-----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, VU29hGy979C8R4ZieB3Z6N+138lvZ02lRjnKA3ta5q/vboDSu3nGmhqVsO/bFP6u 7u0SQKBIh3f0UBWbcK2t4w== /in/edgar/work/20000809/0001005477-00-005584/0001005477-00-005584.txt : 20000921 0001005477-00-005584.hdr.sgml : 20000921 ACCESSION NUMBER: 0001005477-00-005584 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMECOM INC CENTRAL INDEX KEY: 0001085243 STANDARD INDUSTRIAL CLASSIFICATION: [7389 ] IRS NUMBER: 931207631 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-41214 FILM NUMBER: 689956 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 SB-2/A 1 0001.txt AMENDMENT NO. 1 TO SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 2000. REGISTRATION NO. 333-41214 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - -------------------------------------------------------------------------------- AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 - -------------------------------------------------------------------------------- GAMECOM, INC. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) TEXAS 5092 93-1207631 (State or other jurisdiction of (Primary standard (IRS employer incorporation or organization) industrial classification identification code number) number) 440 North Center Arlington, Texas 76011 (817) 261-GAMZ (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) 440 North Center Arlington, Texas 76011 (817) 261-GAMZ (ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS) L. Kelly Jones, chief executive officer 440 North Center Arlington, Texas 76011 (817) 261-GAMZ (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: DAVID C. THOMAS, ESQ. 185 Madison Avenue 10th Floor New York, NY 10016 (212) 725-4423 (212) 684-9022 Fax COUNSEL TO ISSUER ---------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE. 1 ---------- IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434, CHECK THE FOLLOWING BOX. |_| CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------ PROPOSED PROPOSED AMOUNT TO MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE BE OFFERING PRICE AGGREGATE REGISTRATION REGISTERED REGISTERED PER SECURITY OFFERING PRICE FEE ================================================================================================================== Common Stock, $.005 Par Value(1) 30,612,245 $ 0.49 $15,000,000 $3,960.00 - ------------------------------------------------------------------------------------------------------------------ Common Stock, $.005 Par Value (1)(2) 3,061,225 $ 0.49 $150,000 $39.60 - ------------------------------------------------------------------------------------------------------------------ Common Stock, $.005 Par Value(3) 245,000 $ 1.00 $245,000 $64.68 - ------------------------------------------------------------------------------------------------------------------ Common Stock, $.005 Par Value(4) 245,000 $0.625 $153,125 40.43 - ------------------------------------------------------------------------------------------------------------------ Total Registration and Fee.............................................................. $4,104.71 - ------------------------------------------------------------------------------------------------------------------
(1) Based upon the average of the bid and asked prices of GameCom, Inc. common stock as reported on the OTC Bulletin Board on June 26, 2000, pursuant to Rules 457(c) and (g) of the Securities Act of 1933. (2) Issuable upon the exercise of common stock purchase warrants issuable to Swartz Private Equity, LLC. The warrants are issuable to Swartz from time to time when GameCom exercises its put right to sell shares of common stock to Swartz. The exercise price of a warrant will be equal to 110% of the market price on the date that GameCom exercises its put right to sell shares of its common stock to Swartz. (3) Issuable upon the exercise of common stock purchase warrants issued to Swartz Private Equity, LLC, on April 14, 2000. The exercise price of the warrants is initially $1.00, but is subject to downward adjustment under certain circumstances. On each six month anniversary of the date of issuance, GameCom will calculate a reset exercise price that will be equal to 100% of the lowest closing bid price of the common stock for the five trading days ending on the six month anniversary date. The exercise price will be equal to the lowest reset exercise price determined on any six month anniversary of the date of issuance preceding the date on which the warrant is exercised, subject to anti-dilution adjustments. (4) Issuable upon the exercise of common stock purchase warrants issued to Swartz Private Equity, LLC, on April 14, 2000. The exercise price of the warrants is initially $0.625, but is subject to downward adjustment under certain circumstances. On each six month anniversary of the date of issuance, GameCom will calculate a reset exercise price that will be equal to 100% of the lowest closing bid price of the common stock for the five trading days ending on the six month anniversary date. The exercise price will be equal to the lowest reset exercise price determined on any six month anniversary of the date of issuance preceding the date on which the warrant is exercised, subject to anti-dilution adjustments. Pursuant to Rule 416 under the Securities Act, such additional number of shares of Common Stock subject to the Warrants are also being registered to cover any adjustment resulting from stock splits, stock dividends or similar transactions. The indeterminate number of additional shares shall be issuable pursuant to Rule 416 to prevent dilution resulting from stock splits, stock dividends or similar transactions. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. 2 [Logo of GameCom, Inc.] PROSPECTUS GameCom, Inc. 440 North Center, Arlington, Texas 76011 (817) 265-0440 The Resale of 34,163,470 Shares of Common Stock The selling price of the shares will be determined by market factors at the time of their resale. This prospectus relates to the resale by the selling shareholders of up to 34,163,470 shares of common stock. The selling shareholders may sell the stock from time to time in the over-the-counter market at the prevailing market price or in negotiated transactions. Of the shares offered, o up to 30,612,245 shares are issuable to Swartz Private Equity, LLC based an Investment Agreement dated as of June 1, 2000, and o up to 3,551,225 shares are issuable upon the exercise of warrants issued or issuable to Swartz under the Investment Agreement We will receive no proceeds from the sale of the shares by the selling shareholders. However, we may receive up to $15 million of proceeds from the sale of shares to Swartz, and we may receive additional proceeds from the sale to Swartz of shares issuable upon the exercise of any warrants that Swartz may exercise. Our common stock is quoted on the over-the-counter Electronic Bulletin Board under the symbol GAMZ. On August 7, 2000, the average of the bid and asked prices of the common stock on the Bulletin Board was $0.46 per share. Investing in the common stock involves a high degree of risk. You should not invest in the common stock unless you can afford to lose your entire investment. See "Risk Factors" beginning on page 7 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is August 8, 2000 3 Please read this prospectus carefully. It describes our company, finances, products and services. Federal and state securities laws require us to include in this prospectus all the important information that you will need to make an investment decision. You should rely only on the information contained or incorporated by reference in this prospectus to make your investment decision. We have not authorized anyone to provide you with different information. The selling shareholders are not offering these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front page of this prospectus. The following table of contents has been designed to help you find important information contained in this prospectus. We encourage you to read the entire prospectus. Table of Contents Prospectus Summary.............................................................5 Our Business................................................................5 Our Investment Agreement....................................................6 Key Facts...................................................................6 Summary Financial Data......................................................7 Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................................7 Risk Factors..................................................................10 Use of Proceeds...............................................................15 Price Range of Common Stock...................................................15 Dividend Policy...............................................................16 Forward-looking Statements....................................................16 Business......................................................................16 Selling Shareholder...........................................................21 Plan of Distribution..........................................................24 Management....................................................................24 Certain Transactions..........................................................29 Legal Proceedings.............................................................29 Description of Securities.....................................................29 Legal Matters.................................................................32 Experts.......................................................................32 Where You Can Find More Information...........................................32 4 Some of the statements contained in this prospectus, including statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," are forward-looking and may involve a number of risks and uncertainties. Actual results and future events may differ significantly based upon a number of factors, including: o that we have had significant losses ever since starting business and we expect to continue losing money for some time; o that network-enabled games, our only business, is a new line of business for us; o that we expect competition from companies that are much larger and better financed than we are; o that we cannot be sure our product will be accepted; and o that we are in default on loans from several of our shareholders. In this prospectus, we refer to GameCom, Inc. as we or GameCom, and Swartz Private Equity, LLC as Swartz. Prospectus Summary This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before investing in the common stock. You should read the entire prospectus carefully, including the "Risk Factors" section. Our Business We produce and market a unique gaming machine enclosed in a kiosk, which allows a player to compete against other players at the same location or over the internet, at another kiosk located anywhere in the world. Our 'Net GameLink(TM) 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 our patrons to play interactive 3D games with either other users at the same location or users at a remote location. 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. Alternatively, customers can use their credit cards or insert bills into the kiosk. We began operations in 1996 with the intent of operating a brewpub/microbrewery restaurant. In the course of that business we acquired rights to the 'Net GameLink (TM) system. Our restaurant operations proved unsuccessful due to 5 restrictive alcoholic beverage laws and for other reasons, and in 1999 we closed down those operations and began to focus exclusively on our gaming system. In February, 2000, we changed our jurisdiction of incorporation from Nevada to Texas. We maintain our principal office at 440 North Center, Arlington, Texas 76011, and our telephone number is (817) 261-GAMZ. We currently have our system operating at one location in Texas. We have completed beta testing and are ready to begin marketing our system to customers. Our Investment Agreement We have entered into an Investment Agreement with Swartz to raise up to $15 million through a series of sales of our common stock to Swartz. The dollar amount of each sale is limited by our common stock's trading volume. A minimum period of time must occur between sales. In turn, Swartz will either sell our stock in the open market, sell our stock to other investors through negotiated transactions or hold our stock in its own portfolio. This prospectus covers the resale of our stock by Swartz either in the open market or to other investors. Key Facts Total shares outstanding prior to 12,091,118(1) as of the offering August 7, 2000 Shares being offered for resale to the public 34,163,470(2) Total shares outstanding after the offering 46,254,588 Price per share to the public Market price at time of resale. Total proceeds raised by offering None; however, we may receive up to $15 million from the sale of the shares to Swartz, and we may receive additional amounts from the sale of shares to Swartz if Swartz exercises any of the warrants issued under the Investment Agreement. Use of proceeds from the sale of the shares We plan to use the proceeds for to Swartz working capital and general corporate purposes. OTC Bulletin Board Symbol GAMZ (1) Does not include shares underlying warrants issued to Swartz in connection with the Investment Agreement; Also does not include any shares underlying warrants that we may issue to Swartz in the future under the Investment Agreement. (2) Includes o up to 30,612,245 shares that may be issued to Swartz under the Investment Agreement, o up to 490,000 shares underlying warrants issued to Swartz under the Investment Agreement, and o up to 3,061,225 shares underlying warrants that we may issue to Swartz in the future pursuant to the Investment Agreement. 6 Summary Financial Data The information below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes to financial statement included elsewhere in this prospectus.
