09375 Second Quarter 1.0313 0.26 Third Quarter 1.2188 0.09 Fourth Quarter 0.70 0.065 The Company's common stock was not quoted on the OTC Bulletin Board during the first quarter of 1997. As of February 15, 2000 the reported bid price for the Company's common stock was $0.54 per share. SHAREHOLDERS As of January 21, 2000, the Company had 11,922,150 shares of Common Stock outstanding held by 103 shareholders of record. DIVIDENDS The Company has not paid cash dividends on its Common Stock in the past and does not anticipate doing so in the foreseeable future. ITEM 2 - LEGAL PROCEEDINGS The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a proceeding commenced June 14, 1999 in the County Court at Law Number Two, Tarrant County, Texas by Ben Strong individually and d/b/a Benco & Associates. This litigation arose out of the construction of a brewpub which First Brewery acquired from its predecessor in interest, and alleges that the transaction in which First Brewery of Dallas, Inc. acquired the assets of the predecessor in interest constituted a fraudulent conveyance. The amount sought is approximately $58,000. The Company believes that this claim is without merit, and anticipates that it will be eliminated in any event through the filing of a Chapter 7 bankruptcy proceeding by First Brewery of Dallas, Inc. The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a proceeding commenced June 30, 1999 in the County Court at Law Number Three, Dallas County, Texas by Alliant Foodservice, Inc. seeking to recover approximately $19,000 allegedly owed for foodstuffs furnished to the subsidiary. The Company anticipates that this claim will be eliminated through the filing of a Chapter 7 bankruptcy proceeding by First Brewery of Dallas, Inc. In January, 1999, the Company commenced an action in the 141st District Court of Tarrant County, Texas, against Robert Elton Bragg, III, the Company's former president. The suit alleges, among other things, that Mr. Bragg, while President of the Company, misappropriated its funds by paying himself consulting fees although no meaningful services were performed for the Company, and that he threatened, without justification, to rescind the March 1997 stock for stock transaction pursuant to which the Company acquired its brewpub/microbrewery operations. It seeks, among other things, (i) a declaratory judgment that the March, 1997 agreement, is a valid and binding agreement, (ii) an injunction prohibiting Bragg from selling his shares in the Company, and (iii) damages for misappropriation of the Company's funds. As permitted under Texas law, the Company has not specified in its complaint the amount of damages sought from Mr. Bragg. In November, 1999, the Company commenced an action against Kelly Hart and Mitch Geller d/b/a Nu-Design in the 348th District Court of Tarrant County, Texas. This suit alleges that Nu-Design repeatedly failed to provide software for which the Company had contracted for its `Net GameLink(TM) system, that the Company was forced to obtain a substitute for the promised software from a third party, and that after learning of the Company's purchase of the replacement software the defendants wrongfully withheld assets of the Company. As permitted under Texas law, the Company seeks damages of an as yet unspecified amount. ITEM 3 - CHANGES IN AND DISAGREEMENTS WTTH ACCOUNTANTS Inapplicable ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES Upon its organization in January, 1996, the Company issued 2,100,000 of its Common Stock to its promoters and a limited number of third party investors at a purchase price of $0.02 per share for an aggregate purchase price of $42,000. This sale was made in reliance upon the exemption contained in Section 4(2) of the Securities Act of 1933, as amended (the "Act"). In May of 1996, the Company sold 400,000 units at a price of $0.125 per unit to a number of individual investors for an aggregate purchase price of $50,000. Each unit consisted of one share of Common Stock and two warrants, each warrant authorizing the holder to buy one share of the Company's Common Stock at the purchase price of $0.50. This sale was made in reliance upon the exemption contained in Rule 504 of Regulation D under the Act. In March of 1997, the Company sold 633,000 shares of the Company's Common Stock at a price of $.01 per share, for an aggregate purchase price of $63,300. This sale was made in reliance on the exemption contained in Rule 504 of Regulation D under the Act . In March of 1997, the Company issued 3,860,000 shares of its Common Stock to 10 shareholders of First Brewery of Dallas, Inc., then operating the Hubcap Brewery & Kitchen of Dallas, Texas, in exchange for all of the outstanding shares of that corporation. The shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In conjunction with the stock-for-stock swap discussed in the preceding paragraph, the Company redeemed 193,000 shares of its Common Stock from Adams Bragg & Company, Inc. in exchange for a Gateway computer valued at $2,000. In September of 1997 the Company issued 490,102 shares of its Common Stock at $0.50 per share for an aggregate purchase price of $245,051 upon exercise of the warrants originally issued in 1996. The shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In December of 1997, the Company issued 425,000 shares of its Common Stock to Adams Bragg & Company, Inc., in exchange for its proprietary rights in the 'Net GameLinkTM idea, which was valued by the Company's Board of Directors at $2,125. The shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In March of 1998, the Company issued 120,000 shares of its Common Stock to certain of its existing shareholders as additional consideration for a loan in the aggregate amount of $50,000. The shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. Between December, 1997 and February, 1998, the Company issued $100,000 in principal amount of its convertible subordinated notes to certain of its existing shareholders and one additional sophisticated investor. These notes were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In May of 1998, the Company issued 300,000 shares of its Common Stock to Net Gameport, Inc., an accredited investor, in payment for financial and public relations consulting services valued at $75,000. These notes were issued in reliance upon the private offering exemptions contained in Section 4(2) and the accredited investor exemption contained in Section 4(6) of the Act. In June of 1998, the Company issued 300,000 shares of its Common Stock to Capital & Media Partners, Inc. in payment for financial and public relations consulting services valued at $150,000. These shares were issued in reliance upon the private offering exemption contained in Section 4(2) and the accredited investor exemption contained in Section 4(6) of the Act. In September of 1998, the Company issued $123,000 in principal amount of promissory notes to existing shareholders and issued 493,000 shares of its Common Stock in lieu of future interest on such notes. These notes and shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In November of 1998, the Company issued 60,000 shares of its Common Stock to a current shareholder who was an accredited investor at $0.25 per share for an aggregate purchase price of $15,000. These shares were issued in reliance upon the private offering exemption contained in Section 4(2) and the accredited investor exemption contained in Section 4(6) of the Act. In December of 1998, the Company issued 800,000 shares of its Common Stock to an individual accredited investor in payment for shareholder relations and strategic planning services valued at $200,000. These shares were issued in reliance upon the private offering exemption contained in Section 4(2) and the accredited investor exemption contained in Section 4(6) of the Act. In January of 1999, the Company issued issued $88,500 in principal amount of promissory notes to existing shareholders and issued 240,000 shares of its Common Stock in lieu of future interest on such notes. These notes and shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In January of 1999, the Company issued 300,000 shares of its Common Stock to its Chief Executive Officer and two employees at $0.005 per share upon the exercise of stock options for an aggregate of $1,500. The shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In April of 1999, the Company issued in aggregate of 1,000,000 shares of its Common Stock to two investors at $0.06 per share for an aggregate of $60,000, and an additional 100,000 shares also valued at $0.06 per share for an aggregate of $6,000, to the law firm handling the transaction and a financial services firm in payment for their services in connection with the transaction. The shares were issued in reliance upon the limited offering exemption of Rule 504 under the Act. In July, 1999, the Company issued 119,048 shares of its Common Stock at $0.42 per share for an aggregate of $50,000. These shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In October of 1999, the Company issued 250,000 shares of its Common Stock to an accredited investor at $0.10 per share for an aggregate of $25,000. Also in October of 1999, the Company issued 25,000 shares of its common stock in partial payment of legal fees incurred in connection with registration of its Common Stock under the Securities Exchange Act of 1934. These shares were issued in reliance upon the private offering exemption contained in Section 4(2) and the accredited investor exemption contained in Section 4(6) of the Act. In January of 2000, the Company issued 100,000 shares of its Common Stock to its Chief Executive Officer as compensation for his guaranty of an unsecured bank loan to the Company in the amount of $20,000. These shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS The Articles of Incorporation generally limit the personal liability of directors for monetary damages for any act or omission in their capacities as directors to the fullest extent permitted by law. In addition, the Company's bylaws provide that the Company shall indemnify and advance or reimburse reasonable expenses incurred by, directors, officers, employees or agents of the Company, to the fullest extent that a Company may grant indemnification to a director under the Texas Business Corp. Act, and may indemnify such persons to such further extent as permitted by law. PART F/S FINANCIAL STATEMENTS GAMECOM, INC. CONSOLIDATED FINANCIAL STATEMENTS As of and for the Years ended December 31, 1998 and 1997 and the Nine Months ended September 30, 1999 and 1998 (Unaudited) GAMECOM, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors
Consolidated Financial Statements of GameCom, Inc. and subsidiary: Consolidated statement of Financial Condition as of December 31, 1998 and December 31, 1997, and September 30, 1999 (Unaudited)..................................1 Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 and nine months ended September 30, 1999 and 1998 (unaudited)............2 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1998 and 1997 and the nine months ended September 30, 1999 (Unaudited)............................................................................3 Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 and nine months ended September 30, 1999 and 1998 (Unaudited)............4 Notes to Consolidated Financial Statements................................................5
INDEPENDENT AUDITORS REPORTS Thomas O. Bailey and Associates, PC Certified Public Accountants Report of Independent Public Accountants To the Shareholders of The Schooner Brewery Incorporated We have audited the accompanying balance sheet of The Schooner Brewery Incorporated as of December 31, 1998 and the related statement of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material 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 estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above, revised as described in Note 15, present fairly, in all material respects, the financial position of The Schooner Brewery Incorporated as of December 31, 1998 and the results of their operations and their cash flows in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. During the year ended December 31, 1998, the Company incurred a net loss of $681,018. Future working capital requirements are dependent on the Company's ability to restore and maintain profitable operations, to restructure it's financing arrangements, and to continue it's present short-term financing, or obtain alternative financing as required. It is not possible to predict the outcome of future operations or whether the necessary alternative financing may be arranged, if needed. Those conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Thomas O. Bailey and Associates, P.C. Dallas, Texas June 17, 1999, except for Note 15 as to which the date is February 15, 2000. Thomas O. Bailey and Associates, PC Certified Public Accountants Report of Independent Public Accountants To the Shareholders of The Schooner Brewery Incorporated We have audited the accompanying balance sheet of The Schooner Brewery Incorporated as of December 31, 1997 and the related statement of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material 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 estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Schooner Brewery Incorporated as of December 31, 1997 and the results of their operations and their cash flows in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. During the year ended December 31, 1997 the Company incurred a net loss of $576,520. Future working capital requirements are dependent on the Company's ability to restore and maintain profitable operations, to restructure its financing arrangements, and to continue its present short-term financing, or obtain alternative financing as required. It is not possible to predict the outcome of future operations or whether the necessary alternative financing may be arranged, if needed. Those conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Thomas O. Bailey and Associates, P.C. Certified Public Accountants Dallas, Texas September 11, 1998 GAMECOM, INC. (Fomerly The Schooner Brewery Incorporated) Consolidated Balance Sheet
(Unaudited) December 31, September 30, ------------- 1998 1999 1998 ---- ---- ---- ASSETS ------ Current assets Cash $ 5,666 $ 4,529 $ 16,427 Accounts receivable 1,547 180 6,999 Inventories -- -- -- ----------- ----------- ----------- Total current assets 7,213 4,709 23,426 Property and equipment Equipment, furniture and fixtures 473,324 91,150 605,868 Accumulated (348,526) (5,614) (467,215) ----------- ----------- ----------- Net property and equipment 124,798 85,536 138,653 Other assets Organization cost 38,490 -- 41,697 Security deposits 12,033 8,989 12,033 ----------- ----------- ----------- Total other assets 50,523 8,989 53,730 ----------- ----------- ----------- Total assets $ 182,534 $ 99,234 $ 215,809 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities Trade payables $ 388,344 $ 524,111 $ 374,632 Accrued interest 24,439 24,169 18,177 Notes payable to shareholders 444,041 360,500 365,811 Short-term notes payable to bank 106,319 -- 116,398 ----------- ----------- ----------- Total current liabilities 963,143 908,780 875,018 Shareholders' equity Capital stock 50,000,000 shares authorized par value $.005; 9,788,102, 11,547,150 and 8,928,102 issued and outstanding respectively, 48,940 57,735 44,640 of which shares outstanding, in each year, 1,505,399 are redeemable for cash in the amount of $7,527 Paid-in capital 914,944 1,074,899 697,994 Retained earnings (1,744,493) (1,942,180) (1,401,844) ----------- ----------- ----------- Total shareholders' equity (780,609) (809,546) (659,210) ----------- ----------- ----------- Total liabilities and shareholder equity $ 182,534 $ 99,234 $ 215,808 =========== =========== ===========
GAMECOM, INC. (Formerly The Schooner Brewery Incorporated) Consolidated Statement of Operations
Nine Month Ended Year Ended December 31, ----------------------- 1998 1997 1999 1998 ---- ---- ---- ---- Revenues Restaurant sales $ 469,357 $ 361,074 $ 5,431 $ 357,675 Other (7,500) 9,500 -- -- ------------ ------------ ------------ ------------ Total revenues 461,857 370,574 5,431 357,675 Cost of sales Food, beer, wine and merchandise 182,334 126,505 (2,893) 125,561 Salaries and labor 268,826 161,574 27,365 194,440 ------------ ------------ ------------ ------------ Total cost of sales 451,160 288,079 24,472 320,001 ------------ ------------ ------------ ------------ Gross profit 10,697 82,495 (19,041) 37,674 General and administrative expense Administrative cost 902,192 604,579 272,130 612,508 Interest 39,026 12,776 8,770 30,103 Depreciation and amortization 63,952 41,660 3,038 46,888 ------------ ------------ ------------ ------------ 1,005,170 659,015 283,938 689,499 ------------ ------------ ------------ ------------ Loss from operations (994,473) (576,520) (302,979) (651,825) Gain or (loss) from discontinued operations (132,545) -- 143,781 (132,545) ------------ ------------ ------------ ------------ Cummulative effect of change in accounting principle -- -- (38,489) -- ------------ ------------ ------------ ------------ Net loss $ (1,127,018) $ (576,520) $ (197,687) $ (784,379) ============ ============ ============ ============ Per share amounts: Loss from operations per share $ (0.118) $ (0.097) $ (0.028) $ (0.080) ============ ============ ============ ============ Gain/(loss) from discontinued operations $ (0.016) $ -- $ 0.013 $ (0.016) ============ ============ ============ ============ Loss from cummulative effect of change $ -- $ -- $ (0.004) $ -- ============ ============ ============ ============ Net loss per share $ (0.134) $ (0.097) $ (0.018) $ (0.096) ============ ============ ============ ============ Average outstanding shares 8,435,721 5,923,784 10,838,550 8,165,542 ============ ============ ============ ============