Year Ended December 31, Three Months ended March 31 1998 1999 1999 2000 ---- ---- ---- ---- Revenue 461,857 5,431 8,324 -- Operating Expenses 1,385,510 342,839 87,152 94,435 Net Loss (1,385,813) (361,880) $ (106,193 $ (94,435) Basic (loss) per common share (0.164) (0.038) $ (.012) $ (0.008) Weighted average number of common shares outstanding 8,435,721 9,581,072 8,522,703 11,922,150
Balance Sheet Data: March 31, 2000 Working capital $ (1,143,444) Total assets 111,286 Total liabilities 1,159,188 Shareholders' equity (1,055,429) Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial statements should be read in conjunction with the financial statements and notes to those statements. Overview. We were capitalized in 1996 to develop, own, and operate theme brewpub/microbrewery restaurants. Until March of 1997 when we acquired, and July 1, 1997 when we began operating, the former Hubcap Brewery & Kitchen in Dallas, Texas, we had no operations or revenues and our activities were devoted solely to development. In January, 1999, we terminated our brewpub/microbrewery restaurant operations. Future revenues and profits will depend upon various factors, including market acceptance of 'Net GameLink(TM), and general economic conditions. Presently our only source of revenue is the future sale of 'Net GameLink(TM) systems and from associated royalties. We have not received any revenue to date from either royalties from operations of systems we own or the sale of our systems to others. We expect to receive the first revenue from operations of our own system during the third quarter of 2000, and to receive the first revenue from a sale of the system to a third party during the third quarter as well. We cannot give any assurance that that we will successfully implement our expansion plans, including the 'Net GameLink(TM) entertainment concept. We face all of the risks, expenses, and difficulties frequently encountered in connection with the expansion and development of a new business. These include o limited working capital and the need to devote a substantial amount of management's time to raising capital rather than development of the business, o difficulties in maintaining delivery schedules if and when volume increases, o the need to develop support arrangements for systems at widely dispersed physical locations, o the need to control operating and general and administrative expenses, and o the need to spend substantial amounts on initial advertising to develop an awareness of us and our products. In addition, our chief executive officer is a practicing attorney with no training or prior experience in managing or overseeing a public company. Results of Operations. 7 Quarter ended March 31, 2000 compared to quarter ended March 31, 1999. These two periods are in no way comparable. The quarter ended March 31, 1999 reflects our unsuccessful efforts to develop our brewpub/microbrewery business, whereas the quarter ended March 31, 2000 reflects a redirection of our efforts from the discontinued business to the development of the our 'Net GameLinkTM System. For the quarter ended March 31, 2000 we had essentially no revenues. Administrative costs of $66,113 for the quarter ended March 31, 2000 compared to $28,836 for the quarter ended March 31, 1999 reflect professional fees incurred in connection with registration of our common stock under the Securities Exchange Act of 1934 and forfeiture of a security deposit under a lease as the result of the decision in January, 1999 to terminate the brewpub/microbrewery operations. The reduction in interest charges from $55,200 for the quarter ended March 31, 1999 to $17,500 for the quarter ended March 31, 2000 reflects the elimination of bank debt, an agreement by holders of other indebtedness to accept a one-time issuance of common stock in lieu of accrued and future interest and the issuance in 2000 of 100,000 shares of Common Stock to our chief executive officer as compensation for personally guaranteeing a bank borrowing of $20,000. Connect Computer Group, Inc., the firm which has been largely responsible for developing our kiosk and computer systems, has done its development work on the basis of an oral understanding or "gentleman's agreement" with our chief executive officer. Under this agreement, if we are successful in marketing the product Connect Computer will be issued a significant equity position in the Company. The amount of that equity position has not yet been determined. If marketing of the product is not successful, Connect Computer will not be entitled to any shares for its efforts. The parties have not explicitly agreed upon any method for determining whether marketing of the product has been successful. There is considerable uncertainty as to both the standards for determining whether any shares are issuable and the number of shares, if any, that we may have to issue for these services. However, we have made a charge to our earnings for those services based on our estimate of the number of shares we will ultimately have to issue for those services. Later negotiations may result in significant adjustments to these estimates. Fiscal year ended December 31, 1999 compared to fiscal year ended December 31, 1998. These two periods are also in no way comparable. The fiscal year ended December 31, 1998 reflects our unsuccessful efforts to develop its brewpub/microbrewery business, whereas fiscal year 1999 reflects a redirection of our efforts from the discontinued business to the development of our 'Net GameLink(TM) System. For the fiscal year ended December 31, 1999 we had essentially no revenues. Administrative costs of $409,999 for the fiscal year ended December 31, 1999 compared to $1,002,192 for the fiscal year ended December 31, 1998 reflect the decision in January, 1999 to terminate the brewpub/microbrewery operations. We recorded a $143,781 gain on the sale of equipment for the fiscal year ended December 31, 1999. This gain was recorded because, as described below, the guarantors of our 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 $41,336 reduction in interest charges for the fiscal year ended December 31, 1999 reflects that elimination of bank debt as described above and an agreement by holders of other indebtedness to accept a one-time issuance of common stock in lieu of accrued and future interest. The value of that common stock is shown as finance charges for the applicable periods. Liquidity and Capital Resources. As of March 31, 2000 our liquidity position was extremely precarious. We had current liabilities of $1,208,481, including o $773,776 in trade payables, most of which were overdue, o short-term notes payable to shareholders of $360,500, most of which were either demand indebtedness or were payable at an earlier date and were in default, and o bank debt of $20,000 and related accrued interest on the notes. Current assets available to meet those liabilities were only $2,606. To date we have met their capital requirements through 8 o capital contributions, o loans from principal shareholders and officers, o bank borrowings, and o private placement offerings. For the quarter ended March 31, 2000, our net loss was $94,435, of which only $33,516 was accounted for by non-cash charges. In addition, we made capital expenditures of $1,512 resulting in total cash requirements for the quarter of approximately $62,431. To cover most of these cash requirements, we allowed accounts payable and accrued expenses to increase by $49,293, and drew down our cash by $13,138. For the fiscal year ended December 31, 1999, our net loss was $361,880, of which only $84,306 was accounted for by non-cash charges. In addition, we were required to repay bank and other borrowings in the amount of $285,327, and made capital expenditures of $41,237 resulting in total cash requirements for the fiscal year of approximately $604,138. To cover most of these cash requirements, we allowed accounts payable and accrued expenses to increase by $247,530, disposed of assets relating to the closed-down brewpub operation for a gain of $143,781, and issued additional shares of our common stock to investors for approximately $135,000. At the time the operations of First Brewery of Dallas, Inc. were terminated, all of that subsidiary's assets were pledged to secure a debt to SecurityBank of Arlington, Texas. Our directors and another individual had personally guaranteed that debt. Upon termination of the brewpub/microbrewery operations the guarantors were required to pay the debt to the bank, and upon payment the bank assigned our notes and the related security to the guarantors. The guarantors accepted the subsidiary's assets in full satisfaction of the debt, and later sold the assets securing to third parties at a loss. The effect of these transactions is included in the $143,781 gain on sale of assets for the year ended December 31, 1999. In December, 1999, we borrowed $20,000 on an unsecured basis from a bank. Our chief executive officer personally guaranteed this loan. The loan was increased to $50,000 on June 23, 2000. It now matures on December 23, 2000. On June 21, 2000, we placed First Brewery of Dallas, Inc. into voluntary liquidation under Chapter 7 of the Bankruptcy Act. When that proceeding is concluded, our consolidated balance sheet will be improved by the elimination of $524,111 in trade payables, as those amounts are owed solely by the subsidiary. The bankruptcy will not affect our debt service requirements, as all interest-bearing debt is owed by the parent company, and not the subsidiary. On June 1, 2000 we entered into an investment agreement with Swartz to raise up to $15 million through a series of sales of common stock. The dollar amount of each sale is limited by the trading volume and a minimum period of time must occur between sales. In order to sell shares to Swartz, there must be an effective registration statement on file with the SEC covering the resale of the shares by Swartz and we must meet several other conditions. The agreement is for a three-year period beginning on the effective date of this registration statement. We have incurred recurring operating losses and negative cash flows from operating activities and have negative working capital. We believe that our available equity financing arrangement with Swartz will be sufficient to meet our working capital and capital expenditure requirements for at least the next three years. However, we cannot give any assurance that we will receive financing from Swartz, that we will not require additional financing within this time frame, or that additional financing, if needed, will be available on terms acceptable to us, if at all. Based on the interest-bearing indebtedness presently outstanding, our annual debt service requirements without taking into account any payments of principal are approximately $16,700. We intend to pay approximately one-half of our interest-bearing debt pro rata promptly after receiving the proceeds from the first few sales of shares to Swartz. This would reduce our annual debt service requirements by one-half. If we cannot raise additional funds through the sale of shares to Swartz or from other sources, holders of our debt (all of whom are stockholders except for the bank loan) would be in a position to shut down our operations. 9 Plan of Operations The opinions of our independent auditor for each of the last two fiscal years expressed substantial doubt as to our ability to continue as a going concern. Until we are able to draw down enough financing to expand our operations more rapidly, we plan to limit our 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 our operations to delivery of systems as permitted by internally-generated cash flow and the amount of money we can draw down based on market volume. This may require us to accept orders for new systems only on the basis of a large enough down payment to cover the costs of manufacture of the system. This may in turn make it difficult to market additional systems. Further, the expression of uncertainty as to our ability to continue as a going concern may itself adversely affect our liquidity and cash flow, since vendors who might otherwise have been willing to extend credit may instead insist upon pre-payment or payment on a C.O.D basis. We expect to begin receiving revenues from operation of its present system at J. Gilligan's during the third quarter of 2000. However, these revenues are not expected to be enough to carry out any substantial advertising and marketing. We will need to hire a qualified chief operating officer, and there is no assurance that we will be able to obtain one. We recently hired a director of marketing and a gaming technical advisor. Additional employees will be needed during the next 12 months. At the present time, although senior management is serving without compensation, our director of technical services, director of marketing, and gaming technical advisor are currently receiving compensation. If we are not able to raise the necessary funds to expand sales beyond those that may be generated by person-to-person contact, we may be forced to terminate our operations entirely. Risk Factors An investment in the common stock the selling shareholders are offering to resell is risky. You should be able to bear a complete loss of your investment. Before purchasing any of the common stock, you should carefully consider the following risk factors, among others. We have had significant losses ever since starting business and we expect to continue losing money for some time. To date, we have incurred significant losses. At March 31, 2000, our accumulated deficit was $2,431,906 and our working capital deficit was $ 1,143,444. For the year ended December 31, 1999, we lost $361,880 and for the year ended December 31, 1998, we lost $1,385,813. These losses were caused primarily by: o difficulty getting licenses needed to sell beer for off-premises consumption for our discontinued microbrewery operations; o an economic decline in the Dallas West End Historical District where our discontinued restaurant operations were located; and o both development costs and continuing general and administrative expenses with no corresponding revenue during the time when we had shut down our other operations and were developing our 'Net GameLink(TM) concept. Network-enabled games, our only business, is a new line of business for us. Our only source of revenue to date has been our restaurant/brewpub business, which we closed in 1999. Management has no prior experience in developing and implementing network-enabled games or any other electronically based products. 10 We expect competition from companies that are much larger and better financed than we are. We believe our primary competition will be from large gaming centers being established by companies such as GameWorks. GameWorks: o has far greater financial and technical resources than we have, and o has created an entire establishment devoted to various forms of gaming, including virtual reality games. We do not know of any other companies presently offering systems such as 'Net GameLink(TM), but there are few barriers to entry and therefore competition could be intense from yet-to-be created companies. We cannot be sure our product will be accepted. We have not carried out any marketing studies to determine how well our product will be accepted. Our product may not be accepted on a sufficiently wide basis to allow production in the quantities needed to make us profitable. Although arcade and computer games are an established form of entertainment, and although third-party research indicates that interactive Internet gaming is a soon-to-be burgeoning form of entertainment, at present 'Net GameLink(TM) is a new and unique concept that has been subject to limited beta-testing. We have used only one beta site, and that site was also used for eliminating technical bugs. This limited test marketing is too small to reach firm conclusions about acceptance of the product in a wider geographic market. We are in default on loans from several of our shareholders. Several of our shareholders have made loans to us and hold notes for these loans which we have been unable to repay. The shareholders are legally entitled to sue us at any time for the amounts we owe them. We do not believe they will sue us, since that would probably caused the value of the stock the hold to go down. However, if one or more of the shareholders were to sue us we might be forced to go out of business. One of our shareholders holds a note that could require us to issue him a large number of shares of common stock. We have issued $103,500 in principal amount of promissory notes providing for a per diem issuance of common stock as a penalty for late payment. We are in default under that note. As of December 31, 1999, the per diem issuance would be in excess of 2,800,000 shares of our common stock. Should the holder of the note prevail in any litigation to enforce this penalty, the shares issuable under the penalty provisions would result in the holder's becoming our largest single shareholder. Further, depending upon how long it took to resolve the issue, an adverse decision could result in that holder's becoming a controlling shareholder. Our product is not protected by patents. Although we have filed a patent for a "network-enabled gaming kiosk," to date the patent has not been granted, and even if it is granted it may not give us enough protection to exclude potential competitors. We depend on others to provide our computer games. We do not develop our own computer games; we license these games from others. Although we have been well-received in preliminary discussions with computer game manufacturers and distributors about the availability of games at a reasonable or no license fee for use on 'Net GameLink(TM) entertainment systems, we cannot give any assurance that we will be able to license the most desirable games at commercially reasonable terms and prices. If we are unable to get the games at reasonable prices, our costs of operation will go up. We may have difficulty expanding our operation for production in volume. 