THE SCHOONER BREWERY INCORPORATED Consolidated Statement of Stockholders' Equity For the year ended December 31, 1998
Shares of Additional Total Common Common Paid-in Accumulated Stockholders' Stock Stock Capital Deficit Equity ----- ----- ------- ------- ------ Balance December 31, 1997 7,715,102 $ 38,575 $ 460,309 $ (617,475) $ (118,591) Stock issued for Consulting Services 600,000 3,000 22,000 225,000 Contribution of capital for services 18,750 18,750 Stock issued for loan incentives 613,000 3,065 (3,065) -- Loss for the nine months ended September 30, 1998 -- -- -- (784,370) (784,370) --------- ----------- ----------- ----------- ----------- Balance at September 30, 1998 8,928,102 44,640 697,994 (1,401,845) (659,211) --------- ----------- ----------- ----------- ----------- Stock issued in compensation for services 800,000 4,000 196,000 200,000 Sale of stock 60,000 300 14,700 15,000 Contribution of capital for services -- -- 6,250 -- 6,250 Net loss for the three months ended December 31, 1998 -- -- -- (342,648) (342,648) ----------- ----------- ----------- ----------- ----------- Balance December 31, 1998 9,788,102 $ 48,940 $ 914,944 $(1,744,493) $ (780,609) ----------- ----------- ----------- ----------- ----------- Stock issued as incentive for loans 240,000 1,200 (1,200) -- -- Stock issued in compensation for services 100,000 500 2,000 -- 2,500 Sales of stock 1,119,048 5,595 104,405 110,000 Contribution of capital for services -- -- 18,750 -- 18,750 Exercise of stock options 300,000 1,500 36,000 -- 37,500 Loss for the nine months ended September 30, 1999 -- -- -- (197,687 (197,687) ----------- ----------- ----------- ----------- ----------- 11,547,150 $ 57,735 $ 1,074,899 $(1,942,180 $ (809,546) =========== =========== =========== =========== ===========
GAMECOM, INC. (Formerly The Schooner Brewery Incorporated) Consolidated Statement of Cash Flows
Nine Month Ended Year Ended December 31, September 30 ------------------------ ------------ 1998 1997 1999 1998 ---- ---- ---- ---- Cash flows from operating activities Loss from operations $ (994,475) $ (576,520) $ (302,979) $ (651,825) Loss from discontinued operations (132,545) -- 143,781 (132,545) Cummulative effect of change in accounting principle -- -- (38,489) -- ----------- ----------- ----------- ----------- Net loss (1,127,020) (576,520) (197,687) (784,370) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 183,667 28,830 3,038 169,811 (Increase) decrease in: Accounts receivable-trade 483 2,908 1,367 (4,969) Prepaid and other assets 20,146 (10,024) 41,534 16,939 Increase (decrease) in: Accounts payable and accrued expense 122,601 205,198 135,497 102,631 ----------- ----------- ----------- ----------- Net cash provided by operating activities (800,121) (349,608) (16,251) (499,963) Cash flows from investing activities Sale of capital assets -- -- 127,374 -- Capital expenditures (2,081) (15,193) (91,150) (2,078) ----------- ----------- ----------- ----------- Net cash used by investing activities (2,081) (15,193) 36,224 (2,078) Cash flow from financing activities Short-term notes payable 311,452 76,962 (189,860) 243,302 Increase in capital stock and paid-in capital 465,001 308,350 168,750 243,751 ----------- ----------- ----------- ----------- Net cash provided by financing activities 776,453 385,312 (21,220) 487,053 Net increase in cash and cash equivalents (25,749) 20,511 (1,137) (14,988) Cash and cash equivalents beginning of period 31,415 10,904 5,666 31,415 ----------- ----------- ----------- ----------- Cash and cash equivalents end of period $ 5,666 $ 31,415 $ 4,529 $ 16,427 =========== =========== =========== =========== Interest paid during the year $ 19,701 $ 7,932 $ 9,040 $ 11,926 =========== =========== =========== =========== Income taxes paid during the year $ -- $ -- $ -- $ -- =========== =========== =========== ===========
THE SCHOONER BREWERY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SIGNIFICANT ACCOUNTING POLICIES Principal Business Activity The Schooner Brewery Incorporated operates a restaurant and brewpub through it's wholly owned subsidiary, First Brewery of Dallas, Inc. Principals of Consolidation The accompanying consolidated financial statements include the accounts of the parent company, The Schooner Brewery Incorporated ("Company") and its subsidiary after elimination of significant intercompany accounts and transactions. Concentration of Credit Risk The Company maintains deposits within federally insured limits. Statement of Financial Accounting Standards No. 105 identifies these items as concentration of credit risk requiring disclosure, regardless of the degree of risk. The risk is managed by maintaining all deposits in high quality financial institutions. Use of Estimates in Preparation of Financial Statements The preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Fair Value of Financial Instruments The fair value of all reported assets and liabilities which represent financial instruments (none of which are held for trading purposes) approximate the carrying value of such amounts. Inventories Inventories are stated at the lower of cost or market. Cash Flow Presentation For purposes of the Statement of Cash Flows, cash equivalents include time deposits, certificates of deposits and all liquid debt instruments with original maturates of three months or less. Earnings Per Share Primary earnings per share amounts are computed based upon the weighted average number of shares actually outstanding. The number of shares used in the computation was 8,435,721. Property, Equipment and Depreciation Property and equipment are valued at cost. Maintenance and repair costs are charged to expenses as incurred. Gains and losses on disposition of property and equipment are reflected in income. Depreciation is computed on the straight-line method for financial reporting purposes, based on the estimated useful lives of the assets. NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition and Accounts Receivable Sales are made for cash or they are charged to credit cards. The credit card sales are recorded as accounts receivable and collected within the following two-week period. Revenues are recognized at the point sales are made. Intangibles Intangibles (Organization Cost) consist of cost incurred in the organization of the Company and are amortized over five years. For the current year amortization expense was $12,830. Common Stock Issued for Services The Company has in the past issued stock for service of non-employees on a negotiated basis where the value of the services is recorded and stock issued based upon the agreed number of shares issued for the value of the services performed. NOTE 2 GOING CONCERN As shown in the accompanying financial statements the Company has incurred losses from operations and has a deficit working capital. The Company's current net operating revenues are not sufficient to provide adequate cash flow required to pay all of the Company's administrative expenses. For this reason the Company must rely on short-term borrowing and equity financing. The Company's subsidiary ceased operations of its business on January 10, 1999 the effect of which eliminates sources of cash flow from operations. Because the subsidiary was generating negative cash flow Management closed those operations to mitigate further deterioration. Management has begun efforts for a new line of business and anticipates additional equity funding to overcome these problems. NOTE 3 DISCONTINUED OPERATIONS Operations of the Company's brewpub and restaurant was discontinued in early 1999 and was being phased out in 1998. For the year 1998 the Company identified the loss that would be incurred as the result of the discontinued operations. The loss to be incurred related to the equipment and other fixed assets that would be impaired and a loss sustained upon their disposition. The provision for the loss was provided based on those assessments. NOTE 4 ACQUISITION OF SUBSIDIARY In March 1997 the Company acquired all of the outstanding stock of First Brewery of Dallas, Inc. ("First") by exchanging 19,300,000 shares of the Company's common capital stock for all of the outstanding capital stock of First whereby First became the wholly owned subsidiary of the Company. This transaction was accounted for as a "Pooling of Interest." Prior to the pooling the Company had recorded a net loss for the current year of approximately $175,000. Prior to the acquisition by the Company, First had acquired the interest of all of the partners in First Brewery of Dallas, Ltd., a limited partnership by issuing its capital stock in exchange for all of the partners' interest in the partnership. The partnership had operated a restaurant and brewpub in the West End district of Dallas, Texas since June 1994. On July 1, 1997, First acquired all of the assets of the partnership in exchange for 49,500 shares of common stock of First. NOTE 5 NOTES PAYABLE Notes payable at December 31, 1998 consisted of the following: Note payable to bank due March 1, 1999 with interest at 9.5% $ 56,319 Note payable to bank due March 19, 1999 with interest at 11% 50,000 Note payable to stockholder due on demand with interest at 8% 118,541 Notes payable to stockholders due June 10, 1998, interest at 12% 100,000 Notes payable to stockholders due from August 1through December 2, 1998 with no interest 162,000 Notes payable to stockholders due in February and March 1999 Without interest 63,500 -------- $550,360 -------- The notes due from stockholders due in dates through December 31, 1998 were in default at December 31, 1998. The notes due to stockholders due in 1999 have subsequently become in default. Notes payable to stockholders in the amount of $100,000 were issued by the Company in increments of $10,000 having a maturity date of May 10, 1998. The holder of each of these Convertible Promissory Notes has a non-assignable option to purchase 7,500 shares of Common Stock at par value. Alternately, each holder has the right to convert their Convertible Promissory Note to equity in the form of 12,500 shares of Common Stock. None of the notes have been converted. NOTE 6 STOCKHOLDERS' EQUITY Common Stock The Company's authorized number of Common Shares that can be issued is 50,000,000 shares with a par value of $.005. The number of shares outstanding at December 31, 1998 was 9,788,102; of this amount 1,505,399 were redeemable for the total amount of $7,527. The Company's board of directors adopted a resolution on December 12, 1997 to redeem 1,505,399 shares of the Common Stock from certain shareholders to be redeemed from the proceeds of a subsequent stock offering no later than March 31, 1998. At December 31, 1998 none of the stock has been redeemed. Incentive Stock Options [Non-Compensation] These options, incentive in nature, provide that Mr. Jones may purchase (i) 111,000 shares at par value subject to the condition precedent that the Company's shares are trading at $1.50 per share, (ii) 361,000 shares at par value subject to the condition precedent that the Company's shares are trading at $3.00 per share, (iii) 111,000 shares at par value subject to the condition precedent that the Company's shares are publicly trading at $4.50 per share, and (iv) the balance of 250,000 shares at par value subject to the condition precedent that the Company's shares are publicly trading at $5.00 per share. These incentive stock options were granted to Mr. Jones by the Company's board of directors (Mr. Jones abstaining) on December 12, 1997 and on December 14, 1998. Messrs. Poynter and Aleckner each hold an option for 333,000 shares in the Company's Common Stock.These options, incentive in nature, provide that Messrs. Poynter and Aleckner may purchaser (i) 111,000 shares at par value subject to the condition precedent that the Company's shares are trading at $1.50 per share, (ii) 111,000 shares at par value subject to the condition precedent that the Company's shares are trading at $3.00 per share, and (iii) the balance of 111,000 shares at par value subject to the condition precedent that the Company's shares are publicly trading at $4.50 per share. These incentive stock options were granted to Messrs. Poynter and Aleckner by the Company's board of directors (Messrs.Poynter and Aleckner abstaining on the grant of their stock option) on December 14, 1998. Outstanding options were 1,499,000 and 750,000 respectively at December 31 1998 and 1997. Redeemable Common Stock In December 1997, the ten former shareholders of First Brewery of Dallas, Inc., acquired by the Company in April 1997, collectively agreed with the Company's Board of Directors that a dilution of their collective equity interest was in the best interest of the Company. Therefore, the Company adopted a resolution on December 12, 1997, redeeming 1,505,399 shares of the Common Stock from the ten shareholders, at par value, with the consideration for such redemption to be paid pro rata to such shareholders no later that March 31, 1998, presumably out of the proceeds of a future equity offering. None of the shares have been redeemed. NOTE 7 INCOME TAXES The Company follows Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires an asset and liability approach for accounting for income taxes. Deferred income taxes arise from temporary differences between financial and tax basis of certain assets and liabilities. A valuation allowance has been established in the amount of $172,808. It is not likely that the allowance will be realized consequently the allowance has been fully reserved. The Company's net operating loss carryforward is $1,600,849. NOTE 8 LEASES The Company leases its restaurant space under a lease agreement, which expires October 1, 1999. During the year ended December 31, 1998, the Company paid $130,960 under the lease agreement. NOTE 9 OFFICER AND DIRECTOR COMPENSATION No director receives or has received any compensation from the Company for service as a member of the Board of Directors. None of the officers have received any compensation for service from the Company. However, based on the time spent by one officer expense was recorded based on the estimated compensation and that amount was credited to paid-in capital as a contribution to capital. NOTE 10 RELATED PARTY TRANSACTIONS On December 12, 1997, by unanimous consent, the Board of Directors approved borrowing up to $100,000 from certain stockholders. The promissory notes provide that the notes be secured by the `Net Game LinkTM system to be installed at the Company's restaurant. The holders of said notes shall, for each $10,000 of notes, in addition to the payment of principal and interest, be entitled to 7,500 shares of the Company's common stock at par value at maturity. Prior to maturity, the holders of the promissory notes shall have the right to convert their notes to equity in the amount of 12,500 shares of the Company's restricted common stock. Thereafter, by unanimous consent, the Board of Directors approved additional borrowings from certain shareholders, in the aggregate sum of $344,041. In lieu of interest, the Company issued to such shareholders restricted shares of the Company's common stock. NOTE 11 STOCK BASED COMPENSATION PLAN In 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 is effective for fiscal years beginning after December 31, 1995 and requires companies to use recognized option pricing to estimate the fair value of stock-based compensation, including stock options. The Statement requires additional disclosure based on the fair value based method of accounting for an employee stock option and encourages, but does not require, companies to recognize the value of these option grants as additional compensation using methodology of SFAS No. 123. The Company has elected to continue recognizing expense as prescribed by APB Opinion No.25, "Accounting for Stock Issued to Employees," as allowed under FASB No. 123 rather than recognizing compensation expense as calculated under SFAS No. 123. As such adoption SFAS No. 123 during 1998 did not have any effect on the Company's consolidated financial statements. The Company has one stock-based compensation plan as noted below. With regard to its stock option plan, the Company applies APB No. 25 in accounting for such plans and accordingly no compensation cost has been recognized. Had compensation expense been determined based on fair value at the grant date for stock options consistent with SFAS No. 123 the Company's net income and net income per common share would not have changed for 1998 because no grants were made in 1998. The effect of the grant in 1997, as described below, would reduced by $950 On December 12, 1997, by unanimous consent of the Board of Directors, restricted options to purchase 50,000 shares of the Company's common stock were issued to certain key personnel of the Company at an exercise price of $.005 per share. The shares are non-transferable and may be redeemed at $.005 per share by the Company in the event the holder shall cease for any reason to be employed by the Company. 