11 If we are to become profitable, we will have to move from limited operations at a single beta site to volume production. We cannot give any assurance that we will be able to successfully implement our expansion plans, including the 'Net GameLinkTM entertainment concept. We will have all of the risks, expenses, and difficulties frequently encountered in connection with the expansion and development of a new business. These include o difficulties in maintaining delivery schedules if and when volume increases, o the need to develop support arrangements for systems at widely dispersed physical locations, o the need to control operating and general and administrative expenses and o the need to spend substantial amounts on initial advertising to develop an awareness of the Company and its products. In addition, our chief executive officer is a practicing attorney with no training or prior experience in managing or overseeing a public company. We will will need to hire a qualified chief operating officer, and there is no assurance that we will be able to obtain one. We may have difficulty moving from one-at-a-time to volume production of our product. We have not yet begun to produce our 'Net GameLink(TM) entertainment system in quantity. The current kiosks were constructed by one manufacturer who can effectively control production, price, delivery dates, etc. Although we are discussing the production of 'Net GameLink(TM) kiosks with other kiosk manufacturers to satisfy market demand, we cannot give any assurance that we will be able to produce enough 'Net GameLink(TM) entertainment systems to keep up with potential demand. If we are not able to produce enough systems to meet demand, we may lose customers and our revenue would suffer. The technology and our industry is changing rapidly and we may not have money or expertise to remain current. While we believe we have acquired the latest technology for our 'Net GameLink(TM) entertainment concept, the technology is changing rapidly. So far we have relied on outside sources to develop our technology and we cannot give any assurance that new technology and software can be developed in the future to compete in the marketplace. Companies with which the Company will compete could have greater resources -- both money and expertise -- for internal development and we may not be able to acquire the new technology as it is developed in the future. The entertainment industry carries some risks that are not shared by other businesses. Consumer spending in the entertainment industry is largely discretionary. As a result, companies and that industry are subject to risks that are not present where the product or service being produced is more of a necessity. These risks include: o competition for customers both within a category and between categories of alternative forms of entertainment, o substantial media advertising costs needed to enhance or create a demand for the product or service, o disproportionate impact of deflation or inflation, employment and wage levels, changes in local markets or economic conditions, and o changes in customer tastes. As a result, our revenue may vary more as a result of factors beyond our control than would be the case in other industries. 12 It is difficult to predict the impact of our proposed marketing efforts. Our success will depend on adequate marketing resources. Our marketing plan includes advertising and promotional materials, advertising campaigns in both print and broadcast media, and cooperative marketing arrangements with the hospitality industry, and other complimentary entertainment and attraction related operations. We cannot give any assurance that these marketing efforts will be successful. We depend heavily on the continued service of our chief executive officer. We place substantial reliance upon the efforts and abilities of L. Kelly Jones, our chief executive officer. The loss of Mr. Jones's services could have a serious adverse effect on our business, operations, revenues or prospects. Mr. Jones is a practicing attorney and his services as chief executive officer are performed on a part-time basis. We cannot give any assurance that he will continue to devote the necessary time to our business to bring our plans to completion. We do not have an employment agreement with Mr. Jones or maintain any key man insurance on his life, and we do not intend to maintain any key man insurance for some time. Our management will have broad discretion in the use of proceeds we receive from the sale of shares to Swartz. We will not receive any other proceeds of this offering, but we may receive proceeds of the sale of shares to Swartz under our financing agreement with them. Management has broad discretion to adjust the application and allocation of the net proceeds of shares sold to Swartz in order to address changed circumstances and opportunities. As a result, our success will be substantially dependent upon the discretion and judgment of our management in determining how to apply and allocate those proceeds. We do not expect to pay dividends for some time, if at all. No dividends have been paid on the Common Stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors. A majority of our shareholders can elect all of our directors. There is no cumulative voting for the election of directors of the Company. As a result, the holders of a majority of our outstanding voting stock may elect all of our directors if they choose to do so, and the holders of the remaining shares will not be able to elect any directors. Currently, our officers and a consultant own a substantial percentage of the shares of Common Stock outstanding and are in a position to control our affairs, including the election of the board of directors. Our business is subject to economic downturns to a greater extent than other companies' businesses might be. Since we offer products and services that are generally considered discretionary, an economic downturn could have adverse consequences for us. There is only a limited market for our shares. While there is Common Stock that is "free trading," there is only a limited and relatively "thin" market for that Common Stock. We cannot give any assurance that an active public market will develop or be sustained. This means you might have difficulty liquidating your investment if that becomes necessary. We may not have enough funding to complete our business plan. We expect that our major source of funding over the next 36 months will be our financing arrangement with Swartz. We may need additional financing to fully implement our business plan. We believe the private equity line will be sufficient to maintain our operations for at least the next 36 months, but the amount available under that line is based 13 upon trading volume, which is beyond our control. If trading volume were to decline significantly, or not to increase as expected, we might not be able to draw down enough funds under that line to finance demand for our product. As a result, we may need to seek financing above that provided by Swartz's private equity line. We cannot give any assurance that this additional financing could be obtained of attractive terms or at all. In addition, our ability to raise additional funds through a private placement may be restricted by SEC rules which limit a company's ability to sell securities similar to those being sold in a registered offering (such as that contemplated by Swartz's equity line) before the time that offering is completed or otherwise terminated. Lack of funding could force us to curtail substantially or cease our operations. Based on our potential rate of cash operating expenditures and our current plans, we expect our cash requirements for the next 36 months may need to come primarily from the proceeds of the Investment Agreement with Swartz. However, our ability to raise funds under the Investment Agreement is subject to several conditions. These conditions include the continuing effectiveness of a registration statement covering the resale of the shares sold under the Investment Agreement and a limitation on the number of shares we may issue based on the volume of trading in the common stock. We expect that our future cash requirements may be fulfilled by improved sales of products and services, the sale of additional equity securities, debt financing and/or the sale or licensing of certain of our technologies. However, there can be no assurance that any future funds required in excess of the proceeds of the Investment Agreement will be generated from operations or from the aforementioned or other potential sources. There can also be no assurance that the required funds, if available, will be available on attractive terms or that the terms under which they are raised will not significantly dilute the interests of our existing shareholders. The market in which we compete is subject to rapid technological change. Technology in the electronic gaming industry changes rapidly, and our products and services, as well as the skills of our employees, could become obsolete quickly. Our success will depend, in part, on our ability to improve our existing products and develop new products that address the increasingly sophisticated and varied needs of our current and prospective customers, and respond to technological advances, emerging industry standards and practices, and competitive service offerings. Our stock price is volatile. The market price of our common stock has been and is likely to continue to be volatile and could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates by securities analysts, overall equity market conditions or other factors that are mostly beyond our control. Because our stock is more volatile than the market as a whole, our stock is likely to be disproportionately harmed by factors that harm the general securities markets, such as economic turmoil and military or political conflict, even if those factors do not relate to our business. In the past, securities class action litigation has often been brought against companies after periods of volatility in the market price of their securities. If securities class action litigation is brought against us it could result in substantial costs and a diversion of management's attention and resources, which would hurt our business. Trading in our common stock on the OTC Bulletin Board may be limited. Our common stock trades on the OTC Bulletin Board. The OTC Bulletin Board is not an exchange and, because trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on an exchange or Nasdaq, you may have difficulty reselling any of the shares that you purchase from the selling shareholders. Our common stock is subject to penny stock regulation. Our common stock is subject to regulations of the Securities and Exchange Commission relating to the market for penny stocks. These regulations generally require broker-dealers who sell penny stocks to persons other than established customers and accredited investors to deliver a disclosure schedule explaining the penny stock market and the risks associated with that market. These regulations also impose various sales practice requirements on 14 broker-dealers. The regulations that apply to penny stocks may severely affect the market liquidity for our securities and that could limit your ability to sell your securities in the secondary market. A significant percentage of our common stock is held by our directors and executive officers, who can significantly influence all actions that require a vote of our shareholders. Our directors and executive officers currently own approximately 25.5% of our outstanding common stock and have options on an additional 1,199,000 shares. As a result, management is in a position to influence significantly the election of our directors and all other matters that are put to a vote of our shareholders. The exercise of options and warrants could depress our stock price and reduce your percentage of ownership. If all of the warrants that may be issued to Swartz under the Investment Agreement are issued, Swartz will hold outstanding options and warrants to 3,551,225 shares of common stock, assuming that we issue a total of 3,061,225 warrants to Swartz under the Investment Agreement. These are in addition to the options held by officers and employees. The number of warrants that may be issued to Swartz under the Investment Agreement will fluctuate depending on the price at which we put shares to Swartz, which in turn will depend on the market price at the time of the puts. In the future, we may grant more warrants or options under stock option plans or otherwise. The exercise or conversion of stock options, warrants or other convertible securities that are presently outstanding, or that may be granted in the future, will dilute the percentage ownership of our other shareholders. The "Description of Securities" section of this prospectus provides you with more information about options and warrants to purchase our common stock that will be outstanding after this offering. Use of Proceeds We will not receive any proceeds from the sale of the shares by the selling securityholders. However, we may receive additional proceeds from the sale to Swartz of shares issuable upon the exercise of warrants issued or to be issued to Swartz under the Investment Agreement. We intend to use the proceeds from the sale of the shares to Swartz and the exercise of warrants by Swartz for working capital and general corporate purposes. Price Range of Common Stock Our common stock is traded on the OTC Electronic Bulletin Board. The following table sets forth the high and low bid prices of our common stock for each quarter for the years 1998 and 1999 and the first quarter of 2000 through June 26, 2000. As of June 26, 2000, there were 93 holders of record of our common stock. The quotations set forth below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Common stock: Year High Bid Low Bid 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 15 Fourth Quarter 0.70 0.065 2000 First Quarter 1.31 0.27 Second Quarter (through August 7, 2000) 0.97 0.34 Dividend Policy We have never paid any dividends on our common stock. We expect to continue to retain all earnings generated by our operations for the development and growth of our business, and do not expect to pay any cash dividends to our shareholders in the foreseeable future. The board of directors will determine whether or not to pay dividends in the future in light of our earnings, financial condition, capital requirements and other factors. Forward-looking Statements In this prospectus and in our other filings with the Securities and Exchange Commission, in our press releases and in oral statements made with the approval of one of our authorized executive officers, you will find words or phrases like "will likely result," "plans," "will continue," "is anticipated," "estimated," "expect," "project" or "outlook" or similar expressions. You may also find similar words or phrases in confirmations by our authorized executive officers of expressions like these made by a third party about us. These words or phrases are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We caution readers not to place undue reliance on any of these forward-looking statements. Each speaks only as of the date made, and these statements are subject to many risks and uncertainties. Actual results are likely to differ materially from historical earnings and those presently anticipated or projected. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the factors described in the Risk Factors section of this prospectus. We are not undertaking any obligation to release publicly revisions we make to any forward-looking statements to reflect events or circumstances occurring after the date of those statements. All written and oral forward-looking statements made after the date of this prospectus and attributable to us or persons acting for us are expressly qualified in their entirety by this discussion. Business Business Overview We were organized in 1996 to operate theme concept microbrewery restaurants. In 1997, we acquired First Brewery of Dallas, Inc., which operated the former Hubcap Brewery & Kitchen of Dallas, Texas (later renamed The Schooner Brewery(TM) brewpub). For several reasons, 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 GameLink(TM), 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 GameLink(TM) product. 16 In February, 2000, we changed our jurisdiction of incorporation from Nevada to Texas. Our principal office is at 440 North Center, Arlington, Texas 76011, and our telephone number is (817) 261-GAMZ. Closed Microbrewery Operations From 1997 to 1999, we operated a brewpub restaurant in Dallas, Texas under the name The Schooner Brewery (TM). We received a number of awards for the quality of our beer at national and regional competitions. Our plan was to build upon the favorable publicity resulting from these awards to develop and expand a craft brewing concept that would both serve our 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, we were unable to carry out our plan. In addition, the Dallas West End Historical District where our restaurant was located was undergoing an economic decline at the time. The restaurant continued to accumulate net losses, and management closed our brewpub operations in early 1999 in favor of full-time exploitation of the 'Net GameLink(TM) concept. Since that time our 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. We do not expect to have revenues from our Internet gaming business until early in the third 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 idea 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 large enough 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 some 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. We believe that people like to talk to each other while they play, and a computer screen is no substitute for face-to-face communication. We have not carried out any marketing studies to confirm this belief, but both our own observations of players during beta-testing of our 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. We believe 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. Our 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, we acquired all proprietary rights in the 'Net GameLink(TM) system from Adams Bragg & Company, Inc., a firm which had been performing public relations services for us, in exchange for 425,000 shares 17 of our 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, we worked in cooperation with Connect Computer Group, a Euless, Texas electronics firm, to develop the hardware and communications configuration to implement this concept. Connect Computer Group performed these services 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 our company. Our '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 our 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. Alternatively, customers can use their credit cards or insert bills into the kiosk. Design Goals: In designing kiosks for our system, our objectives were to o remove the computer look and feel from the game play experience, o use state-of-the-art sound and video systems to further enhance game play, o provide for connection to other kiosks at the same location through an intranet and connection to kiosks at other locations through the Internet, and o 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 we removed all enclosures 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 uninterruptible 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 presently based on an AMD Athlon(TM) 800 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 18 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-feedback 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, or inserts bills into the kiosk, 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 the user's 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: Our system provides for interactive play among gamers at a single location via an intranet or at widely dispersed locations via the Internet. Because our system is intended to reach players wishing to play in a social setting, we expect 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 this type of 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 our 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 our system is likely to be the fact that the hardware components will be faster, bigger, louder, etc. than those he or she would have available in a home setting. We expect the novice to find the physical 19 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 appealing. All locations will be accessible through our computer at our home office, so that we can constantly monitor the popularity of the games available at a particular location. The games installed at each location will vary to some extent depending upon the amount of playing each receives as reported by our 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 our initial system were selected after discussions with GT Interactive Software, a leading games manufacturer/distributor. We have no commitments to our current supplier beyond our current obligation to pay required royalties on the games we use. 