1998 1997 Number of options granted -- 50,000 ======== ======= Weighted average exercise price per share outstanding and exercisable $ -- $ .005 ======== ======= Total compensation cost recognized $ $ -- ======== ======= Weighted average grant date fair value $ $ .019 ======= The calculation of the fair values of the options, under the minimum value method, assumes that no corporate dividends will be issued prior to exercise of the options, and that the options will be exercised immediately prior to the exercise expiration date. The risk free interest rate used in the calculation was based on the zero coupon government issue rate of approximately 6 percent. NOTE 12 LEGAL PROCEEDINGS On February 27, 1998 a judgement was rendered against First Brewery of Dallas I, Ltd. the partnership all of which interest was acquired by First Brewery of Dallas, Inc. The Company believes this judgement will be liquidated bankruptcy proceedings of the subsidiary. The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a proceeding commenced June 14, 1999 in Tarrant County, Texas by Ben Strong individually and the d/b/a Benco & Associates. This litigation arose out of the construction of a brewpub which First Brewery acquired from its predecessor in interest, and alleges that the transaction in which first Brewery of Dallas, Inc. acquired the assets of the predecessor in interest constituted a fraudulent conveyance. The amount sought is approximately $58,000. The Company believes that this claim is without merit, and anticipates that it will be eliminated in any event through the filing of a bankruptcy proceeding by First Brewery of Dallas, Inc. The Company has outstanding $235,500 in principal amount of promissory notes payable to other shareholders, all of which are in default. These notes provide for an initial issuance of shares of common stock in lieu of interest, all of which (913,000 shares) have been issued. Accordingly, no additional interest is accruing on these notes. However, $103,500 in principal amount of such promissory notes provide for a per diem issuance of common stock as a penalty for late payment. To date, the per diem issuance would be in excess of 2,000,000 shares of the Company's Common Stock. The Company has received an opinion from counsel, Richard L. Wright, P.C., that the penalty provisions are unenforceable as illegal usury under applicable Texas law. The Company believes that upon full payment of these promissory notes along with non-usurious monetary interest, this matter of additional shares for late payment by the Company will be amicably resolved between the Company and the holder of these promissory notes. However no assurance can be given in that regard. No provision for this matter based on the opinion of legal counsel. NOTE 13 REVERSE STOCK SPLIT In a Special Meeting of the Board of Directors on June 30, 1997 and pursuant to the action of taken by the shareholders owning a majority of the issued and outstanding shares of the Company's common stock the Company gave effect to a reverse stock split of one share for five shares of the Company's common stock. Before the stock split the Company had 34,965,000 shares of stock outstanding; immediately after the stock split the Company had outstanding 6,993,000 shares of common stock. NOTE 14 SUBSEQUENT EVENTS In January 1999, the Company ceased operations of its restaurant and brewpub because of the continuing negative results of operation and the declining market in the general area of the location of the business. Because of the discontinuance of operations in January 1999, the Company has provided a provision for the loss on the impairment of the assets associated with the discontinuance in the amount of $132,545, which is included in the Consolidated Statement of Operations. The revenues relative to discontinued operations were $469,357 and the related expense was $661,490. Based on the decision of the Board of Directors the Company is redirecting its efforts in the interactive Internet entertainment business. On February 10, 1999 the Company amended its articles of incorporation changing the name of the Company to "GameCom, Inc." On June 18, 1999, the judgement creditor mentioned above in Note 12, "Legal Proceedings", served the Company with a lawsuit. As the lawsuit is against First Brewery of Dallas, Inc., the general partner of the party defendant in the previous judgement, management is of the opinion that this lawsuit provides no greater exposure to the Company than that reflected by the judgement discussed above. NOTE 15 REVISED FINANCIAL STATEMENTS Subsequent to the completion of the audit and the issuance of the audit report it was determined that additional transactions had occurred during the year where common stock of the Company had been issued for consulting and other services. The financial statements have been revised to reflect these transactions which were recorded based on the value of the services performed and the price of the stock at the time of the services. PART III ITEM I - INDEX TO EXHIBITS EXHIBIT DESCRIPTION NO (3.1) *Articles of Incorporation of The Schooner Brewery Incorporated (3.2) *Certificate of Amendment of Articles of Incorporation of The Schooner Brewery Incorporated dated February 14, 1997 (3.3) *Certificate of Amendment of Articles of Incorporation of The Schooner Brewery Incorporated filed February 10, 1999 (3.4) *Bylaws (3.5) Plan of Merger between GameCom, Inc., a Nevada corporation and GameCom, Inc., a Texas corporation (3.6) Articles of Incorporation of GameCom, Inc., a Texas corporation (3.7) Bylaws of GameCom, Inc. (4.1) *Form of Subordinated Notes (4.2) *Form of Convertible Subordinated Notes (4.3) *Form of Convertible Subordinated Notes providing for penalty payable in shares (10) 2000 Incentive Stock Option Plan (21) *List of Subsidiaries (27) Financial Data Schedule *Previously filed ITEM 2 - DESCRIPTION OF EXHIBITS Not applicable SIGNATURE In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant has caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 24, 2000 GAMECOM, INC. By: /s/ L. Kelly Jones -------------- L. Kelly Jones Chief Executive Officer and Chief Financial Officer Date: EX-3.5 2 PLAN OF MERGER Exhibit 3.5 PLAN OF MERGER Between GameCom, Inc., a Nevada corporation and GameCom, Inc., a Texas corporation A. Effective upon the filing of appropriate articles of merger with the Secretary of State of Nevada and the Secretary of State of Texas and the issuance of a certificate of merger by the Secretary of State of Texas (the "Effective Time"), GameCom, Inc., a Nevada corporation ("GameCom Nevada") formerly named The Schooner Brewery Incorporated, will merge (the "Merger") with and into GameCom, Inc., a Texas corporation ("GameCom Texas"). B. GameCom Texas shall be the surviving corporation of the Merger (the "Surviving Corporation"). The Surviving Corporation shall continue to be governed by the laws of the State of Texas. C. The post office address of the Surviving Corporation's registered office in the State of Texas is 440 North Center, Arlington, Texas 76011, and the name of its registered agent in such State is L. Kelly Jones. The post office address of GameCom Nevada's registered office is American Corporate Register, 4960 South Virginia Street, Suite 300, Reno, Nevada 89502. D. At the Effective Time, the Articles of Incorporation, Bylaws, directors and officers of the Surviving Corporation will be those of GameCom Texas immediately prior to the Effectivre Time until changed in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation and applicable law. E. As a result of the Merger and without any action on the part of the holders thereof, each of the 11,591,053 shares of Common Stock, par value $.005 per share, of GameCom Nevada ("GameCom Nevada Common Stock") issued and outstanding at the Effective Time shall be converted into one (1) validly issued, fully paid and nonassessable share of the Common Stock, par value $.005 per share, of the Surviving Corporation ("Surviving Corporation Common Stock"). Each share of GameCom Nevada Common Stock held in treasury of GameCom Nevada at the Effective Time, if any, by virtue of the Merger, shall cease to be outstanding and shall be canceled and retired without payment of any consideration therefor and shall cease to exist. F. Each of the 10 shares of GameCom Texas Common Stock, pr value $.005 per share, outstanding immediately prior to the Effective Time will not be changed or otherwise affected by the Merger, and will remain outstanding following the Merger as a like number of shares of Surviving Corporation Common Stock. Each share of GameCom Texas Common Stock held in treasury of GameCom Texas at the Effective Time, if any, by virtue of the Merger, shall cease to be outstanding and shall be canceled and retired without payment of any consideration therefor and shall cease to exist. EX-3.6 3 ARTICLES OF INCORPORATION Exhibit 3.6 ARTICLES OF INCORPORATION OF GAMECOM, INC. The undersigned natural person, of the age of eighteen years or more, a resident of the State of Texas, acting as an incorporator of a corporation under the Texas Business Corporation Act, does hereby adopt the following Articles of Incorporation for such corporation: ARTICLE ONE The name of the corporation (the "Company") is GameCom, Inc. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purpose for which the Company is organized is to transact any or all lawful business for which corporations may be incorporated under the Texas Business Corporation Act, as amended and in effect from time to time (the "TBCA"). ARTICLE FOUR (A) Authorized Capital Stock. The aggregate number of shares of all classes of stock the Company shall have authority to issue is 52,000,000 consisting of and divided into: (i) one class of 50,000,000 shares of Common Stock, par value $0.005 per share (the "Common Stock"); and (ii) one class of 2,000,000 shares of Preferred Stock, par value $0.005 (the "Preferred Stock"), which may be divided into and issued in one or more series, as hereinafter provided. (B) Series. The Preferred Stock may be divided into and issued in, at any time and from time to time, one or more series as the Board of Directors shall determine pursuant to the authority hereby vested in it. The Board of Directors shall have the authority to establish series of unissued shares of Preferred Stock, at any time and from time to time, by fixing and determining the designations, preferences, limitations and relative rights of the shares of the series, subject to and within the limitations of the TBCA and the Articles of Incorporation, including without limitation the following: (a) the number of shares constituting the series and the distinctive designation of that series; 1 (b) the dividend rate on shares of the series, the dividend payment dates, whether dividends shall be cumulative (and, if so, from which date or dates), non- cumulative, or partially cumulative, and the relative rights of priority, if any, of payment of dividends on the shares of the series; (c) the amount payable to the holders of shares of the series upon any voluntary or involuntary liquidation of the Company; (d) the preference in the assets of the Company over any other class, classes or series of shares upon the voluntary or involuntary liquidation of the Company; (e) whether the shares of the series are redeemable at the option of the Company, the shareholder or another person or upon occurrence of a designated event and, if so, the price payable upon redemption of shares of the series and the terms and conditions on which such shares are redeemable; (f) the provisions of the sinking fund, if any, for the redemption or purchase of shares of the series; (g) the voting rights, if any, of the shares of the series; (h) the terms and conditions, if any, on which such shares may be converted, at the option of the Company, the shareholder or another person or upon occurrence of a designated event, into shares of any other class or series; (i) the terms and conditions, if any, on which such shares may be exchanged, at the option of the Company, the shareholder or another person or upon occurrence of a designated event, for shares, obligations, indebtedness, evidences of ownership, rights to purchase securities or other securities of the Company or one or more other domestic or foreign corporations or other entities or for other property or for any combination of the foregoing; and (j) any other special rights and qualifications, limitations or restrictions permitted by the TBCA to be granted to or imposed on the series. Any of the designations, preferences, limitations and relative rights of the shares of any series so established may be made dependent upon facts ascertainable outside the Articles of Incorporation, which facts may include future acts of the Company, provided that the manner in which such facts shall operate upon the designations, preferences, limitations and relative rights of the shares of any series shall be set forth in the resolution or resolutions establishing the series. All shares within the same series of Preferred Stock shall be identical except as to the date of issue and the dates from which dividends on shares of the series issued on different dates will cumulate, if cumulative. The Board of Directors shall have the authority to increase or decrease the number of shares within each series of Preferred Stock; provided, that the Board of Directors may not 2 decrease the number of shares within a series to less than the number of shares within such series that are then outstanding. (C) Preemptive Rights. No shareholder of the Company shall by reason of the shareholder's holding shares of any class or series have any preemptive or preferential right to purchase or subscribe to any shares of any class or series of the Company, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase shares of any class or series, now or hereafter to be authorized, whether or not the issuance of any such shares, or such notes, debentures, bonds or other securities, would adversely affect the dividend or voting rights of such shareholders, other than such rights, if any, as the Board of Directors in its discretion may fix; and the Board of Directors may issue shares of any class or series of the Company, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase shares of any class or series, without offering any such shares of any class or series, either in whole or in part, to the existing shareholders of any class or series. (D) Subordination of Common Stock. The Common Stock shall be subject and subordinate to the rights, privileges and preferences of any series of Preferred Stock to the extent set forth in the resolution or resolutions of the Board of Directors establishing the series. (E) Other Provisions Applicable to Capital Stock. (a) Each outstanding share of Common Stock shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except as otherwise provided by the TBCA or as set forth in the resolution or resolutions of the Board of Directors establishing any series of Preferred Stock. (b) At each election for directors of the Company ("Directors"), every shareholder entitled to vote at such election shall have the right to vote the number of shares owned by such shareholder for as many persons as there are Directors to be elected and for whose election such shareholder has a right to vote; provided that cumulative voting in the election for Directors is prohibited. (c) In the event of any dissolution, liquidation or winding up of the Company, but subject to the rights of the holders of any series of Preferred Stock, holders of Common Stock shall be entitled to receive pro rata all of the remaining assets of the Company available for distribution to its shareholders. (d) Subject to the rights of the holders of Preferred Stock as set forth in the resolution or resolutions of the Board of Directors establishing any series of Preferred Stock, dividends may be paid upon Common Stock to the exclusion of Preferred Stock out of any assets of the Company available therefor. 3 ARTICLE FIVE The street address of the Company's registered office is 440 North Center, Arlington, Texas 76011, and the name of its registered agent at that address is L. Kelly Jones. ARTICLE SIX (A) Number. The number of Directors constituting the Board of Directors of the Company shall be fixed from time to time by the Board of Directors by the affirmative vote of not less than a majority of the Continuing Directors (as defined in Article Ten) but shall not be less than three (3), subject to such rights to elect additional Directors under such specified circumstances as may be granted to holders of Preferred Stock, (B) Required Vote to Elect Directors. With respect to the election of Directors, the act of the shareholders electing the Directors shall be a vote of the holders of a majority of the outstanding shares entitled to vote in the election of Directors. (C) Term. Directors shall hold office until their respective successors shall have been elected and qualified. (D) Removal. Directors may be removed from office, with or without cause, only by the affirmative vote of the holders of not less than a majority of the outstanding shares entitled to vote in the election of Directors, if notice of the intention to act upon such matter shall have been given in the notice calling for the meeting. (E) Vacancies; Increase in Number of Directors. Subject to such rights to elect Directors under specified circumstances as may be granted to holders of Preferred Stock, newly created directorships resulting from any increase in the number of Directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other reason shall be filled solely by the affirmative vote of a majority of the Continuing Directors, even though less than a quorum of the Board of Directors. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. (F) Initial Directors. The number of Directors constituting the initial Board of Directors is three (3), subject to being increased or decreased as set forth above. The names and addresses of the persons who are to serve as Directors until the first annual meeting of shareholders or until their respective successors are elected and qualified, are as follows: Name Address L. Kelly Jones 440 North Center Arlington, Texas 76011 W. James Poynter City Center Tower II 301 Commerce Street, Suite 1205 Fort Worth, Texas 76102 4 John F. Aleckner, Jr. 1901 Rockcliff Court Arlington, Texas 76012 ARTICLE SEVEN To the fullest extent permitted by law, a Director shall not be liable to the Company or its shareholders for monetary damages for any act or omission in his capacity as a Director. Any repeal or modification of this Article shall be prospective only and shall not adversely affect any limitation of the personal liability of a Director existing at the time of the repeal or modification. The provisions of this Article shall not be deemed to limit or preclude indemnification of a Director by the Company for any liability of a Director that has not been eliminated by the provisions of this Article. ARTICLE EIGHT (A) Power to Alter, Amend or Repeal Bylaws. The power to alter, amend, suspend or repeal the Bylaws or to adopt new Bylaws shall be vested in, and shall require the affirmative vote of not less than a majority of the Continuing Directors (as defined in Article Ten); provided that any Bylaw or amendment thereto as adopted by the Board of Directors may be altered, amended, suspended or repealed by the affirmative vote of the holders of not less than 66 2/3% of the outstanding Voting Stock (as defined in Article Ten) or a new Bylaw in lieu thereof may be adopted by vote of such shareholders. No Bylaw that has been altered, amended or adopted by such a vote of the shareholders may be altered, amended or repealed by vote of the Directors until two years shall have expired since such action by such vote of shareholders. (B) Bylaw Stock Ownership Restrictions. The Board of Directors shall have the power and authority, from time to time, to adopt, alter or amend the Bylaws to add or amend such provisions as in their judgment may be necessary or appropriate to ensure that the Company and its shareholders satisfy the citizenship or other requirements imposed by any federal or state law relating to the ownership, possession or leasing of any property, licenses or rights of any nature whatsoever in which the Company or any of its subsidiaries may have or hereafter have, or seek to have, any right or interest. Without limiting such general powers, the Board of Directors shall have the power and authority, from time to time, to adopt, alter or amend the Bylaws to add or amend provisions that for such purpose impose restrictions on the transfer or registration of transfer of the shares of the Company, including without limitation restrictions that: (1) obligate the holders of the restricted shares to offer to the Company or to any other holders of shares of the Company or to any other person or to any combination of the foregoing, a prior opportunity, to be exercised within a reasonable time, to acquire the restricted shares; (2) provide that the Company or the holders of any class of shares of the Company must consent to any proposed transfer of the restricted shares or approve the proposed transferee of the restricted shares before the transfer may be effected; (3) prohibit the transfer of the restricted shares to designated persons or classes of persons; or 5 (4) maintain any tax or other status or advantage to the Company. ARTICLE NINE (A) No Shareholder Written Consent Action. Any action required or permitted to be taken by the shareholders of the Company must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. (B) Special Meetings of Shareholders. Subject to such rights to call special meetings of shareholders under specified circumstances as may be granted to holders of Preferred Stock, special meetings of shareholders may be called only by the Chairman of the Board or the President of the Company, at the request in writing or by vote of not less than a majority of the Continuing Directors (as defined in Article Ten) or at the request of the holders of not less than 50% of the outstanding shares entitled to vote at the meeting, and not by any other persons. Any request for a special meeting made by the Board of Directors shall state the purpose or purposes of the proposed meeting, and business transacted at the meeting shall be confined to the objects stated in the notice of the meeting. ARTICLE TEN In addition to any other vote of shareholders required by the TBCA, the Articles of Incorporation or otherwise, the affirmative vote of the holders of not less than 80% of the outstanding shares of "Voting Stock" (as hereinafter defined) of the Company, including the affirmative vote of the holders of not less than 50% of the outstanding shares of Voting Stock not "Beneficially Owned"(as hereinafter defined), directly or indirectly, by any "Related Person" (as hereinafter defined), shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined) in which any Related Person has an interest (except proportionately as a shareholder of the Company); provided, that the 50% voting requirement referred to above shall not be applicable if the Business Combination is approved by the affirmative vote of the holders of not less than 90% of the outstanding shares of Voting Stock; provided further that the 80% requirement referred to above shall not be applicable if: (1) The Board of Directors by a vote of not less than a majority of the "Continuing Directors" (as hereinafter defined) then holding office (a) expressly approved in advance the acquisition of outstanding shares of Voting Stock that resulted in the Related Person becoming a Related Person or (b) approved the Business Combination prior to the Related Person involved in the Business Combination having become a Related Person; (2) The Business Combination is solely between the Company and another corporation, 100% of the Voting Stock of which is owned, directly or indirectly, by the Company; or (3) All of the following conditions have been met: (a) the Business Combination is a merger or consolidation, the consummation of which is proposed to take place within one (1) year after the date of the transaction that resulted in the 6 Related Person becoming a Related Person and the cash or fair market value of the property, securities or other consideration to be received per share by holders of Common Stock in the Business Combination is not less than the highest per share price (with appropriate adjustments for recapitalizations and for stock splits, reverse stock splits and share dividends, and including any brokerage commissions, transfer taxes and soliciting dealer fees) paid by the Related Person in acquiring any of its holdings of Common Stock; (b) the consideration to be received by such holders is either cash or, if the Related Person shall have acquired the majority of its holdings of Common Stock with a form of consideration other than cash, the same form of consideration with which the Related Person acquired such majority; (c) after such Related Person has become a Related Person and prior to consummation of such Business Combination: (i) except as approved by a majority of the "Continuing Directors" (as hereinafter defined), there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding shares of Preferred Stock, (ii) there shall have been no reduction in the annual rate of dividends paid per share on the Company's Common Stock (adjusted as appropriate for recapitalizations and for stock splits, reverse stock splits and share dividends) except as approved by a majority of the Continuing Directors, (iii) such Related Person shall not have become the Beneficial Owner of any additional shares of Voting Stock of the Company except as part of the transaction that resulted in such Related Person becoming a Related Person, and (iv) such Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Company, whether in anticipation of or in connection with such Business Combination or otherwise; and (d) a proxy statement, that complies with the requirements of the "Exchange Act" (as hereinafter defined) and the rules and regulations thereunder (or any subsequent provisions replacing the Exchange Act, rules or regulations), shall be mailed to all shareholders of record not less than forty (40) days prior to the consummation of the Business Combination for the purpose of soliciting shareholder approval of the Business Combination and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination that the Continuing Directors, or any of them, may choose to state and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or unfairness) of the terms of such Business Combination from the point of view of the remaining shareholders of the Company (such investment banking firm to be selected by a majority of the Continuing Directors and to be paid a reasonable fee for its services by the Company upon receipt of such opinion). For the purposes of this Article: "Affiliate," when used to indicate a relationship to a specified person, shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified person. 7 "Associate," when used to indicate a relationship with a specified person, shall mean (a) any corporation, partnership or other organization of which the specified person is an officer or partner or is, directly or indirectly, the Beneficial Owner of five percent or more of any class of equity securities, (b) any trust or other estate in which the specified person has a substantial beneficial interest or as to which the specified person serves as trustee or in a similar fiduciary capacity, (c) any relative or spouse of the specified person, or any relative of that spouse, who has the same home as the specified person or who is a director or officer of the Company or any of its parents or Subsidiaries, and (d) any person who is a director or officer of the specified person or any of its parents or subsidiaries (other than the Company or any Subsidiary of the Company). "Beneficial Owner" and "Beneficially Own," when used with reference to any Voting Stock, shall mean (a) that the person or any of its Affiliates or Associates beneficially owns, directly or indirectly, within the meaning of Rule 13d-3 under the Exchange Act as in effect on February 2, 2000; (b) that the person or any of its Affiliates or Associates has (i) the right to acquire (whether that right is exercisable immediately or only after the passage of time and whether that right is contingent or absolute) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding (but neither that person nor any such Affiliate or Associate shall be deemed to be the Beneficial Owner of any shares of Voting Stock solely by reason of a revocable proxy granted with respect to shares for a particular meeting of shareholders pursuant to a public solicitation of proxies for that meeting, if neither that person nor any such Affiliate or Associate is otherwise deemed the Beneficial Owner of those shares); or (c) that are beneficially owned, directly or indirectly, within the meaning of Rule 13d-3 under the Exchange Act as in effect on February 2, 2000 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 (other than solely by reason of a revocable proxy given in response to public proxy or consent solicitation made pursuant to the applicable rules under the Exchange Act) or disposing of any shares of Voting Stock; provided, however, that in the case of any employee stock ownership or similar plan of the Company or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by that plan, no such plan and no trustee with respect thereto (or any Affiliate of that trustee), solely by reason of that capacity as trustee, shall be deemed for the purposes hereof to Beneficially Own any shares of Voting Stock held under any such plan. "Business Combination" shall mean (a) any merger, consolidation or share exchange involving the Company or a Subsidiary, (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or any "Substantial Part" (as hereinafter defined) of the assets either of the Company (including without limitation any voting securities of a 8 Subsidiary) or of a Subsidiary, (c) any sale, lease, exchange, transfer or other disposition of assets having a fair market value of $1,000,000 or more to the Company or a Subsidiary, (d) the issuance or transfer by the Company or a Subsidiary (other than by way of a pro rata distribution to all shareholders) of any securities of the Company or a Subsidiary, (e) any reclassification of securities (including any reverse stock split) or recapitalization by the Company, the effect of which would be to increase the voting power (whether or not currently exercisable) of a Related Person, (f) any plan or proposal for the liquidation or dissolution of the Company, (g) any series or combination of transactions having, directly or indirectly, the same effect as any of the foregoing, and (h) any agreement, contract or other arrangement providing, directly or indirectly, for any of the foregoing. "Continuing Director" shall mean any member of the Board of Directors who is not an Affiliate or Associate of a Related Person and who was a member of the Board of Directors immediately prior to the time that the Related Person became a Related Person, and any successor to a Continuing Director who is not an Affiliate or Associate of the Related Person and is recommended to succeed a Continuing Director by a majority of Continuing Directors then serving as members of the Board of Directors. Provisions hereof requiring approval by Continuing Directors shall not be deemed satisfied unless there is at least one Continuing Director. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "other consideration to be received," for purposes of subparagraph (3) of this Article, shall include without limitation Common Stock retained by the Company's existing public shareholders in the event of a Business Combination in which the Company is the surviving corporation. "person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, limited liability company, corporation, company, institution, entity, party or governmental authority. "Related Person" shall mean and include any person or "group" of persons (as such term is used in Regulation 13D-G under the Exchange Act), and each Affiliate and Associate of any such person, that individually or collectively is the Beneficial Owner in the aggregate of not less than 10% of the outstanding Voting Stock, other than the Company or any employee benefit plan(s) sponsored by the Company. "Subsidiary" shall mean, with respect to any person, a person in which the person directly or indirectly owns at least a majority of the outstanding voting securities or other equity interests having the power, under ordinary circumstances, to elect a majority of the directors, or otherwise to direct the management and policies, of such person, and any person that is affiliated with such person. "Substantial Part" shall mean more than 5% of the book value of the total assets of the person in question as of the end of the most recently completed fiscal year or, in the case 9 of Voting Stock of a Subsidiary, 10% or more of the outstanding shares of such Subsidiary's Voting Stock. "Voting Stock" shall mean all outstanding shares of capital stock of the Company or other person entitled to vote generally in the election of Directors, considered for the purposes of this Article as a single class. If the Company has Voting Stock entitled to more or less than one vote for any such share, each reference in this Article to a proportion or percentage of shares of Voting Stock shall be calculated by reference to the portion or percentage of votes entitled to be cast by the holders of such shares. For the purpose of this Article, a majority of the Continuing Directors shall have the power to determine, on the basis of information known to them, of: (a) the number of shares of Voting Stock of which any person is the Beneficial Owner, (b) whether a person is a Related Person, (c) whether a person is an Affiliate or Associate of another person, (d) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of Beneficial Owner herein, (e) whether the assets subject to any Business Combination constitute a Substantial Part, (f) whether any Business Combination is one in which a Related Person has an interest (except proportionately as a shareholder of the Company), (g) the fair market value of property other than cash or stock, (h) the highest per share price in accordance with this Article, (i) whether the applicable conditions set forth in this Article have been met with respect to any Business Combination, and (j) such other matters with respect to which a determination is required under this Article. A majority of the Continuing Directors then in office shall have the right to demand that any person who those Directors reasonably believe is a Related Person (or holds of record shares of Voting Stock Beneficially Owned by any Related Person) supply the Company with complete information about (a) the record owner(s) of all shares Beneficially Owned by the persons who those Directors reasonably believe is a Related Person, (b) the number of, and class or series of, shares Beneficially Owned by any such person who those Directors reasonably believe is a Related Person and held of record by each such record owner and the number(s) of the stock certificates(s) evidencing such shares and (c) any other factual matter relating to the applicability or effect of this Article as may reasonably be requested of such person, and that person shall furnish that information within ten days after receipt of the demand. ARTICLE ELEVEN The provisions set forth in Articles Six, Eight and Nine hereof may not be amended, altered, changed, repealed or rescinded in any respect unless such action is approved by the affirmative vote of the holders of not less than 75% of all shares of "Voting Stock" (as defined in Article Ten), considered