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. We believe that as we become established in multiple locations we will be in a position to achieve a strategic alliance with one or more of the leading games manufacturers/distributors under which we would receive payment from the manufacturer/distributor in exchange for being a supplier of our games. Although we have had preliminary discussions for arrangements of this type with manufacturers/distributors none have yet been completed. Our 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, we moved this system to J. Gilligan's in Arlington, Texas to bring it closer to our 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 second quarter of 2000 when we will begin charging patrons for play on the system. We expect to deliver the first system to be sold to a third party during the third quarter. Initially, we intend to build the systems to order with delivery of the completed systems to occur approximately four weeks after the order. We intend to maintain the initial system at J. Gilligan's as a permanent "test bed" for continued upgrading and improvements to our system. Hardware and Software Availability: Our kiosks are manufactured to our design and we purchase them from time to time as required. We presently purchase kiosks from a single supplier, but no specialized equipment or knowledge beyond normal furniture-manufacturing techniques is required for their construction, and we do not anticipate any difficulty in acquiring these items. The system uses standard off-the-shelf computer hardware and software items. Advanced Micro Devices, Inc. is furnishing the computer processors to us without any out-of-pocket cost in exchange for our publicizing that company as our microprocessor supplier. Sources of Revenue: We intend to provide our interactive electronic gaming service through a combination of Company-owned centers and through third parties such as social bars. Third parties will purchase the system on the basis of a fixed initial fee and a continuing royalty. In addition, we expect to sell advertising to companies who want to reach our demographic market. We expect that the cost of a system to third parties will be in the range of $6,500 to $7,500 per kiosk, including the server for each location. We expect 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. We believe our 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 we do and has created an entire establishment devoted to various forms of gaming, including virtual reality games. So far as we are aware, GameWorks is the only such competitor at the present time. We will not be able to compete with GameWorks in technology or size of facility. Instead we 20 intend 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, our 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 you sometimes see installed in theater lobbies, where the use is incidental to the patron's primary reason for coming to the establishment. Marketing Until we are in a position to raise significant amounts of additional capital, our capacity for producing 'Net Gamelink(TM) systems will be severely limited, and our marketing efforts will be consistent with our production capacity. We expect initial marketing efforts to consist of follow-ups by our Director of Sales directed toward a limited number of individual and chain casual restaurant/bars, some of which have learned of our 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. We have produced a promotional video of the system for distribution to potential customers, and we also promote the system by means of live streaming video on our web site, showing actual real-time use of our 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. We intend to add additional marketing staff as required. Employees At August 7, 2000 we employed 7 people. We consider relations with our employees to be satisfactory. Trademarks We have filed for federal registration of our "'Net GameLink(TM)" and "The Internet Just Met Its Match" trademark, and a patent application is pending for our network-enabled gaming kiosk. We cannot give any assurance that a patent will issue on this application, or that if the patent is issued it will be broad enough to provide meaningful protection. The time required to obtain a patent depends upon a number of factors, including the extent to which the Company has to negotiate with the patent office as to the breadth of the patent ultimately to be issued. We expect that if the patent does issue it will not issue until some time in 2001. Selling Shareholder The following table provides certain information about the selling shareholder's beneficial ownership of our common stock as of August 7, 2000, and as adjusted to give effect to the sale of all of the shares being offered by this prospectus. The selling shareholder is not our affiliate and has not had a material relationship with us during the past three years. It is not affiliated with any broker-dealer. See "Plan of Distribution." The selling shareholder has sole voting and investment power with respect to the securities shown.
Shares Beneficially Owned After Offering Number of Shares Beneficially Owned Before Number of Number of Name Offering Shares Offered Shares Percentage Swartz Private Equity, LLC 490,000(1) 34,163,470(1) 0 0
(1) Represents shares issuable to Swartz upon exercise of warrants issued at the time the Investment Agreement was signed. (2) Represents both the shares described in (1) above and shares of common stock that we may sell to Swartz under the Investment Agreement and upon the exercise by Swartz of options or issuable in connection with the Investment 21 Agreement. It is expected that Swartz will not own beneficially more than 9.9% of our outstanding common stock at any time. Investment Agreement On June 1, 2000, we entered into an Investment Agreement with Swartz. The Investment Agreement entitles us to issue and sell our common stock to Swartz for up to an aggregate of $15 million from time to time during the three-year period beginning on the effective date of this registration statement. Each election by us to sell stock to Swartz is referred to as a put right. Put rights. In order to invoke a put right, we must have an effective registration statement on file with the SEC registering the resale of the shares of common stock that may be issued as a result of exercising that put right. We must also give at least 10 but not more than 20 business days' advance notice to Swartz of the date we intend to exercise a particular put right and we must indicate the maximum number of shares of common stock that we intend to sell to Swartz. At our option, we may also designate a maximum dollar amount of common stock (not to exceed $2 million) that we will sell under the put and/or a minimum purchase price per common share at which Swartz may purchase shares under the put. The minimum purchase price that we specify, if any, may not exceed 80% of the closing bid price of our common stock on the date we give Swartz advance notice of our exercise of a put right. The number of common shares sold to Swartz may not exceed the lesser of 15% of the aggregate daily reported trading volume during a period that begins on the business day immediately following the day we exercise the put right and ends on and includes the day that is 20 business days after the date we exercise the put right, 15% of the aggregate daily reported trading volume during the 20 business days before the date we exercise the put right or 9.9% of the total number of shares of common stock that would be outstanding upon completion of the put. "Block" trades are excluded in computing the trading volumes described above. For each share of common stock, Swartz will pay us the lesser of: o the market price for such share, minus $.10, or o 91% of the market price for the share; however, Swartz may not pay us less than the designated minimum per share price, if any, that we indicate in our put notice. Market price is defined as the lowest closing bid price for the common stock on its principal market during the pricing period. The pricing period is defined as the 20 business days immediately following the day we exercise the put right. Warrants. Within five business days after the end of each pricing period, we are required to issue and deliver to Swartz a warrant to purchase a number of shares of common stock equal to 10% of the common shares issued to Swartz in the applicable put. Each warrant will be exercisable at a price that will initially equal 110% of the market price on the date on which we exercised the put right. Each warrant will be immediately exercisable and have a term beginning on the date of issuance and ending five years thereafter. Limitations and conditions precedent to our put rights. Swartz is not required to acquire and pay for any shares of common stock with respect to any particular put if, between the date we give advance notice of an intended put and the date the particular put is to close: o we have announced or implemented a stock split or combination of our common stock; o we have paid a common stock dividend; 22 o we have made a distribution of all or any portion of our assets or evidences of indebtedness to the holders of our common stock; or o we have consummated a major transaction, such as a sale of all or substantially all of our assets or a merger or tender or exchange offer that results in a change of control of our company. Short sales. Swartz and its affiliates are prohibited from engaging in short sales of our common stock unless Swartz has received a put notice and the amount of shares involved in the short sale does not exceed the number of shares specified in the put notice. Cancellation of puts. We must cancel a particular put between the date of the advance put notice and the last day of the pricing period if: o we discover an undisclosed material fact relevant to Swartz's investment decision; o the registration statement registering resales of the common shares becomes ineffective; or o our shares are delisted from the then-primary exchange. If a put is canceled, it will continue to be effective, but the pricing period for the put will terminate on the date notice of cancellation of the put is given to Swartz. Because the pricing period will be shortened, the number of shares Swartz will be required to purchase in the canceled put will be smaller than it would have been had the put not been canceled. Shareholder approval. Under the Investment Agreement, we may sell Swartz a number of shares that is more than 20% of our shares outstanding on the date of this prospectus. If we become listed on The Nasdaq Small Cap Market or Nasdaq National Market, we may be required to get shareholder approval to issue some or all of the shares to Swartz. As we are currently a Bulletin Board company, we do not need shareholder approval. Termination of Investment Agreement. We may terminate our right to initiate further puts or terminate the Investment Agreement at any time by providing Swartz with notice of our intention to terminate that right; however, termination of that right will not affect any other rights or obligations we have concerning the Investment Agreement or any related agreement. Restrictive covenants. During the term of the Investment Agreement and for a period of one year after the Investment Agreement is terminated, we are prohibited from o issuing any equity securities, or debt securities convertible into equity securities, for cash in a private transaction without obtaining the prior written approval of Swartz, or o entering into any private equity line type agreements similar to the Investment Agreement without obtaining Swartz's prior written approval. 23 Right of first refusal. Swartz has a right of first refusal to participate in any private capital raising transaction of equity securities that closes from the date of the Investment Agreement (June 1, 2000) through one year after the Investment Agreement is terminated. Swartz's right to indemnification. We have agreed to indemnify Swartz (including its stockholders, officers, directors, employees, investors and agents) from all liability and losses resulting from any misrepresentations or breaches we make in connection with the Investment Agreement, our registration rights agreement, other related agreements, or the registration statement. Plan of Distribution The selling shareholder is free to offer and sell its common shares at such times, in such manner and at such prices as it may determine. The common shares are sold through transactions in the over-the-counter market (including block transactions), negotiated transactions, the settlement of short sales of common shares or a combination of these methods of sale. Sales will be at market prices prevailing at the time of sale or at negotiated prices. The sales may or may not involve brokers or dealers. The selling shareholders have told us they have not entered into agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares. The selling shareholders do not have an underwriter or coordinating broker acting in connection with the proposed sale of the common shares. The selling shareholder may sell its shares directly to purchasers or to or through broker-dealers, which may act as agents or principals. These broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling shareholders. They may also receive compensation from the purchasers of common shares for whom such broker-dealers may act as agents or to whom they sell as principal, or both. Compensation as to a particular broker-dealer might be in excess of customary commissions. Swartz is, and any broker-dealer assisting in the sale of the common stock may be deemed to be, an underwriter within the meaning of Section 2(a)(11) of the Securities Act. Any commissions received by these broker-dealers and any profit on the resale of the common shares sold by them while acting as principals might be deemed to be underwriting discounts or commissions. Because Swartz is deemed to be an "underwriter" within the meaning of Section 2(a)(11) of the Securities Act, it will be subject to prospectus delivery requirements. We have informed the selling shareholder that the anti-manipulation rules of the SEC, including Regulation M promulgated under the Securities and Exchange Act, may apply to its sales in the market and have provided the selling shareholder with a copy of those rules and regulations. The selling shareholder also may resell all or part of the common shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided it meets the criteria and conforms to the requirements of that Rule. We are responsible for all costs, expenses and fees incurred in registering the shares offered by this prospectus. The selling shareholder is responsible for brokerage commissions, if any, on the sale of those securities. Management These are our current directors, executive officers and significant employees: Date became director or Name Age Positions executive officer - ---- --- --------- ----------------- 24 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 our board of directors are elected annually and hold office until their successors are elected and qualified. Our 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 ours and will devote only such time as they believe necessary on our business. 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 for any person to be 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 our president 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 our operations. Rey Cardino, age 39, serves as our Director of Sales. 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. Before that he was employed by TGI Fridays. Jose Olivares, age 32, serves as our Director of Technical Support. Before taking that position he was the principal brewer of our microbrewery operations. 25 Steven M. Haag, age 41, serves as our director of marketing. Mr. Haag was employed by Connect Computer Group, Inc., GameCom's computer consultants, as vice-president of marketing and sales until accepting this position with us. From 1998 to 1999, Mr. Haag served as senior data networking account executive with AT&T. Prior to that time he was a fire fighter/paramedic for the City of Crestwood, TX fire department. John Zelinski, age 21, serves as our gaming technical advisor, Mr. Zelinski, has been a full-time student for the last five years and is pursuing a degree in computer science engineering at the University of Texas at Arlington. Executive Compensation The Summary Compensation Table below shows 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.