for purposes of this Article as one class; the amendment, alteration, change, repeal or recision of this Article and Article Ten hereof shall require both such 75% vote and the affirmative vote of the holders of not less than 50% of such Voting Stock, excluding the vote of any shares owned by a "Related Person" (as defined in Article Ten), if any (such 50% voting requirement shall not be applicable if such amendment, alteration, change, repeal or recision is approved by the affirmative vote of the holders of 10 not less than 90% of such Voting Stock). The voting requirement contained in this Article and in Articles Six, Eight, Nine and Ten hereof shall be in addition to voting requirements imposed by law, other provisions of these Articles of Incorporation or any designation of preferences in favor of certain classes or series of classes of shares of capital stock of the Company. ARTICLE TWELVE The Company will not commence business until it has received for the issuance of shares consideration of the value of at least One Thousand Dollars ($1,000.00). ARTICLE THIRTEEN The name and address of the incorporator are: Jay D. Reeve 901 Main Street Suite 6000 Dallas, Texas 75202 Dated this 3rd day of February, 2000. -------------------------------------- Jay D. Reeve, Incorporator 11 EX-3.7 4 BYLAWS OF GAMECOM, INC. Exhibit 3.7 BYLAWS OF GAMECOM, INC., A CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS PURPOSE AND SCOPE OF BYLAWS These Bylaws shall constitute the private laws of GAMECOM, INC., a corporation duly incorporated under the laws of the State of Texas (herein called the "Company"), for the administration and regulation of the affairs of the Company. In the event any provision of these Bylaws is or may be in conflict with any applicable law of the United States or the State of Texas, or of any order, rule, regulation, decree or judgment of any governmental body or power or court having jurisdiction over the Company, or over the subject matter to which such provision of these Bylaws applies or may apply, such provision of these Bylaws shall be inoperative to the extent only that the operation thereof unavoidably conflicts with such law or order, rule, regulation, decree or judgment, and shall in all other respects be in full force and effect. ARTICLE I OFFICES Section 1. The registered office of the Company shall be at 440 North Center, in the City of Arlington, County of Tarrant, State of Texas, and the registered agent of the Company at such address shall be L. Kelly Jones or such other person as the Board of Directors may from time to time designate. Section 2. The Company may also have offices at such other places both within and without the State of Texas as the Board of Directors may from time to time determine or the business of the Company may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. All meetings of the shareholders shall be held at the registered office of the Company or at such other place either within or without the State of Texas as shall be designated from time to time by the Board of Directors. Section 2. The annual meeting of shareholders shall be held on the second Tuesday of May in each year, commencing in the year 2001, at 2:00 P.M., for the election of a Board of Directors and the transaction of such other business as may properly be brought before the meeting. Section 3. Special meetings of the shareholders may only be called by the Chairman of the Board or the President, at the request in writing or by vote of not less than a majority of the Continuing Directors (as defined in Article Ten of the Articles of Incorporation of the Company) of the Board of Directors, or the holders of not less than 50% of all the outstanding shares entitled to vote at the meetings, and not by any other persons. Business transacted at all special meetings shall be confined to the objects stated in the notice of meeting. Section 4. Written or printed notice stating the place, day and hour of the meeting, and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman, the Secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the Company, with postage thereon prepaid. - 2 - Section 5. The officer or agent having charge of the stock transfer books for shares of the Company shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Company and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima-facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Section 6. The holders of a majority of the shares issued and outstanding and entitled to vote thereat, present in person or represented by written proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. Each outstanding share, of any class, shall be entitled to as many votes per share as the Articles of Incorporation shall provide, on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the Articles of Incorporation or these Bylaws. The vote for the election of Directors and, - 3 - upon demand by any shareholder, the vote upon any question before the meeting shall be by ballot. Cumulative voting is expressly prohibited. Section 8. At any meeting of the holders, every shareholder having the right to vote shall be entitled to vote in person or by proxy executed in writing by such shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. All proxies shall be revocable unless expressly provided therein to be irrevocable and are coupled with an interest and shall be filed with the Secretary of the Company prior to or at the time of the meeting at which they are to be voted. Section 9. When a quorum is present at any meeting, matters brought before the meeting shall be determined by the shareholders in the following manner: (a) with respect to any matter, other than the election of Directors or a matter for which the affirmative vote of a specified portion of the shares entitled to vote is required by the statutes or the Articles of Incorporation, the act of the shareholders shall be the affirmative vote of the holders of a majority of the shares entitled to vote on, and voted for or against, that matter at a meeting of shareholders at which a quorum is present and (b) with respect to the election of Directors, the act of the shareholders electing the Directors shall be a majority of all outstanding shares entitled to vote in the election of Directors, unless in each case the question is one upon which, by express provision of the statutes or of the Articles of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. - 4 - Section 10. The Chairman shall preside at all meetings of the shareholders. In his absence, the President or an officer of the Company designated by the Board of Directors shall preside and perform the duties of the Chairman at such meeting. He shall appoint two inspectors of voting to serve at each such meeting. Before acting at any meeting, the inspectors shall be sworn faithfully to execute their duties with strict impartiality and according to the best of their ability. The inspectors shall determine the number of shares outstanding, the voting power of each, the shares represented at the meeting, the existence of a quorum, the qualification of the voters, the authenticity, validity and effect of proxies, receive votes and ballots, hear and determine all challenges and questions in any way arising in connection with the vote, count and tabulate all votes and determine and announce the result of the voting. Section 11. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, otherwise properly brought before the meeting by or at the direction of the Board, or otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Company, not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 15th day following the day on - 5 - which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of shares of the Company which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 11; provided, however, that nothing in this Section 11 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting in accordance with said procedure. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 11, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 12. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of the Company may be made at a meeting of shareholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any shareholder of the Company entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 12. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary. To be timely, a - 6 - shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than fifty (50) days nor more than seventy- five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 15th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Company which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Rule 14A under the Securities Exchange Act of 1934 as amended; and (b) as to the shareholder giving the notice (i) the name and record address of shareholder and (ii) the class and number of shares of capital stock of the Company which are beneficially owned by the shareholder. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as Director of the Company. No person shall be eligible for election as a Director of the Company unless nominated in accordance with the procedures set forth herein. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. - 7 - ARTICLE III DIRECTORS Section 1. The powers of the Company shall be exercised under the authority of, and the business and affairs of the Company shall be managed under the direction of, its Board of Directors who may do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders. Section 2. The Board of Directors shall consist of three Directors, none of whom need be shareholders or residents of the State of Texas. The Board of Directors may change the number of Directors only by affirmative vote of not less than a majority of the Continuing Directors. A person shall be ineligible to be a Director of the Company after the date of the annual meeting of shareholders of the Company in the year in which such person's seventieth birthday occurs. Unless he shall resign or become ineligible, each Director shall hold office until his successor shall be elected and shall qualify. Section 3. Any Director may resign at any time either by oral tender of resignation at any meeting of the Board of Directors or by giving written notice thereof to the Secretary. Resignations shall take effect when tendered or at the time specified in the tender and, unless otherwise specified, the acceptance of a resignation shall not be necessary to make it effective. Section 4. Any Director may be removed either for or without cause, at any special meeting of shareholders by the affirmative vote of the holders of record of not less than a majority of the shares entitled to vote for such removal, if notice of the intention to act upon such matter shall have been given in the notice calling for such meeting. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining - 8 - Directors even though such remaining Directors shall be less than a quorum of the Board of Directors. A Director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors as provided in Section 2 hereof shall be filled solely by the affirmative vote of not less than a majority of the Continuing Directors for a term of office continuing until the next annual meeting of shareholders; provided that the Board of Directors may not fill more than two such directorships between any two successive annual meetings of shareholders. Section 5. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members one or more committees, each of which shall be comprised of one or more of its members, and may designate one or more of its members as alternate members of any committee, who may, subject to any limitations imposed by the Board of Directors, replace absent or disqualified members at any meeting of that committee. Any such committee, to the extent provided in such resolutions or in the Articles of Incorporation or the Bylaws, shall have and may exercise all of the authority of the Board of Directors, provided that no committee of the Board of Directors shall have the authority of the Board of Directors in reference to: (1) amending the Articles of Incorporation, except that a committee may, to the extent provided in the resolution designating that committee or in the Articles of Incorporation or the Bylaws, exercise the authority of the Board of Directors vested in it in accordance with Article 2.13 of the Texas Business Corporation Act ("Act"); (2) proposing a reduction of the stated capital of the Company in the manner permitted by Article 4.12 of the Act; (3) approving a plan of merger or share exchange of the Company; (4) recommending to the shareholders the sale, lease, or exchange of all or substantially all of the property and assets of the Company otherwise than in the usual and regular course of its business; (5) recommending to the shareholders a voluntary dissolution of the Company or a revocation thereof, (6) - 9 - amending, altering, or repealing the Bylaws of the Company or adopting new Bylaws of the Company; (7) filling vacancies in the Board of Directors; (8) filling vacancies in or designating alternate members of any such committee; (9) filling any directorship to be filled by reason of an increase in the number of Directors; (10) electing or removing officers of the Company or members or alternate members of any such committee; (11) fixing the compensation of any member or alternate members of such committee; or (12) altering or repealing any resolution of the Board of Directors that by its terms provides that it shall not be so amendable or repealable; and, unless such resolution designating a particular committee, the Articles of Incorporation, or the Bylaws expressly so provide, no committee of the Board of Directors shall have the authority to authorize a distribution or to authorize the issuance of shares of the Company. MEETINGS OF THE BOARD OF DIRECTORS Section 6. The Directors of the Company may hold their meetings, both regular and special, either within or without the State of Texas. Section 7. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of shareholders, and at the same place, unless by unanimous consent of the Directors then elected and serving such time or place shall be changed. Section 8. Regular meetings of the Board of Directors may be held with or without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 9. Special meetings of the Board of Directors may be called on twenty-four (24) hours' notice to each Director, or such shorter period of time as the person calling the meeting deems appropriate in the circumstances, either personally, or by mail, or by telegram; special meetings shall be called by the Chairman or, in the event of the inability of the Chairman to act, the President or the - 10 - Secretary in like manner and on like notice on the written request of two Directors. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in a notice or waiver of notice. Section 10. At all meetings of the Board of Directors the presence of a majority of the Directors shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Any action required or permitted to be taken at a meeting of the Board of Directors may be without a meeting if a consent in writing, setting forth the action so taken, is signed by all members of the Board of Directors. If a quorum shall not be present at any meeting of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. The Board of Directors shall have authority to establish, from time to time, the amount of compensation which shall be paid to its members for their services as Directors. ARTICLE IV NOTICES Section 1. Whenever under the provisions of the statutes or of the Articles of Incorporation or of these Bylaws, notice is required to be given to any Director or shareholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such Director or shareholder at such address as appears on the books of the Company. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same shall be thus deposited in the United States mails as aforesaid. - 11 - Section 2. Whenever any notice is required to be given to any shareholder or Director of the Company under the provisions of the statutes or of the Articles of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be equivalent to the giving of such notice. Attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except when a Director attends a meeting for the express purpose, in writing filed at the meeting, of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or held. ARTICLE V OFFICERS Section 1. The officers of the Company shall be a President and a Secretary and the Board may elect other officers, such as one or more Executive Vice Presidents, Senior Vice Presidents or Vice Presidents, a General Counsel, a Controller, a Treasurer, all of whom shall be elected by the Board of Directors. Any two or more offices may be held by the same person. Each such officer shall have such authority and perform such duties in the management of the Company as may be determined by resolution of the Board of Directors. Section 2. The Board of Directors may elect or appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such term and who shall have such authority and perform such duties as may be prescribed by the Board of Directors or the Chairman. The power to appoint such other officers and agents may be delegated by the Board of Directors to the Chairman to the extent the Board may delineate by resolution. Section 3. Each officer of the Company shall hold office until his successor is chosen and qualified in his stead or until his death or until his resignation, retirement or removal from office. Any - 12 - officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4. The Chairman shall be the chief executive officer of the Company. He shall, subject to the direction and control of the Board of Directors, be their representative and medium of communication. He shall see that all orders, resolutions and policies adopted by the Board of Directors are carried into effect. He shall preside at all meetings of shareholders and at all meetings of the Board of Directors. He shall be in complete charge with attendant responsibility and accountability of the entire Company and its affairs. Section 5. The President shall be the chief operating officer of the Company. He shall, subject to the direction of the Chairman, have responsibility for such operations and functions assigned to him; and in the absence of the Chairman, shall preside at all meetings of the shareholders and at all meetings of the Board of Directors. Section 6. Each Executive Vice President shall have such powers and responsibilities, and shall perform such duties, as delineated by the Board or by the Chairman. They shall be directly responsible to such officer as the Chairman may from time to time prescribe. Section 7. The Senior Vice President, Chief Financial Officer, shall have such powers and responsibilities and shall perform such duties, as delineated by the Board of Directors or by the Chairman. He shall be responsible to the Chairman in said performance. - 13 - Section 8. Other Senior Vice Presidents shall have such powers and responsibilities, and shall perform such duties, as delineated by the Board or by the Chairman. They shall be directly responsible to such officer as the Chairman may from time to time prescribe. Section 9. The General Counsel shall have general control over all matters of a legal nature concerning the Company and shall perform such duties as delineated by the Board or by the Chairman. He shall be directly responsible to the Chairman in said performance. Section 10. Each Vice President shall have such powers and responsibilities, and shall perform such duties, as may be delineated by the Board or the Chairman. They shall be directly responsible to such officer as the Chairman may from time to time prescribe. Section 11. The Controller shall be in general control of the accounts of the Company, shall be responsible for the making of adequate audits, shall prepare and interpret required accounting, financial and statistical statements, and shall be directly responsible to such officer and perform such other duties as the Board or Chairman may from time to time prescribe. Section 12. The Secretary shall attend all meetings of the Board of Directors and shareholders and act as secretary thereof and shall record all votes and the minutes of all proceedings of the Board of Directors and shareholders in a book for that purpose maintained and kept in his custody. He shall keep in his custody the seal of the Company and shall in general perform all the duties incident to the office of Secretary of a Company. He shall act as Transfer Agent of the Company and/or Registrar of its capital stock and other securities unless the Board of Directors by resolution appoints one or more other persons or corporations as Transfer Agents and/or Registrars or as Co-Transfer Agents and/or Co-Registrars. He shall be directly responsible to such officer and shall perform such other duties as the Board or Chairman may from time to time prescribe. - 14 - Section 13. The Treasurer shall have custody of all the funds and securities of the Company and shall keep full and accurate accounts of receipts and disbursements. He may endorse checks, notes and other obligations on behalf of the Company for collection and shall deposit the same, together with all monies and other valuable effects, to the credit of the Company in banks or depositories as the Board of Directors may designate by resolution or as may be established in accordance with Article VIII of these Bylaws. He shall be directly responsible to such officer as the Chairman may from time to time designate and shall perform all duties incident to the office of Treasurer of a Company or as the Board or Chairman shall designate. Section 14. The Board of Directors may appoint one or more Assistant Secretaries, Assistant Treasurers and Assistant Controllers and such other appointive officers as may be appropriate and required. They shall be directly responsible to such officer and shall perform such duties as the Board or Chairman may from time to time designate. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. The shares of stock of the Company shall be deemed personal estate, and shall be transferable only on the books of the Company in such manner as these Bylaws prescribe. Section 2. Every shareholder in the Company shall be entitled to have a certificate or certificates representing the number of shares owned by him. The certificates of shares of stock of the Company shall be numbered and shall be entered in the books of the Company as they are issued. They shall exhibit the holder's name and number of shares, and shall be signed by the Chairman, the President or a Vice President, and the Treasurer or an Assistant Treasurer and bear the corporate seal; but the signatures of such officers and the seal of the Company upon such certificates may be - 15 - facsimiles, engraved or printed where such certificate is signed by a duly authorized Transfer Agent or Co-Transfer Agent and a Registrar or Co-Registrar. Section 3. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issue, transfer, conversion, and registration of certificates for shares of the capital stock of the Company. Section 4. The Board of Directors may direct a new certificate representing shares to be issued in place of any certificate theretofore issued by the Company alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Company a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Company and its Transfer Agents and Registrars and its Co-Transfer Agents and Co-Registrars with respect to the certificate alleged to have been lost or destroyed. Section 5. Transfers of shares of stock shall be made on the books of the Company only by the person named in the certificate or by attorney, lawfully constituted in writing, and upon surrender of the certificate therefor. Section 6. The Board of Directors may close the stock transfer books of the Company for a period not to exceed sixty (60) days for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any distribution and share dividend, or in order to make a determination of shareholders for any - 16 - purpose, provided that if such books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a shareholders' meeting, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of so closing the stock transfer books, the Board of Directors may fix a date in advance, not exceeding sixty (60) days preceding the date of any meeting of shareholders, or the date for the payment of any distribution and share dividend or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the respective determination of the shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such distribution and share dividend, or to any such allotment of rights, or to exercise rights in respect of any such change, conversion or exchange of capital stock and in such case such shareholders and only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such distribution and share dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares of stock on the books of the Company after any such record date fixed as aforesaid. In the absence of any designation with respect thereto by the Board of Directors, the date upon which the notice of a meeting is mailed or resolutions declaring a distribution and share dividend are adopted shall be the record date for such determination in regard to meetings of shareholders or declarations of distributions and share dividends. Section 7. The Company shall be entitled to treat the holder of record of any share or of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Texas. - 17 - Section 8. Bonds, debentures and other evidence of indebtedness of the Company shall be signed by the Chairman, the President or any Vice President and the Treasurer or an Assistant Treasurer and shall bear the corporate seal and when so executed shall be binding upon the Company, but not otherwise. The seal of the Company thereon may be facsimile, engraved or printed, and where any such bond, debenture or other evidence of indebtedness is authenticated with the manual signature of an authorized officer of the Company or trustee appointed or named by an indenture of trust or other agreement under which such security is issued, the signature of any of the Company's officers authorized to execute such security may be facsimile. Section 9. In case any officer who signed, or whose facsimile signature has been placed on any certificate representing shares of stock, bond, debenture or evidence of indebtedness of this Company shall cease to be an officer of the Company for any reason before the same has been issued or delivered by the Company, such certificate, bond, debenture or evidence of indebtedness may nevertheless be issued and delivered as though the person who signed it or whose facsimile signature had been placed thereon had not ceased to be such officer. ARTICLE VII DEEDS AND OTHER INSTRUMENTS OF CONVEYANCE Section 1. Deeds and other instruments of the Company conveying land or any interest in land shall be signed by the Chairman, the President or a Vice President or attorney-in-fact of the Company when authorized by appropriate resolution of the Board of Directors or shareholders, and when required by law, shall be attested by the Secretary or an Assistant Secretary and shall bear the corporate seal, and when so executed shall be binding upon the Company, but not otherwise. - 18 - ARTICLE VIII CHECKS, DRAFTS AND BILLS OF EXCHANGE Section 1. The Chairman or the President of the Company may from time to time establish General Bank Accounts, Depository Bank Accounts, and such Special Bank Accounts as in the judgment of either of them may be needed in carrying on and dispatching the business of the Company. All checks, drafts and bills of exchange issued in the name of the Company and calling for the payment of money out of said General Accounts, Depository Accounts, or Special Accounts of the Company shall be signed by the Controller or Assistant Controller, or such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Controller, and countersigned by the Treasurer or any Assistant Treasurer, or such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Treasurer; and when so designated by the Chairman or the President, the signature of the Treasurer or an Assistant Treasurer may be affixed by the use of a check-signing machine; provided that for the purpose of transferring funds from any bank or depository at which the Company has funds on deposit to any other bank or depository of the Company for credit to the Company's account, a form of check having plainly printed upon its face "DEPOSITORY TRANSFER CHECK," and being by its wording payable to a bank or depository for credit to the account of the Company, is hereby authorized, and such checks shall require no signature other than the name of the Company printed at the lower right corner; and further provided that checks, drafts and bills of exchange issued in the name of the Company in the amount of $25,000.00 or less need bear only one signature and that being the signature of the Treasurer or an Assistant Treasurer, affixed either manually or by the use of a check-signing machine, or the manual signature of such agents and employees as the Chairman or the President may from time to time - 20 - designate and authorize to sign for the Treasurer; and provided further that checks and drafts issued in the name of the Company and calling for the payment of production revenue or royalties need bear only one signature and that being the signature of the Treasurer or an Assistant Treasurer, affixed either manually or by the use of a check-signing machine, or the manual signature of such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Treasurer; and provided further that checks and drafts issued in the name of the Company and calling for payment of money out of Special Bank Accounts established for the payment of dividends need bear only one signature and that being the signature of the Treasurer or an Assistant Treasurer, affixed either manually or by the use of a check-signing machine, or the manual signature of such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Treasurer; and further provided that no person authorized to sign checks or drafts may sign a check or draft payable to himself. When in such applicable manner, but not otherwise, every check, draft or bill of exchange issued in the name of the Company and calling for the payment of money out of the General Bank Accounts, Depository Bank Accounts, and Special Bank Accounts of the Company shall be valid and enforceable according to its wording, tenor and effect, but not otherwise. Provided, however, that for the purpose of transferring funds between accounts of the Company, from accounts of the Company to accounts of subsidiaries and affiliates, from accounts of the Company for the purpose of investment of corporate funds, and from accounts of the Company for the payment of dividends, the Treasurer or an Assistant Treasurer, or such agents and employees as the Chairman or the President may from time to time designate and authorize, may make such transfer of funds by bank wire transfers through oral or written instructions; and for the purpose of transferring funds from accounts of the Company to accounts of other third parties, such funds may be transferred - 20 - by bank wire transfers but only upon written instructions from the Treasurer or an Assistant Treasurer, or such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Treasurer, and countersigned by the Controller or Assistant Controller, or such agents and employees as the Chairman or the President may from time to time designate and authorize to sign for the Controller. Section 2. The Treasurer of the Company may establish special bank accounts designated as Agent's Account in such bank or banks as in his judgment may be needed in carrying on and dispatching the business of the Company, provided that the Treasurer in establishing and maintaining such accounts shall keep only such funds therein and in such amount as may be required for the local needs of such accounts and provided that checks or drafts issued against or drawn on such accounts shall be valid and binding on the Company according to their wording, tenor and effect when signed by either the Treasurer of the Company or by such agent or employee of the Company as may be designated by the Treasurer in writing to such bank or when signed in such manner and by such agent or employee of the Company as may be designated by the Chairman or the President of the Company; and further provided that checks and drafts issued in the name of the Company against funds in such Agent's Account in the amount of $1,000.00 or more must be countersigned by two persons authorized to sign such checks or drafts. ARTICLE IX FISCAL YEAR Section 1. The fiscal year shall begin on the first day of January in each year. ARTICLE X DISTRIBUTIONS AND SHARE DIVIDENDS - 21 - Section 1. Distributions and share dividends upon the outstanding shares of the Company, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Distributions may be paid in cash or property, and share dividends may be paid in shares of the authorized but unissued shares or in treasury shares, of the Company subject to the provisions of the Articles of Incorporation. ARTICLE XI RESERVES Section 1. There may be created by resolution of the Board of Directors out of the earned surplus of the Company such reserve or reserves as the Directors from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Company, or for such other purpose as the Directors shall think beneficial to the Company, and the Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE XII SEAL Section 1. The Company's seal shall have inscribed thereon the name of the Company, the year of the organization and the words "Corporate Seal, Texas." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE XIII INDEMNIFICATION Section 1. The Company shall indemnify, and advance or reimburse reasonable expenses incurred by, any person who (1) is or was a director, officer, employee or agent of the corporation, - 22 - or (2) while a director, officer, employee or agent of the Company, its divisions or subsidiaries, is or was serving at the request of the Company, pursuant to a resolution adopted by the Board of Directors, as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic Company, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, to the fullest extent that a Company may or is required to grant indemnification to a director under the Texas Business Corporation Act. The Company, pursuant to a resolution adopted by the Board of Directors, may indemnify any such persons to such further extent as permitted by law. Action by the Board of Directors to amend, modify or terminate this ARTICLE XIII, Section 1. shall be prospective from the effective date of such action and any rights or obligations resulting from an event or events occurring prior thereto shall be governed by the provisions of this ARTICLE XIII, Section 1, as of the date of such event or events. ARTICLE XIV AMENDMENTS Section 1. The power to alter, amend, suspend or repeal the Bylaws or to adopt new Bylaws shall be vested in, and shall require the approval of, the majority of Continuing Directors then in office; provided, however, that any Bylaw or Amendment thereto as adopted by the Board of Directors may be altered, amended, suspended or repealed by the vote of the holders of 66 2/3% of the shares entitled to vote for the election of Directors or a new Bylaw in lieu thereof may be adopted by vote of such shareholders. No Bylaw which has been altered, amended or adopted by such a vote of the shareholders may be altered, amended, suspended or repealed by vote of the Directors until two years after such action by vote of the shareholders. - 23 - EX-10 5 2000 INCENTIVE STOCK OPTION PLAN Exhibit 10 GAMECOM, INC. 2000 INCENTIVE STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this GameCom, Inc. 2000 Incentive Stock Option Plan, (the "Plan") are to enable GameCom, Inc. (the "Company") and its Subsidiaries (as defined herein) to attract, retain and motivate the Key Employees (as defined herein) who are important to the success and growth of the business of the Company, and to create a long-term mutuality of interest between the stockholders of the Company and such Key Employees by granting them options (which may, in the case of Key Employees, be either incentive stock options (as defined herein) or non-statutory stock options) to purchase the Company's Common Stock. 