Restricted Securities Other Annual Stock Underlying Name and Principal Position Year Salary Bonus Compensation Awards Options/SARs - --------------------------- ---- ------ ----- ------------ ------ ------------ L. Kelly Jones, chief executive 1999 -- -- -- -- -- officer and chairman of the board of directors 1998 -- -- -- -- 833,000(1) 1997 -- -- -- -- -- John F. Aleckner, Jr., president 1999 -- -- -- -- -- and director 1998 -- -- -- -- 333,000(2) 1997 -- -- -- -- -- W. James Poynter, vice-president 1999 -- -- -- -- -- and director 1998 -- -- -- -- 333,000(2) 1997 -- -- -- -- -- Kimberly Biggs, secretary and 1999 -- -- -- -- -- treasurer 1998 -- -- -- -- -- 1997 -- -- -- -- --
(1) These options, incentive in nature, provide that Mr. Jones may purchase (i) 111,000 shares at par value but only if our shares are trading at $1.50 per share, (ii) 361,000 shares at par value but only if our shares are trading at $3.00 per share, (iii) 111,000 shares at par value but only if our shares are publicly trading at $4.50 per share, and (iv) the balance of 250,000 shares at par value but only if our shares are publicly trading at $5.00 per share. These incentive stock options were granted to Mr. Jones by our board of directors (Mr. Jones abstaining) on December 12, 1997 and on December 14, 1998. (2) Messrs. Poynter and Aleckner each holds an option for 333,000 shares in our Common Stock. These options, incentive in nature, provide that Messrs. Poynter and Aleckner may purchaser (i) 111,000 shares at par value but only if our shares are trading at $1.50 per share, (ii) 111,000 shares at par value but only if our shares are trading at $3.00 per share, and (iii) the balance of 111,000 shares at par value but only if our shares are publicly trading at $4.50 per share. These incentive stock options were granted to Messrs. Poynter and Aleckner by our board of directors (Messrs. Poynter and Aleckner abstaining on the grant of their stock option) on December 14, 1998. 26 2000 Incentive Stock Option Plan In February, 2000, the board of directors adopted, and a majority of our stockholders approved, our 2000 Incentive Stock Option Plan, subject to approval of stockholders at the next annual meeting. The purpose of the plan is o to enable us to attract, retain and motivate key employees who are important to the success and growth of our business, and o to create a long-term mutuality of interest between the stockholders of the Company and those key employees by granting them options to purchase our 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. Under the plan, options may be granted to our key employees. 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 o 100% of the fair market value of the common stock at the time the option is granted, or, o if the person to whom the option is granted is the owner of 10% or more of our Common Stock, 110% of that fair market value. The committee is to specify when and on what terms the options are to become exercisable. However, no option may be exercisable after o 10 years from the date of grant, or o 5 years from the date of grant for options granted to a holder of 10% or more of our common stock. In the case of incentive stock options, the aggregate fair market value of the shares for 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. If there is a change of control, all outstanding options become immediately exercisable in full. In case 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 three months after that 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 one 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 if there is a stock split, stock dividend, etc. 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. If there is 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 we are not the surviving entity in a merger and consolidation, the committee may in its discretion terminate all outstanding options, and if that happens 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 our general funds and used for general corporate purposes. We have not granted any options under the plan. Compensation of Directors No director receives or has received any compensation from us for service as a member of the board of directors. 27 Principal Shareholders The following table shows, as of August 7, 2000, information about equity securities we believe to be owned of record or beneficially by o each of our directors; o each person who owns beneficially more than 5% of any class of our outstanding equity securities; and o all of our directors and executive officers as a group. Shareholders' Name and Address Number of Shares Owned Percent L. Kelly Jones 1,955,948 (1) 16.2 440 North Center Arlington, Texas 76011 Jim Poynter 737,260 (2) 6.1 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) 3,083,068 (1)(2)(3)(4) 25.5 (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. We are obligated to redeem 287,531 of these shares for a nominal amount, which would reduce Mr. Poynter's ownership to 3.7%. (3) We are obligated to redeem 16,559 of these shares for a nominal amount, which would reduce Ms. Biggs's ownership to 0.21%. (4) Excludes incentive conditional option to purchase 333,000 shares of restricted common stock for $1,665.00, which is not exercisable within 60 days. The beneficial owners of securities listed above have sole investment and voting power as to those 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 in computing the percentage of the person holding those options or warrants, but are not deemed outstanding in computing the percentage of any other person. 28 In addition to the shareholders listed above, Connect Computer Group, Inc., the firm which has been largely responsible for development of our kiosk and computer systems, has performed its development work on the basis of an oral understanding or "gentleman's agreement" with our chief executive officer that if we are successful in marketing the product we will issue it a significant equity position in our company. The amount of the equity interest is yet to be determined and the parties have not explicitly agreed upon any method for determining whether marketing of the product has been successful. The agreement may not be sufficiently definite to be an enforceable contract. However, we are proceeding on the assumption that we will be obligated to honor this oral commitment and expect we 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. In addition, there is a possibility, which management regards as remote, that we may be required to issue a substantial number of additional shares to the holder of several of its notes under the penalty provisions of those notes. See Description of Securities--Convertible Promissory Notes/Promissory Notes. Since those shares would be issued for no additional consideration, any issuance such as this could cause significant dilution in the book value per share of shares presently outstanding. Certain Transactions Mr. Jones, our chief executive officer, is also president of Jones & Cannon, a Texas professional corporation, which has provided legal services to us and which may continue to provide legal services to us in the future. We currently owe Jones & Cannon more than $94,000 for legal services and related expenses. Jones & Cannon has also been providing the limited amount of office space we need, and clerical and other services we need for our operations without charge under an oral agreement. As of June 15, 2000, Jones & Cannon began charging us $1,500 per month for our office space and phone system, as we now have 4 employees working at those offices. In December, 1997, we 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 we 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, we did not have enough funds to honor this commitment and we are 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, we and Messrs. Jones and Aleckner agreed that the shares that were to have been redeemed from those two individuals would not be redeemed. We expect to redeem the remaining shares during the third quarter of 2000. During the period from July, 1997 through May, 1998 Mr. Jones lent us an aggregate of $90,000 for operating capital. Of this amount, $65,000 was later eliminated when Mr. Jones accepted in full satisfaction of that debt 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. Legal Proceedings In January, 1999, GameCom brought a law suit in the 141st District Court of Tarrant County, Texas, against Robert Elton Bragg, III, our former president. In the suit we claim o that Mr. Bragg, while President of our company, misappropriated its funds by paying himself consulting fees although no meaningful services were performed for us, and o that he threatened, without justification, to rescind the March 1997 stock for stock transaction in which we acquired our brewpub/microbrewery operations. In the suit we are asking for o a declaratory judgment that the March, 1997 agreement, is a valid and binding agreement, o an injunction to prevent Bragg from selling his shares in GameCom, and o damages for misappropriation of the Company's funds. As permitted under Texas law, we have not specified in our complaint the amount of damages we want from Mr. Bragg. On May 18, 2000, Bragg counterclaimed against us and filed a third-party law suit against L. Kelly Jones, our chief executive officer. In his counterclaim Bragg claims o that Jones made false representations in connection with a stock-for-stock transaction in March of 1997 between the shareholders of the former First Brewery of Dallas, Inc. and GameCom, o that Jones breached his fiduciary duties to our shareholders, and o that we failed to pay Bragg for services he claims he rendered to us. We believe the counterclaim and third-party action are groundless and are brought in bad faith. We intend to vigorously defend the claims and are asking for sanctions against Bragg's attorney for bringing the groundless causes of action. In November, 1999, we brought a law suit against Kelly Hart and Mitch Geller d/b/a Nu-Design in the 348th District Court of Tarrant County, Texas. In this suit we are claiming o that Nu-Design repeatedly failed to provide software for which we had contracted for our Net GameLink(TM) system, o that we were forced to obtain a substitute for the promised software from a third party, and o that after learning of our purchase of the replacement software the defendants wrongfully withheld our assets, As permitted under Texas law, we have not specified the amount of damages we want. Description of Securities Our Articles of Incorporation authorize us to issue 50 million shares of Common Stock, of a par value of $.005 per share, and 2,000,000 shares of Preferred Stock, par value $0.005 per share. As of June 26, 2000, 12,091,118 shares of common stock were issued and outstanding and no preferred Stock had 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 any dividends that may be declared, from time to time by the board of directors in its discretion, from funds legally available for dividends. If we are liquidated, dissolved or wound up, 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 our common stock. There are no conversion rights or redemption or sinking fund provisions for the common stock. 29 Our common stock is covered by the Securities and Exchange Commission's penny stock rules. These rules include a 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. The rule may affect the ability of broker-dealers to sell our securities and may also affect the availability ability of purchasers of our stock to sell their shares in the secondary market. It may also cause fewer brokers to be willing to make a market in our common stock and it may affect the level of news coverage we receive. Preferred Stock We are authorized to issue 2,000,000 shares of preferred stock with such voting rights, designations, preferences, limitations and relative rights as the board of directors may determine. Although we have 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 our Common Stock, or limit the price investors might be willing to pay in the future for shares of our Common Stock. We believe the Preferred Stock will provide us with increased flexibility in structuring possible future financing and acquisitions, and in meeting other corporate needs that might arise. Having these authorized shares available for issuance will allow us 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 action by stockholders is required by applicable law or the rules of any stock exchange on which our securities may be listed. Convertible Promissory Notes/Promissory Notes We have outstanding $100,000 in principal amount of our Convertible Promissory Notes. These notes bear interest at the rate of 12 percent per annum, call for monthly payments of interest, and matured May 10, 1998. 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. We have outstanding $25,000 in principal amount of a promissory note due to L. Kelly Jones, our chief executive officer, upon demand. This note bears interest at the rate of 12 percent per annum. We have 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 these promissory notes provide for a per diem issuance of common stock as a penalty for late payment. As of December 31, 1999, the per diem issuance would be in excess of 2,800,000 shares of the our common stock. We have received an opinion from counsel, Richard L. Wright, P.C., that the penalty provisions are unenforceable as illegal usury under applicable Texas law. However, there has not been any litigation between us and the holder of the note as to this issue, and in the absence of a court decision directly applicable to the parties, there remains at least some risk that the opinion of counsel could be wrong. Should the holder of the note prevail in any such litigation, the shares issuable under the penalty provisions would result in the holder's becoming our largest single shareholder. Further, depending upon how long it took to resolve the issue, an adverse decision could result in that holder's becoming a controlling shareholder. We believe that upon full payment of these promissory notes along with non-usurious monetary interest, this matter of additional shares for our late payment will be amicably resolved between us and the holder of these promissory notes. However, we cannot give any assurance in that regard. 30 Warrants There are outstanding warrants to purchase 245,000 shares of our common stock at a price of $1.00 per share and 245,000 shares of our common stock at $0.625 per share. These warrants were issued to Swartz on April 14, 2000 for Swartz's commitment to enter into the Investment Agreement. The warrants expire on April 13, 2005. The holders of the warrants have the right to have the common stock issuable upon exercise of the warrants included on any registration statement we file, other than a registration statement covering an employee stock plan or a registration statement filed in connection with a business combination or reclassification of our securities. Anti-takeover Provisions Under our Articles of Incorporation, a change in our bylaws requires the affirmative vote of not less than a majority of our "Continuing Directors." A Continuing Director is a member of the board who is not and who was a member of the board of directors immediately before the time the 10% or more holder became the beneficial owner of 10% or more of that 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, we may not effect a "business combination" in which an affiliate or associate of a holder of 10% or more of our voting stock has an interest without the vote of at least 80% of our 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 10% holder or its affiliates or associates. 