2. Definitions. (a) "Act" means the Securities Exchange Act of 1934. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means such committee, if any, as may be appointed from time to time by the Board to administer the Plan, consisting of two or more directors, each of whom shall qualify as an "outside director" within the meaning of Section 162(m) of the Code and, to the extent required by Rule 16b-3 promulgated under Section 16(b) of the Act as then in effect, or any successor provisions ("Rule 16b-3"), as a "non-employee director" within the meaning of Rule 16b-3. If for any reason the appointed Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of the Code, such non-compliance shall not affect the validity of the Options, grants, interpretations or other actions of the Committee. If the Board does not appoint a committee for this purpose, "Committee" means the Board. (e) "Common Stock" means the common stock of the Company, par value $.005, any common stock into which such Common Stock may be converted, and any common stock resulting from any reclassification of the Common Stock. (f) "Company" means the Company and its Subsidiaries, any of whose employees are Participants in the Plan. (g) "Disability" means permanent and total disability, as determined by the Committee in its sole discretion, provided that in no event shall any disability that is not a permanent and total disability within the meaning of Section 22(e)(3) of the Code be treated as a Disability. A Disability shall be deemed to occur at the time of the determination by the Committee of the Disability. (h) "Fair Market Value" means the value of a Share (as defined herein) on a particular date, determined as follows: (i) If the Common Stock is listed on such date on a national securities exchange or quoted on the National Market System of The Nasdaq Stock Market, Inc. ("NASDAQ"), the closing sales price of a Share on such exchange or on the National Market System, as the case may be, on such date, or in the absence of reported sales on such day, the mean between the reported bid and asked prices on such exchange or on the National Market System, as the case may be, on such date; or (ii) If the Common Stock is not listed or quoted as described in the preceding clause, but bid and asked prices are quoted through NASDAQ, the mean between the closing bid and asked prices as quoted through NASDAQ on such date; or (iii) If the Common Stock is not listed or quoted as described in clauses (i) or (ii) above, by such other method as the Committee determines to be reasonable and consistent with applicable law; or (iv) If the Common Stock is not publicly traded, such amount as is set by the Committee in good faith. (i) "Incentive Stock Option" means any Option which is intended to qualify as an "incentive stock option" as defined in Section 422 of the Code. (j) "Key Employee" means any person who is an executive officer or other valuable staff, managerial, professional or technical employee of the Company, as determined by the Committee. A Key Employee may also be a director of the Company. (k) "Option" means the right to purchase one Share at a prescribed purchase price on the terms specified in the Plan. An Option may be an Incentive Stock Option or a non-qualified option. (l) "Participant" means a Key Employee of the Company who is granted Options under the Plan. (m) "Purchase Price" means the purchase price per Share payable upon exercise of an option. (n) "Securities Act" means the Securities Act of 1933, as it may be amended from time to time, or any successor statute. (o) "Share" means a share of Common Stock. (p) "Subsidiary" means any "subsidiary corporation" within the meaning of Section 424(f) of the Code. An entity shall be deemed a Subsidiary of the Company only for such periods as the requisite ownership relationship is maintained. (q) "Substantial Stockholder" means any Participant who is a Key Employee and who, at the time of grant, owns directly or is deemed to own, by reason of the attribution rules set forth in Section 424(d) of the Code, Shares possessing more than 10% of the total combined voting power of all classes of stock of the Company, a Subsidiary, or any "parent corporation" within the meaning of Section 424(e) of the Code. (r) "Termination of Employment" means cessation of an individual's status as an employee of the Company or any Subsidiary. In the event an entity shall cease to be a Subsidiary of the Company, any individual who is not otherwise an employee of the Company or another Subsidiary shall suffer a Termination of Employment at the time the entity ceases to be a Subsidiary. A leave of absence approved by the Committee shall not constitute a Termination of Employment. 2 3. Effective Date/Expiration of Plan. The Plan shall become effective on February 1, 2000 (the "Effective Date"), subject, however, to approval by the Company's stockholders. The Plan will terminate on the tenth anniversary of the Effective Date, unless earlier terminated in accordance with Section 11. No Option shall be granted under the Plan on or after the tenth anniversary of the Effective Date, but Options previously granted may extend beyond that date. 4. Administration. (a) Duties of the Committee. The Plan shall be administered by the Committee. The Committee shall have full authority, subject to the terms of the Plan: to interpret the Plan and to decide all questions and settle all controversies and disputes that may arise in connection with the Plan; to establish, amend, and rescind rules for carrying out the Plan; to administer the Plan; to select Key Employees to participate in, and grant Options to Key Employees under, the Plan; to determine the terms, exercise price and permitted forms of payment for each Option granted under the Plan; to determine which Options granted under the Plan to Key Employees shall be Incentive Stock Options; to prescribe the form or forms of the agreements evidencing Options and any other instruments required under the Plan and to change such forms from time to time; and to make all other determinations and take all such steps in connection with the Plan and the Options as the Committee, in its sole discretion, deems necessary or desirable. The Committee shall not be bound to any standards of uniformity or similarity of action, interpretation or conduct in the discharge of its duties, regardless of the apparent similarity of the matters coming before it. The determination, action or conclusion of the Committee in connection with the foregoing shall be final and conclusive. (b) Advisors. The Committee may designate officers or other employees of the Company or professional advisors to assist it in the administration of the Plan, and may grant authority to such persons to execute Option Agreements (as defined herein) or other documents on behalf of the Committee. The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan, and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultants and agents shall be paid by the Company. (c) Indemnification. No officer, member or former member of the Committee shall be liable for any action taken or made in good faith with respect to the Plan or any Option granted under it. To the maximum extent permitted by applicable law, the Company shall indemnify and hold harmless each officer, member or former member of the Committee and the Board against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim), and shall advance all amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted by applicable law, arising out of any act or omission to act in connection with the Plan. Such indemnification shall be in addition to any rights of indemnification the officers, members or former members may have as officers or directors under applicable law or under the Certificate of Incorporation or By-Laws of the Company. (d) Meetings of the Committee. The Committee shall select one of its members as a Chairman and shall adopt such rules and regulations as it shall deem appropriate concerning the holding of its meetings and the transaction of its business. Any member of the Committee may 3 be removed at any time, either with or without cause, by resolution adopted by the Board, and any vacancy on the Committee may at any time be filled by resolution adopted by the Board. All determinations by the Committee shall be made by the affirmative vote of a majority of its members. Any such determination may be made at a meeting duly called and held at which a majority of the members of the Committee are in attendance in person or through telephonic communication. Any determination set forth in writing and signed by all of the members of the Committee shall be as fully effective as if it had been made by a majority vote of the members at a meeting duly called and held. 5. Shares; Adjustment Upon Certain Events. (a) Shares to be Delivered; Fractional Shares. Shares to be issued under the Plan shall be made available, at the discretion of the Board, either from authorized but unissued Shares or from issued Shares reacquired by the Company and held in treasury. No fractional Shares will be issued or transferred upon the exercise of any Option. In lieu thereof, the Company shall pay a cash adjustment equal to the same fraction of the Fair Market Value on the date of exercise. (b) Number of Shares. Subject to adjustment as provided below in this Section 5, the maximum aggregate number of Shares that may be issued under the Plan shall be 1,500,000. If Options are for any reason canceled, or expire or terminate unexercised, the Shares covered by such Options shall again be available for the grant of Options, subject to the limit provided in the preceding sentence. Subject to adjustment as provided below in this Section 5, the maximum number of Shares subject to any Option which may be granted under the Plan to each Key Employee shall not exceed 500,000 Shares in each calendar year during the entire term of the Plan. Notwithstanding the foregoing, in order to comply with Section 162(m) of the Code, the Committee shall take into account that (i) if an Option is canceled, the canceled Option continues to be counted against the maximum number of Shares for which Options may be granted to a Key Employee under this Section 5(b) of the Plan, and (ii) if after the grant of an Option, the Committee or the Board reduced the Purchase Price, the transaction is treated as a cancellation of the Option and a grant of a new Option, and in such case, both the Option that is deemed to be canceled and the Option that is deemed to be granted, reduce the maximum number of Shares for which Options may be granted to a Key Employee under the Option. To the extent that Shares for which Options are permitted to be granted to a Key Employee during a calendar year are not covered by a grant of an Option in the calendar year, such Shares shall be available for grant or issuance to the Key Employee in any subsequent calendar year during the term of the Plan. (c) Adjustments; Recapitalization, etc. The existence of the Plan and Options granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting Common Stock, the dissolution or liquidation of the Company, or any sale or transfer of all or part of its assets or business or any other corporate act or proceeding. If the Company takes any such action, however, the following provisions shall, to the extent applicable, govern: (i) If and whenever the Company shall effect a stock split, stock dividend, subdivision, recapitalization or combination of Shares or other change in the Company's capital 4 stock, (x) the Purchase Price (as defined herein) per Share and the number and class of Shares and/or other securities with respect to which outstanding Options thereafter may be exercised, and (y) the total number and class of Shares and/or other securities that may be issued under the Plan, shall be proportionately adjusted by the Committee. The Committee may also make such other adjustments as it deems necessary to take into consideration any other event (including, without limitation, accounting changes) if the Committee determines that such adjustment is appropriate to avoid distortion in the operation of the Plan. (ii) Subject to Section 5(c)(iii), if the Company merges or consolidates with one or more corporations, then, from and after the effective date of such merger or consolidation, upon exercise of Options theretofore granted, the Participant shall be entitled to acquire under such Options, in lieu of the number of Shares as to which such Options shall then be exercisable but on the same terms and conditions of exercise thereof, the number and class of Shares and/or other securities or property (including cash) which the Participant would have held or been entitled to receive immediately after such merger or consolidation if, immediately prior to such merger or consolidation, the Participant had been the holder of record of the total number of Shares receivable upon exercise of such Options (whether or not then exercisable) had such merger or consolidation not occurred. (iii) In the event of a merger or consolidation in which the Company is not the surviving entity or any transaction that results in the acquisition of substantially all of the Company's outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all of the Company's assets (all of the foregoing being referred to as "Acquisition Events"), then the Committee may, in its sole discretion, terminate all outstanding Options granted to Key Employees by delivering notice of termination to each such Key Employee, provided that, during the twenty (20) day period following the date on which such notice of termination is delivered, each Participant who is a Key Employee shall have the right to exercise in full all of his Options that are then outstanding (without regard to any limitations on exercisability otherwise contained in the Option Agreements). If an Acquisition Event occurs and the Committee does not terminate the outstanding Options pursuant to the preceding sentence, then the provisions of Section 5(c)(ii) shall apply. (iv) Subject to Section 5(b), the Committee may grant Options under the Plan in substitution for options held by employees of another corporation who concurrently become employees of the Company as the result of a merger or consolidation of the employing corporation with the Company, or as the result of the acquisition by the Company of property or stock of the employing corporation. Such substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. (v) If, as a result of any adjustment made pursuant to the preceding paragraphs of this Section 5, any Participant shall become entitled upon the exercise of Options to receive any securities other than Common Stock, then the number and class of securities thereafter receivable upon exercise shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock set forth in this Section 5, as determined by the Committee in its sole discretion. 5 (vi) Except as expressly provided above, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash, property, labor or services, whether upon direct sale, upon the exercise of rights or warrants to subscribe therefore, or upon conversion of shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number and class of Shares and/or other securities or property subject to Options theretofore granted or the Purchase Price per Share. 