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 the acquisition of shares that resulted in the 10% holder's becoming such, or approves the business combination before the related person became a related person. Those requirements also do not apply if, among other things, o 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 us except proportionately as a shareholder, and o 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 o a merger, consolidation or share exchange involving us or a subsidiary, o a sale, mortgage or other disposition of a substantial part of the our assets, o the issuance of additional securities, a reclassification which would increase the voting power of a Related Person or our liquidation or dissolution. 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 our common stock or limit the price investors might be willing to pay in the future for shares of our common stock. We are also subject to Article 13 of the Texas Business Corporation Act. That Article prohibits us from engaging in a business combination with an affiliated shareholder, generally defined as a person holding 20% or more our 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 our board of directors before the affiliated shareholder's share acquisition date, or 31 o two-thirds of the holders of our outstanding voting shares 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, New York is our transfer agent. Legal Matters The legality of the securities offered hereby has been passed upon by Raice Paykin Krieg & Schrader, New York, New York. Experts Our balance sheet as of December 31, 1999 and 1998 and the statements of our operations, shareholders' equity and cash flows for the years then ended, have been included in this prospectus in reliance on the report, which includes an explanatory paragraph on our ability to continue as a going concern, of Thomas O. Bailey and Associates P.C., certified public accountants, given on the authority of that firm as experts in accounting and auditing. Where You Can Find More Information We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, Seven World Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. We have filed with the SEC a registration statement on Form SB-2 under the Securities Act covering the sale of the securities offered under this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement. Certain items of the registration statement are omitted in accordance with the rules and regulations of the SEC. Statements contained in this prospectus as to the contents of any contract or other documents are not necessarily complete and in each instance where reference is made to the copy of such contract or documents filed as an exhibit to the registration statement, statements about the document are qualified in all respects by that reference and the exhibits and schedules to the exhibits. For further information regarding GameCom and the securities offered under this prospectus, we refer you to the registration statement and those exhibits and schedules, which may be obtained from the SEC at its principal office in Washington, D.C. upon payment of the fees prescribed by the SEC. 32 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors...............................................F-1 Consolidated Financial Statements of GameCom, Inc. and subsidiary: Consolidated statement of Financial Condition as of December 31, 1999 .......F-2 Consolidated Statements of Operations for the years ended December 31, 1999 and 1998 ..............................................................F-3 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1999 and 1998 ...........................................F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 ..............................................................F-5 Notes to Consolidated Financial Statements...................................F-6 33 INDEPENDENT AUDITORS REPORTS Thomas O. Bailey and Associates, PC Certified Public Accountants Report of Independent Public Accountants To the Shareholders of GameCom, Inc. We have audited the accompanying balance sheet of GameCom, Inc. as of December 31, 1999 and the related statements of operations, changes in stockholders' equity, and cash flows for the years ended December 31, 1999 and December 31, 1998. 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 GameCom, Inc. as of December 31, 1999, and the results of their operations and their cash flows for the years ended December 31, 1999 and December 31, 1998 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, 1999, the Company incurred a net loss of $361,880. 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 April 4, 2000 34 GAMECOM, INC. (Fomerly The Schooner Brewery Incorporated) Consolidated Balance Sheets December 31, March 31, 2000 1999 (unaudited) ASSETS Current assets Cash $ 15,564 $ 2,426 Accounts receivable 180 180 ----------- ----------- Total current assets 15,744 2,606 Property and equipment Equipment, furniture and fixtures 94,485 95,997 Accumulated depreciation (7,932) (14,959) ----------- ----------- Net property and equipment 86,553 81,038 Other assets Security deposits 8,989 -- ----------- ----------- Total other assets 8,989 -- ----------- ----------- Total assets $ 111,286 $ 83,644 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade payables $ 728,849 $ 773,778 Accrued interest 49,839 5 4,203 Notes payable to shareholders 380,500 360,500 Short-term notes payable to bank -- 20,000 ----------- ----------- Total current liabilities 1,159,188 1,208,481 Redeemable common stock Common stock to redeem, 1,505,399 shares at par $.005 7,527 3,891 Shareholders' equity Capital stock 50,000,000 shares authorized par value $.005; 10,041,751 issued and outstanding, 51,583 55,719 Paid-in capital 1,230,459 1,247,459 Retained earnings (2,337,471) (2,431,906 ----------- ----------- Total shareholders' equity (1,055,429) (1,128,728) ----------- ----------- Total liabilities and shareholder equity $ 111,286 83,644 =========== =========== The accompanying notes are an integral part of this financial statement 35 GAMECOM, INC. (Formerly The Schooner Brewery Incorporated) Consolidated Statement of Operations
For the Year Ended For the Three Months December 31 Ended March 31 1999 1998 2000 1999 ---- ---- ---- ---- Revenues Restaurant sales 5,431 $ 469,357 -- 5,305 Other -- (7,500) -- 3,019 ----------- ----------- ------------ ----------- Total revenues 5,431 461,857 -- 8,324 Cost of sales Food, beer, wine and merchandise (2,893) 182,334 -- -- Salaries and labor 27,365 268,826 27,365 ----------- ----------- ----------- Total cost of sales 24,472 451,160 27,365 ----------- ----------- ----------- Gross profit (19,041) 10,697 (19,041) General and administrative expense Administrative cost 409,999 1,002,192 65,113 26,836 Interest 16,065 57,401 4,795 6,775 Financing charges 55,200 153,250 17,500 55,200 Depreciation and amortization 5,356 51,122 7,027 24,399 Impairment of assets -- 132,545 -- -- Gain on sale of assets (143,781) -- -- (26,058) ----------- ----------- ------------ ----------- 342,839 1,396,510 94,435 87,152 ----------- ----------- ------------ ----------- Net loss $ (361,880) $(1,385,813) $ (94,435) $ (106,193) =========== =========== ============ =========== Per share amounts: Net loss per share $ (0.038) $ (0.164) $ (0.008) $ (0.012) =========== =========== ============ =========== Average outstanding shares 9,581,072 8,435,721 11,922,150 8,522,703 =========== =========== ============ ===========
The accompanying notes are an integral part of this financial statement 36 GAMECOM, INC. (Formerly The Schooner Brewery Incorporated) Consolidated Statement of Stockholders' Equity For the Periods From December 31, 1997 through December 31, 1999
Shares of Additional Total Common Common Paid-in Accumulated Stockholders' Stock Stock Capital Deficit Equity ----- ----- ------- ------- ------ Balance December 31, 1997 6,209,703 $31,048 $ 381,294 $ (589,777) $ (177,435) Stock issued for consulting services 600,000 3,000 222,000 -- 225,000 Contribution of capital for services -- -- 18,750 -- 18,750 Stock issued for loan incentives 613,000 3,065 150,185 -- 153,250 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 Loss for the year ended December 31, 1998 -- -- -- (1,385,814) (1,385,814) ---------- ------- ---------- ----------- ----------- Balance December 31, 1998 8,282,703 $41,413 $ 989,179 $(1,975,591) $ (944,999) ---------- ------- ---------- ----------- ----------- Stock issued as incentive for loans 240,000 1,200 54,000 -- 55,200 Stock issued in compensation for services 125,000 625 4,375 -- 5,000 Sales of stock 1,369,048 6,845 128,155 -- 135,000 Contribution of capital for services -- -- 18,750 -- 18,750 Exercise of stock options 300,000 1,500 36,000 -- 37,500 Loss for the year ended December 31, 1999 -- -- -- (361,880) (361,880) ---------- ------- ---------- ----------- ----------- Balance December 31, 1999 10,316,751 $51,583 $1,230,459 $(2,337,471) $(1,055,429) ========== ======= ========== =========== ===========
The accompanying notes are an integral part of this financial statement 37 GAMECOM, INC. (Formerly The Schooner Brewery Incorporated) Consolidated Statements of Cash Flows
For the Year Ended For the Three Months December 31 Ended March 31 1999 1998 2000 1999 ---- ---- ---- ---- Cash flows from operating activities Net loss $(361,880) $(1,385,813) $(94,435) $(106,193) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 5,356 51,122 7,027 24,399 Impairment of assets 132,545 Gain on sale of assets (143,781) Services and fees paid with stock 23,750 446,000 Financing fees 55,200 153,250 17,500 55,200 Stock options issued as compensation -- -- -- -- (Increase) decrease in: Accounts receivable-trade 1,367 483 -- 1,366 Prepaid and other assets 3,044 7,317 8,989 896 Increase (decrease) in: Accounts payable and accrued expense 247,530 240,973 49,293 7,498 --------- ----------- -------- --------- Net cash provided by operating activities (169,414) (354,123) (11,626) (16,834) Cash flows from investing activities Sale of capital assets -- -- Capital expenditures (41,237) -- (1,512 (4,000) --------- ----------- -------- --------- Net cash used by investing activities (41,237) -- (1,512 (4,000) Cash flow from financing activities Short-term notes payable 85,547 313,374 -- 18,668 Increase in capital stock and paid-in capital 135,000 15,000 -- -- --------- ----------- -------- --------- Net cash provided by financing activities 220,547 328,374 -- 18,668 Net increase in cash and cash equivalents 9,896 (25,749) (13,138) (2,166) Cash and cash equivalents beginning of period 5,666 31,415 15,564 5,666 --------- ----------- -------- --------- Cash and cash equivalents end of period $ 15,562 $ 5,666 $ 2,426 $ 3,500 ========= =========== ======== ========= Interest paid during the year $ 9,040 $ 19,701 $ 431 $ 3,648 ========= =========== ======== ========= Income taxes paid during the year $ -- $ -- $ -- $ -- ========= =========== ======== =========
The accompanying notes are an integral part of this financial statement 38 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 its 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 8,271,554. This number does not include any shares called for by the penalty provisions of certain of the Company's notes since, based on the opinion of legal counsel, these penalty provisions are unenforeceable. See Note 5. 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. 39 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. Common Stock Issued for Services The Company has in the past issued stock for service to 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. The measurement date for determining such value is the date an agreement is reached for issuance of the shares, and the number of shares issued is based on the market value of such shares on such date. Common Stock Issued as Incentive for Loans From time to time the Company has obtained non-interest bearing loans or guarantees of bank loans from individuals. As incentive for these loans the Company issued some of its common stock and recorded as expense the market value of the stock. These issuances were as follows: Market Value Date Amount Lent Shares Issued of Shares 3/98 $ 50,000 120,000 $ 30,000 9/98 $123,000 493,000 $123,250 1/99 $ 88,500 240,000 $ 55,200 1/00 $ 20,000 100,000 $ 37,500 Charges in amounts equal to the fair market value of the shares issued for such loans or guarantees are included in the Statement of Operations for the applicable periods as "Financing Charges." These loans were made pursuant to subscription agreements with the individual lenders, and were not available to other note holders. Contingentcies 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. If marketing of the product is not successful, Connect Computer will not be entitled to any shares for its efforts. The parties have not explicitly agreed upon any method for determining whether marketing of the product has been successful. There is considerable uncertainty as to both the standards for determining whether any shares are issuable and the number of shares, if any, which may ultimately be issued for those services. However, the Company has made a charge to its earnings for those services based on its estimate of the number of shares which will ultimately be issuable for those services and the fair market value of the Company's shares as of December 31, 1999. Subsequent negotiations may result in significant adjustments to these estimates. 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. Until the new operations begin the Company must rely on public and private funding to meet any of its cash flow requirements. Management has begun efforts for a new line of business. The Company plans to make a public offering of its common stock and 40 expects to obtain funds through private offering of its securities. The Company expects to begin receiving revenues from its new operations in the first quarter of the year 2000. NOTE 3 IMPAIRMENT OF ASSETS Operation of the Company's brewpub and restaurant, its only operation, was discontinued in early 1999 and was being phased out in 1998. For the year 1998 the Company identified certain assets that were impaired as the result of the discontining operations. A provision for the impairment of related equipment and other fixed assets that would be impaired is shown as a separate item in the Statement of Operations. The provision for the loss was provided based on an assessments of all of the Company's operating assets and the likelihood that the carrying value of certain of those assets could not be realized. In the subsequent period other equipment and fixed assets not included in the impaired assets were sold at a gain. 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 3,860,000 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. Although the Company was the surviving entity in this transaction, the acquisition was accounted for as a purchase of the Company by First. Since Schooner's assets consisted solely of cash, no goodwill was recorded in connection with the transaction. Prior to the acquisition by the Company, First had acquired the interest of all of the partners in First Brewery of Dallas I, 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 March 13, 1997, First acquired all of the assets of the partnership in exchange for 49,500 shares of common stock of First. The transaction between First Brewery of Dallas, Inc. and First Brewery of Dallas, Ltd. was accounted for as a reorganization. NOTE 5 NOTES PAYABLE Notes payable at December 31, 1998 consisted of the following: Note payable to bank due March 16, 2000 with interest at 8.5% $ 20,000 Notes payable to stockholders due on demand, interest at 12% $ 25,000 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 172,000 Notes payable to stockholders due in February and March 1999 Without interest 63,500 -------- $380,500 The notes due to 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. Of the $235,500 payable without interest as described above, $103,500 in principal amount provides for a per diem issuance of common Stock as a penalty for late payments. As of December 31, 1999, the per diem issuance would be in excess of 2,800,000 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. However, there has not been any litigation between the Company and the holder of the note as to this issue, and in the absence of a court decision directly applicable to the parties, there remains at least some risk that the opinion of counsel could be wrong. Should the holder of the note prevail in any such litigation, the shares issuable under the penalty provisions would result in this holder's becoming the Company's largest single shareholder. Further, depending upon how long it took to resolve the issue, an adverse decision could result in such 41 holder's becoming a controlling shareholder of the Company. According to legal counsel there is no likelihood of a sustainable assessment of the per diem late penalty. Therefore, in accordance with SFAS No. 5, no provision for such charges has been provided. 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, 1999 was 11,822,150. There were 1,505,399 common shares 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, 1999 none of the stock has been redeemed. Redeemable Common Stock In December 1997, the ten former shareholders of First Brewery of Dallas, Inc., acquired by the Company in March, 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 to redeem 1,505,399 shares of the Common Stock from the ten shareholders, at par value, $.005, 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 but can be redeemed at the Company's option. The total number of shares and the redemption liability is reflected in the balance sheet under, "Redeemable Common Stock." 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 $186,430. 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 $1,950,849. NOTE 8 LEASES The Company leases its restaurant space under a lease agreement, which expired 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 captial 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 42 Board of Directors approved additional borrowings from certain shareholders, in the aggregate sum of $162,000. In lieu of interest, the Company issued to such shareholders restricted shares of the Company's common stock. NOTE 11 STOCK OPTION PLANS 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. 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 1,199,000 at December 31, 1999. Accounting for the measurement date of these options occurs when the various stock prices are realized. Stock Based compensation Plan 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 or 1999 because no grants were made in those years. 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 conditioned upon the continued employment of the employee. 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. 43 1999 1998 Options beginning of year 1,499,000 800,000 Number of options granted -- 699,000 ---------- ---------- Options exercised during year 300,000 -- ---------- ---------- Options forfeited during year -- -- ---------- ---------- Options outstanding end of year 1,199,000 1,499,000 ---------- ---------- Options exercisable at end of year -- 300,000 ========== ========== Weighted average exercise price per share outstanding and exercisable $ .005 $ .005 ========== ========== Weighted average grant date fair value $ -- $ -- ========== ========== Had compensation expense been determined based on the fair value at the grant dates for the stock option grants consistent with the method of SFAS No.123, the Company's net income per common share would have been reduced to the pro forma amounts indicated below: 1999 1998 Net loss: ---- ---- As reported $361,880 $1,203,643 Pro forma $361,880 $1,203,643 Net per common share: As reported $ (0.038) $ .143 Pro forma $ (0.038) $ .143 Calculated in accordance with the Black-Scholes option pricing model, using the Following assumptions; expected volatility computed using as of the date of the Grant the prior years average of the Common Stock which averaged 5%; expected dividend yield of 0%; expected option term of two years and risk free rate of 6%. The Company believes that there is no significant income tax effect. NOTE 12 LEGAL PROCEEDINGS On February 27, 1998 a judgment 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 judgment will be liquidated through 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 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. 44 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 SUPPLEMENTAL CASH FLOW INFORMATION The following supplemental cash flow information is provided for interest, Income taxes paid and for non-cash transactions: For the year ended December 31, 1999 1998 ---- ---- Interest paid 16,065 11,926 Income taxes paid -- -- Non-cash transactions: Service compensated with stock 21,250 243,750 Compensation paid in options 36,000 -- Notes exchanged for equipment 70,270 -- NOTE 15 REVISED FINANCIAL STATEMENTS Subsequent to the completion of the 1998 audit and the issuance of the 1998 audit report it was determined that additional transactions had occurred where common stock of the Company was 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. In addition the revised financial statements have omitted reference to discontinued operations because the Company did not discontinue a segment of its business as described in APB No.30, rather all of the Company's prior operations ceased in January 1999. The financial statements have also been revised to show separately the Redeemable Common Shares outside the equity disclosure. 45 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. 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. ITEM 25. Other Expenses of Issuance and Distribution The following is an itemized statement of the estimated amounts of all expenses payable by the registrant in connection with the registration of the common stock offered hereby: SEC filing fee......................................................... $ 4,105 Blue sky fees and expenses............................................. 5,000 Legal fees............................................................. 40,000 Accounting fees........................................................ 5,000 Miscellaneous.......................................................... 10,000 Total......................................................... 61,000 ITEM 26. 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 who were not previously affiliated or associated with the Company 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 to 14 individual investors not previously associated or affiliated with the Company, 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. Based on the price at which the Company's shares had most recently been sold to an unrelated investor, the Company believes that the fair market value of the shares issued in this transaction was $38,600. 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. 46 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. 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 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. Management believes that the fair market value of the 120,000 shares issued in lieu of interest was approximately $30,000. The shares 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. Management believes that the fair market value of the 493,000 shares issued in lieu of interest was approximately $123,250. 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. Management believes that the fair market value of the 240,000 shares issued in lieu of interest was approximately $55,200. 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 not previously associated or affiliated with the Company at $0.06 per share for an aggregate of $60,000, and an 47 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 sold to one individual who had been directly involved in development of the Company's game machine and was thoroughly familiar with its business, and 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 not previously associated with the Company 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. Management believes that the fair market value of the 25,000 shares issued in payment of the legal fee was approximately $2,500. 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. Management believes that the fair market value of the shares was approximately $35,000. These shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In April of 2000, the Company issued 88,968 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 $25,000. Management believes that the fair market value of the shares was approximately $30,694. These shares were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act. In June of 2000, the Company issued 71,429 shares of its common stock to an accredited investor which was previously a shareholder of the Company at $0.70 per share for an aggregate of $50,000.00. Additionally, the Company issued to such accredited investor $50,000.00 in principal amount of promissory notes and an additional 8,571 shares of its common stock in lieu of future interest on such note. Management believes that the fair market value of the 8,571 shares issued in lieu of interest was approximately $2,571. These shares and notes 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 June of 2000, the Company granted De Monte Associates, Inc., a financial public relations firm, five year options to purchase (i) 25,000 shares at $0.51 per share, but only if at the time of exercise our shares are trading at $3.00 per share, and (ii) an additional 25,000 shares at $0.51 per share but only if at the time of exercise our shares are trading at $5.00 per share. These options 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. ITEM 27. Exhibits EXHIBIT DESCRIPTION NO (3.1) Articles of Incorporation of The Schooner Brewery Incorporated incorporated by reference from Exhibit 3.1 to the registrant's Registration Statement on Form 10SB (3.2) Certificate of Amendment of Articles of Incorporation of The Schooner Brewery Incorporated dated February 14, 1997 incorporated by reference from Exhibit 3.2 to the registrant's Registration Statement on Form 10SB (3.3) Certificate of Amendment of Articles of Incorporation of The Schooner Brewery Incorporated filed February 10, 1999 incorporated by reference from Exhibit 3.3 to the registrant's Registration Statement on Form 10SB 48 (3.4) Bylaws incorporated by reference from Exhibit 3.4 to the registrant's Registration Statement on Form 10SB (3.5) Plan of Merger between GameCom, Inc., a Nevada corporation and GameCom, Inc., a Texas corporation incorporated by reference from Exhibit 3.5 to Amendment No. 1 to the registrant's Registration Statement on Form 10SB (3.6) Articles of Incorporation of GameCom, Inc., a Texas corporation incorporated by reference from Exhibit 3.6 to Amendment No. 1 to the registrant's Registration Statement on Form 10SB (3.7) Bylaws of GameCom, Inc. incorporated by reference from Exhibit 3.7 to Amendment No. 1 to the registrant's Registration Statement on Form 10SB (4.1) Form of Subordinated Notes incorporated by reference from Exhibit 4.1 to the registrant's Registration Statement on Form 10SB (4.2) Form of Convertible Subordinated Notes incorporated by reference from Exhibit 4.2 to the registrant's Registration Statement on Form 10SB (4.3) Form of Convertible Subordinated Notes providing for penalty payable in shares incorporated by reference from Exhibit 4.3 to the registrant's Registration Statement on Form 10SB (4.4) Investment Agreement with Swartz Private Equity LLC (5) Legal opinion of Raice Paykin Krieg & Schrader LLP (10) 2000 Incentive Stock Option Plan incorporated by reference from Exhibit 4.3 to Amendment No. 1 to the registrant's Registration Statement on Form 10SB (21) List of Subsidiaries incorporated by reference from Exhibit 21 to the registrant's Registration Statement on Form 10SB (23.1) Consent of Raice Paykin Krieg & Schrader LLP (contained in Exhibit 5) (23.2) Consent of Thomas Bailey & Associates PC (24.1) * Powers of Attorney (27) * Financial Data Schedule * Previously filed ITEM 28. Undertakings. (a) The undersigned registrant hereby undertakes that it will: (1) File, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; 49 (iii) To include any additional or changed material information on the plan of distribution; (2) For determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that it will: (1) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497 (h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (2) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this amendment to be signed on its behalf by the undersigned in the City of Arlington, Texas on August 8, 2000. GAMECOM, INC. By: /s/ L. Kelly Jones ------------------ Chief Executive Officer 50 Pursuant to the requirements of the Securities Act of 1933, this amendment has been signed by the following persons in the capacities and as of the dates indicated. Signature Title Date Chief Executive Officer, Chairman of the Board of Directors and Chief Financial Officer /s/ L. Kelly Jones - ------------------------ August 8, 2000 L. Kelly Jones /s/ John F. Aleckner, Jr. - ------------------------ President and Director August 8, 2000 John F. Aleckner, Jr. /s/ W. James Poynter - ------------------------ Vice-President and Director August 8, 2000 W. James Poynter /s/ Kimberly Biggs - ------------------------ Secretary and Treasurer August 8, 2000 Kimberly