6. Awards and Terms of Options for Key Employees. (a) Grant. The Committee may grant Options, including Options intended to be Incentive Stock Options, to Key Employees of the Company. Each Option shall be evidenced by an Option agreement (the "Option Agreement") in such from not inconsistent with the Plan as the Committee shall approve from time to time. (b) Exercise Price. The purchase price per share (the "Purchase Price") deliverable upon the exercise of an Option granted to a Key Employee shall be determined by the Committee (but in no event less than the par value of the Share), except that the Purchase Price of an Incentive Stock Option shall not be less than 100% (110% for an Incentive Stock Option granted to a Substantial Stockholder) of the Fair Market Value at the time the Incentive Stock Option is granted. To the extent that the grant of an Option is intended to comply with the exception for performance-based compensation under Section 162(m) of the Code, the Purchase Price of the Option shall not be less than 100% of the Fair Market Value at the time the Option is granted. (c) Number of Shares. Each Option Agreement shall specify the number of Options granted to the Key Employees, as determined by the Committee in its sole discretion. (d) Exercisability. At the time of grant, the Committee shall specify when and on what terms the Options granted to a Key Employee shall be exercisable. In the case of Options not immediately exercisable in full, the Committee may at any time accelerate the time at which all or any part of the Options may be exercised. No Option shall be exercisable after the expiration of ten (10) years from the date of grant (five years (5) in the case of an Incentive Stock Option granted to a Substantial Stockholder). Every Option shall be subject to earlier termination as provided in Section 7 below. (e) Special Rule for Incentive Options. If required by Section 422 of the Code or any successor provision, to the extent the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by a Key Employee during any calendar year (under all plans of his employer corporation and its parent and subsidiary corporations) exceeds $100,000, such Options shall not be treated as Incentive Stock Options. Nothing in this special rule shall be construed as limiting the exercisability of any Option. (f) Acceleration of Exercisability on Change of Control. Upon a Change of Control of the Company (as defined herein) all outstanding Options granted to Key Employees not then fully exercisable shall immediately become fully exercisable. For this purpose, a "Change of Control" shall be deemed to have occurred if: (i) any person (or group of persons acting in concert) becomes the beneficial owner of 30% or more of the Company's outstanding voting securities or securities convertible into such amount of voting securities; or 6 (ii) within two years after a tender offer or exchange offer, or as the result of a merger, consolidation, sale of substantially all of the Company's assets or a contested election of the Board of Directors, or any combination of such transactions, the persons who were directors of the Company prior to such transaction do not constitute a majority of the Board of Directors of the Company or its successor; provided, however, that no transaction shall be deemed to constitute a Change in Control if such transaction is approved by two-thirds of the Prior Directors of the Company and the Successor Directors (each as hereafter defined), if any, voting together. For purposes of this Agreement, Prior Directors are those directors of the Company in office immediately prior to such event, and Successor Directors are successors to Prior Directors who were recommended to succeed Prior Directors by a majority of the Prior Directors then in office. (g) Exercise of Options. (i) A Key Employee may elect to exercise one or more Options by giving written notice to the Committee of such election and the number of Options such Participant has elected to exercise, accompanied by payment in full of the aggregate Purchase Price for the number of shares for which the Options are being exercised. (ii) Shares purchased pursuant to the exercise of Options granted to Key Employees shall be paid for at the time of exercise as follows: (A) in cash or by check, bank draft or money order payable to the order of the Company; (B) if so permitted by the Committee: (x) through the delivery of unencumbered Shares (including Shares being acquired pursuant to the Options then being exercised), provided such Shares (and such Options) have been owned by the Key Employee for such periods as may be required by applicable accounting standards to avoid a charge to earnings, (y) through a combination of Shares and cash as provided above, (z) by delivery of a promissory note of the Key Employee to the Company, such promissory note to be payable, in the case of an Incentive Stock Option, on such terms as are specified in the Option Agreement (except that, in lieu of a stated rate of interest, an Incentive Stock Option may provide that the rate of interest on the promissory note will be such rate as is sufficient, at the time the note is given, to avoid the imputation of interest under the applicable provisions of the Code), or by a combination of cash (or cash and Shares) and the Key Employee's promissory note; provided, that, if the Shares delivered upon exercise of the Option is an original issue of authorized Shares, at least so much of the exercise price as represents the par value of such Shares shall be paid in cash or by a combination of cash and Shares; (C) if the Common Stock is at the time publicly traded, through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Purchase Price; or (D) on such other terms and conditions as may be acceptable to the Committee and in accordance with the law of the State of Texas. Upon receipt of payment, the Company shall deliver to the Participant as soon as practicable a certificate or certificates for the Shares then purchased. 7. Effect of Termination of Employment. 7 (a) Death, Disability, Retirement, etc. Upon the Termination of Employment of a Key Employee, all outstanding Options then exercisable (and any outstanding Options not previously exercisable but made exercisable by the Committee at or after the Termination of Employment) shall remain exercisable by the Key Employee for the following time periods (subject to the ten year limit set forth in Section 6(d)). (i) In the event of the Key Employee's death, such Options shall remain exercisable (by the Key Employee's estate or by the person given authority to exercise such Options by the Key Employee's will or by operation of law) for a period of one (1) year from the date of the Key Employee's death, provided that the Committee, in its sole discretion, may at any time extend such time period to up to three years from the date of the Key Employee's death. (ii) In the event the Key Employee retires at or after age 65 (or, with the consent of the Committee, before age 65), or if the Key Employee's employment terminates due to Disability, such Options shall remain exercisable for one (1) year from the date of the Key Employee's termination of employment, provided that the Committee, in its sole discretion, may at any time extend such time period to up to three years from the date of the Key Employee's Termination of Employment. (b) Other Termination. In the event of a Termination of Employment for any reason other than as provided in Section 7(a) or in 7(c), all outstanding Options shall remain exercisable after such Termination of Employment (but only to the extent exercisable immediately prior thereto) for a period of three (3) months after such termination, provided that the Committee, in its sole discretion, may extend such time period to up to one year from the date of the Key Employee's Termination of Employment. (c) Cause. Upon the Termination of Employment of a Key Employee for Cause (as defined herein) or if it is discovered after his other Termination of Employment that such Key Employee had engaged in conduct that would have justified a Termination of Employment for Cause, all outstanding Options held by the Key Employee shall immediately be canceled. Termination of Employment shall be deemed to be for "Cause" for purposes of this Section 7(c) if (i) the Key Employee shall have committed fraud or any felony in connection with his duties as an employee of the Company, willful misconduct or any act of disloyalty, dishonesty, fraud or breach of trust or confidentiality as to the Company, or any other act which is intended to cause or may reasonably be expected to cause economic or reputational injury to the Company or (ii) such termination is or would be deemed to be for Cause under any employment agreement between the Company and the Key Employee. 8. Nontransferability. No Option shall be transferable by the Participant otherwise than by will or under applicable laws of descent and distribution, and during the lifetime of the Participant may be exercised only by the Participant or his guardian or legal representative. In addition, no Option shall be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and no Option shall be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in the event of any levy upon any Option by reason of any execution, attachment or similar process contrary to the provisions hereof, such Option shall immediately become null and void. Notwithstanding the foregoing, the Committee may determine at the time of grant or thereafter that an Option (other than an Incentive Stock Option) that is otherwise not transferable 8 pursuant to this Section 8, is transferable in whole or in part and in such circumstances and under such conditions, as specified by the Committee. 9. Rights as a Stockholder. A Participant (or a permitted transferee of his Options) shall have no rights as a stockholder with respect to any Shares covered by such Participant's Options until such Participant shall have become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property or distributions or other rights in respect to any such Shares except as otherwise specifically provided for in this Plan. 10. Determinations. Each determination, interpretation or other action made or taken pursuant to the provisions of this Plan by the Committee shall be final and binding for all purposes and upon all persons, including, without limitation, the Participants, the Company, the directors, officers and other employees of the Company, and their respective heirs, executors, administrators, personal representatives and other successors in interest. 11. Termination, Amendment and Modification. The Plan shall terminate at the close of business on the tenth anniversary of the Effective Date, unless terminated sooner as hereinafter provided, and no Option shall be granted under the Plan on or after that date. The termination of the Plan shall not terminate any outstanding Options that by their terms continue beyond the termination date of the Plan. At any time prior to that date, the Board or the stockholders of the Company may terminate, suspend or amend the Plan; provided, however, that no amendment may be made that would require the approval of the stockholders of the Company under Rule 16b-3, Section 162(m) of the Code or, with respect to Incentive Stock Options, Section 422 of the Code, or under the rules of any exchange or system on which the Company's securities are listed or traded at the request of the Company, unless any such amendment is subject to such stockholder approval. No such Option may be exercised prior to the receipt of such stockholder approval. Nothing contained in this Section 11 shall be deemed to prevent the Board or the Committee from authorizing amendments of outstanding Options of Key Employees, so long as all Options outstanding at any one time shall not call for issuance of more Shares than the remaining number provided for under the Plan, and so long as the provisions of any amended Options would have been permissible under the Plan if such Option had been originally granted or issued as of the date of such amendment with such amended terms. Notwithstanding anything to the contrary contained in this Section 11, no termination, amendment or modification of the Plan may without the consent of the Participant (or any transferee of such Participant's Options), alter or impair the rights and obligations arising under any then outstanding Option. 12. Non-exclusivity. Neither the adoption nor the amendment of the Plan by the Board, nor the submission of the Plan or such amendments to the stockholders of the Company for approval, shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting or issuance of stock options, Shares and/or other incentives otherwise than under the Plan, and such arrangements may be either generally applicable or limited in application. 13. Use of Proceeds. The proceeds of the sale of Shares subject to Options under the Plan are to be added to the general funds of the Company and used for its general corporate purposes as the Board shall determine. 14. General Provisions. 9 (a) Right to Terminate Employment. Neither the adoption or the amendment of the Plan nor the grant of Options shall impose any obligations on the Company to continue the employment of any Key Employee, nor shall it impose any obligation on the part of any Key Employee to remain in the employ of the Company, subject, however, to the provisions of any agreement between the Company and a Key Employee. (b) Purchase for Investment. If the Board determines that the law so requires, the holder of Options granted hereunder shall, upon any exercise or conversion thereof, execute and deliver to the Company a written statement, in form satisfactory to the Company, representing and warranting that such Participant is purchasing or accepting the Shares then acquired for such Participant's own account and not with a view to the resale or distribution thereof, that any subsequent offer for sale or sale of any such Shares shall be made either pursuant to (i) a registration statement on an appropriate form under the Securities Act of 1933 (the "Securities Act"), which registration statement shall have become effective and shall be current with respect to the Shares being offered and sold, or (ii) a specific exemption from the registration requirements of the Securities Act, and that in claiming such exemption the holder will, prior to any offer for sale or sale of such Shares, obtain a favorable written opinion from counsel approved by the Company as to the availability of such exception. (c) Trusts, etc. Nothing contained in the Plan and no action taken pursuant to the Plan (including, without limitation, the grant of any Option thereunder) shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant or the executor, administrator or other personal representative, or designated beneficiary of such Participant, or any other persons. Any reserves that may be established by the Company in connection with the Plan shall continue to be part of the general funds of the Company, and no individual or entity other than the Company shall have any interest in such funds until paid to a Participant. If and to the extent that any Participant or such Participant's executor, administrator, or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. (d) Notices. Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing to such Participant of notices and the deliver to such Participant of agreements, Shares and payments. Any notices required or permitted to be given shall be deemed given if directed to the person to whom addressed at such address and mailed by regular United States mail, first class and prepaid. If any item mailed to such address is returned as 13 undeliverable to the addressee, mailing will be suspended until the Participant furnishes the proper address. (e) Severability of Provisions. If any provisions of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provisions had not been included. (f) Payment to Minors, etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and their employees, agents and representatives with respect thereto. 10 (g) Headings and Captions. The headings and captions herein are provided for reference and convenience only. They shall not be considered part of the Plan and shall not be employed in the construction of the Plan. (h) Controlling Law. The Plan shall be construed and enforced according to the laws of the State of Texas. 15. Issuance of Stock Certificates; Legends and Payment of Expenses. (a) Stock Certificates. Upon any exercise of Options and payment of the aggregate Purchase Price as provided in the relevant Option Agreements, a certificate or certificates for the Shares as to which Options have been exercised shall be issued by the Company in the name of the person or persons exercising such Options and shall be delivered to or upon the order of such person or persons. (b) Legends. Certificates for Shares issued upon exercise of Options shall bear such legend or legends as the Committee, in its discretion, determines to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or to implement the provisions of any agreements between the Company and a Key Employee with respect to such Shares. (c) Payment of Expenses. The Company shall pay all issue or transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer and with the administration of the Plan. 16. Listing of Shares and Related Matters. If at any time the Board shall determine in its sole discretion that the listing, registration or qualification of the Shares covered by the Plan upon any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the award or sale of Shares under the Plan, no Shares will be delivered unless and until such listing, registration, qualification, consent or approval 14 shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board. 17. Withholding Taxes. The Company shall be entitled to withhold (or secure payment from the Key Employee in cash or other property, including Shares already owned by the Key Employee for six (6) months or more (valued at the Fair Market Value thereof on the date of delivery) in lieu of withholding) the amount of any Federal, state or local taxes required to be withheld by the Company in connection with any Shares or cash payments deliverable under this Plan in respect of Options granted to any Key Employee, and the Company may defer delivery unless such withholding requirement is satisfied. The Committee may permit any such withholding obligation to be satisfied by reducing the number of Shares otherwise deliverable to the Key Employee. EX-27 6 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 4,529 0 180 0 0 4,709 91,150 5,615 99,234 979,050 0 0 0 57,735 (867,281) 99,234 5,431 5,431 (2,893) 24,472 0 0 8,770 (302,979) 0 (302,979) 143,781 0 0 (197,687) (.018) (.018)
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