Biggs 51 EX-4.4 2 0002.txt INVESTMENT AGREEMENT GAMECOM, INC. INVESTMENT AGREEMENT THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS. THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT J. SEE ADDITIONAL LEGENDS AT SECTION 4.7. THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment Agreement") is made as of the 1st day of June, 2000, by and between GameCom, Inc., a corporation duly organized and existing under the laws of the State of Texas (the "Company"), and the undersigned Investor executing this Agreement ("Investor"). RECITALS: WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue to the Investor, and the Investor shall purchase from the Company, from time to time as provided herein, shares of the Company's Common Stock, as part of an offering of Common Stock by the Company to Investor, for a maximum aggregate offering amount of Fifteen Million Dollars ($15,000,000) (the "Maximum Offering Amount"); and WHEREAS, the solicitation of this Investment Agreement and, if accepted by the Company, the offer and sale of the Common Stock, are being made in reliance upon the provisions of Regulation D ("Regulation D") promulgated under the Act, Section 4(2) of the Act, and/or upon such other exemption from the registration requirements of the Act as may be available with respect to any or all of the purchases of Common Stock to be made hereunder. TERMS: NOW, THEREFORE, the parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement (including the recitals above), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "20% Approval" shall have the meaning set forth in Section 5.25. "9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f). "Accredited Investor" shall have the meaning set forth in Section 3.1. "Act" shall mean the Securities Act of 1933, as amended. "Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a), the form of which is attached hereto as Exhibit E. "Advance Put Notice Confirmation" shall have the meaning set forth in Section 2.3.1(a), the form of which is attached hereto as Exhibit F. "Advance Put Notice Date" shall have the meaning set forth in Section 2.3.1(a). "Affiliate" shall have the meaning as set forth Section 6.4. "Aggregate Issued Shares" equals the aggregate number of shares of Common Stock issued to Investor pursuant to the terms of this Agreement or the Registration Rights Agreement as of a given date, including Put Shares and Warrant Shares. "Agreed Upon Procedures Report" shall have the meaning set forth in Section 2.5.3(b). "Agreement" shall have the meaning set forth in the paragraph immediately preceding the recitals. "Annual Non-Usage Fee" shall have the meaning set forth in Section 2.6 "Automatic Termination" shall have the meaning set forth in Section 2.3.2. "Bring Down Cold Comfort Letters" shall have the meaning set forth in Section 2.3.6(b). "Business Day" shall mean any day during which the Principal Market is open for trading. 2 "Calendar Month" shall mean the period of time beginning on the numeric day in question in a calendar month and for Calendar Months thereafter, beginning on the earlier of (i) the same numeric day of the next calendar month or (ii) the last day of the next calendar month. Each Calendar Month shall end on the day immediately preceding the beginning of the next succeeding Calendar Month. "Cap Amount" shall have the meaning set forth in Section 2.3.10. "Capital Raising Limitations" shall have the meaning set forth in Section 6.5.1. "Capitalization Schedule" shall have the meaning set forth in Section 3.2.4, attached hereto as Exhibit K. "Closing" shall mean one of (i) the Investment Commitment Closing and (ii) each closing of a purchase and sale of Common Stock pursuant to Section 2. "Closing Bid Price" means, for any security as of any date, the last closing bid price for such security during Normal Trading on the O.T.C. Bulletin Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange or trading market for such security, the last closing bid price during Normal Trading of such security on the principal securities exchange or trading market where such security is listed or traded as reported by such principal securities exchange or trading market, or if the foregoing do not apply, the last closing bid price during Normal Trading of such security in the over-the-counter market on the electronic bulletin board for such security, or, if no closing bid price is reported for such security, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the Investor in this Offering. If the Company and the Investor in this Offering are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved by an investment banking firm mutually acceptable to the Company and the Investor in this offering and any fees and costs associated therewith shall be paid by the Company. "Commitment Evaluation Period" shall have the meaning set forth in Section 2.6. "Commitment Warrant Exercise Price" shall have the meaning set forth in Section 2.4.1. "Commitment Warrants" shall have the meaning set forth in Section 2.4.1, the form of which is attached hereto as Exhibit U. "Common Shares" shall mean the shares of Common Stock of the Company. "Common Stock" shall mean the common stock of the Company. "Company" shall have the meaning set forth in the paragraph immediately preceding the recitals. "Company Designated Maximum Put Dollar Amount" shall have the meaning set forth in Section 2.3.1(a). 3 "Company Designated Minimum Put Share Price" shall have the meaning set forth in Section 2.3.1(a). "Company Termination" shall have the meaning set forth in Section 2.3.12. "Conditions to Investor's Obligations" shall have the meaning as set forth in Section 2.2.2. "Delisting Event" shall mean any time during the term of this Investment Agreement, that the Company's Common Stock is not listed for and actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market, the American Stock Exchange, or the New York Stock Exchange or is suspended or delisted with respect to the trading of the shares of Common Stock on such market or exchange. "Disclosure Documents" shall have the meaning as set forth in Section 3.2.4. "Due Diligence Review" shall have the meaning as set forth in Section 2.5. "Effective Date" shall have the meaning set forth in Section 2.3.1. "Equity Securities" shall have the meaning set forth in Section 6.5.1. "Evaluation Day" shall have the meaning set forth in Section 2.3.1(b). "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Excluded Day" shall have the meaning set forth in Section 2.3.1(b). "Extended Put Period" shall mean the period of time between the Advance Put Notice Date until the Pricing Period End Date. "Impermissible Put Cancellation" shall have the meaning set forth in Section 2.3.1(e). "Indemnified Liabilities" shall have the meaning set forth in Section 9. "Indemnitees" shall have the meaning set forth in Section 9. "Indemnitor" shall have the meaning set forth in Section 9. "Individual Put Limit" shall have the meaning set forth in Section 2.3.1 (b). "Ineffective Period" shall mean any period of time that the Registration Statement or any Supplemental Registration Statement (each as defined in the Registration Rights Agreement) becomes ineffective or unavailable for use for the sale or resale, as applicable, of any or all of the Registrable Securities (as defined in the Registration Rights Agreement) for any reason (or in the event the 4 prospectus under either of the above is not current and deliverable) during any time period required under the Registration Rights Agreement. "Initial Exercise Price" shall have the meaning set forth in Section 2.4.1. "Intended Put Share Amount" shall have the meaning set forth in Section 2.3.1(a). "Investment Commitment Closing" shall have the meaning set forth in Section 2.2.1. "Investment Agreement" shall have the meaning set forth in the paragraph immediately preceding the recitals. "Investment Commitment Opinion of Counsel" shall mean an opinion from Company's independent counsel, substantially in the form attached as Exhibit B, or such other form as agreed upon by the parties, as to the Investment Commitment Closing. "Investment Date" shall mean the date of the Investment Commitment Closing. "Investor" shall have the meaning set forth in the preamble hereto. "Key Employee" shall have the meaning set forth in Section 5.17, as set forth in Exhibit N. "Late Payment Amount" shall have the meaning set forth in Section 2.3.8. "Legend" shall have the meaning set forth in Section 4.7. "Major Transaction" shall mean and shall be deemed to have occurred at such time upon any of the following events: (i) a consolidation, merger or other business combination or event or transaction following which the holders of Common Stock of the Company immediately preceding such consolidation, merger, combination or event either (i) no longer hold a majority of the shares of Common Stock of the Company or (ii) no longer have the ability to elect the board of directors of the Company (a "Change of Control"); provided, however, that if the other entity involved in such consolidation, merger, combination or event is a publicly traded company with "Substantially Similar Trading Characteristics" (as defined below) as the Company and the holders of Common Stock are to receive solely Common Stock or no consideration (if the Company is the surviving entity) or solely common stock of such other entity (if such other entity is the surviving entity), such transaction shall not be deemed to be a Major Transaction (provided the surviving entity, if other than the Company, shall have agreed to assume all obligations of the Company under this Agreement and the Registration Rights Agreement). For purposes hereof, an entity shall have Substantially Similar Trading Characteristics as the Company if the average daily dollar Trading Volume of the common stock of such entity is equal to or in excess of $500,000 for the 90th through the 31st day prior to the public announcement of such transaction; (ii) the sale or transfer of all or substantially all of the Company's assets; or 5 (iii) a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock, such that following such purchase, tender or exchange offer a Change of Control shall have occurred. "Market Price" shall equal the lowest Closing Bid Price for the Common Stock on the Principal Market during the Pricing Period for the applicable Put. "Material Facts" shall have the meaning set forth in Section 2.3.6(a). "Maximum Put Dollar Amount" shall mean the lesser of (i) the Company Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put Notice, and (ii) $2 million. "Maximum Offering Amount" shall have the meaning set forth in the Recitals hereto. "Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10. "NASD" shall have the meaning set forth in Section 6.9. "Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00 PM, New York City Time, on any Business Day, and shall expressly exclude "after hours" trading. "NYSE" shall have the meaning set forth in Section 6.9. "Numeric Day" shall mean the numerical day of the month of the Investment Date or the last day of the calendar month in question, whichever is less. "Offering" shall mean the Company's offering of Common Stock and Warrants issued under this Investment Agreement. "Officer's Certificate" shall mean a certificate, signed by an officer of the Company, to the effect that the representations and warranties of the Company in this Agreement required to be true for the applicable Closing are true and correct in all material respects and all of the conditions and limitations set forth in this Agreement for the applicable Closing are satisfied. "Opinion of Counsel" shall mean, as applicable, the Investment Commitment Opinion of Counsel, the Put Opinion of Counsel, and the Registration Opinion. "Payment Due Date" shall have the meaning set forth in Section 2.3.8. "Pricing Period" shall mean, unless otherwise shortened under the terms of this Agreement, the period beginning on the Business Day immediately following the Put Date and ending on and including the date which is 20 Business Days after such Put Date. "Pricing Period End Date" shall mean the last Business Day of any Pricing Period. 6 "Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. "Proceeding" shall have the meaning as set forth Section 5.1. "Purchase" shall have the meaning set forth in Section 2.3.7. "Purchase Warrants" shall have the meaning set forth in Section 2.4.2, the form of which is attached hereto as Exhibit D. "Purchase Warrant Exercise Price" shall have the meaning set forth in Section 2.4.2. "Put" shall have the meaning set forth in Section 2.3.1(d). "Put Cancellation" shall have the meaning set forth in Section 2.3.11(a). "Put Cancellation Date" shall have the meaning set forth in Section 2.3.11(a). "Put Cancellation Notice Confirmation" shall have the meaning set forth in Section 2.3.11(c), the form of which is attached hereto as Exhibit S. "Put Cancellation Notice" shall have the meaning set forth in Section 2.3.11(a), the form of which is attached hereto as Exhibit Q. "Put Closing" shall have the meaning set forth in Section 2.3.8. "Put Closing Date" shall have the meaning set forth in Section 2.3.8. "Put Date" shall mean the date that is specified by the Company in any Put Notice for which the Company intends to exercise a Put under Section 2.3.1, unless the Put Date is postponed pursuant to the terms hereof, in which case the "Put Date" is such postponed date. "Put Dollar Amount" shall be determined by multiplying the Put Share Amount by the respective Put Share Prices with respect to such Put Shares, subject to the limitations herein. "Put Notice" shall have the meaning set forth in Section 2.3.1(d), the form of which is attached hereto as Exhibit G. "Put Notice Confirmation" shall have the meaning set forth in Section 2.3.1(d), the form of which is attached hereto as Exhibit H. 7 "Put Opinion of Counsel" shall mean an opinion from Company's independent counsel, in the form attached as Exhibit I, or such other form as agreed upon by the parties, as to any Put Closing. "Put Share Amount" shall have the meaning as set forth Section 2.3.1(b). "Put Share Price" shall have the meaning set forth in Section 2.3.1(c). "Put Shares" shall mean shares of Common Stock that are purchased by the Investor pursuant to a Put. "Registrable Securities" shall have the meaning as set forth in the Registration Rights Agreement. "Registration Opinion" shall have the meaning set forth in Section 2.3.6(a), the form of which is attached hereto as Exhibit R. "Registration Opinion Deadline" shall have the meaning set forth in Section 2.3.6(a). "Registration Rights Agreement" shall mean that certain registration rights agreement entered into by the Company and Investor on even date herewith, in the form attached hereto as Exhibit A, or such other form as agreed upon by the parties. "Registration Statement" shall have the meaning as set forth in the Registration Rights Agreement. "Regulation D" shall have the meaning set forth in the recitals hereto. "Reporting Issuer" shall have the meaning set forth in Section 6.2. "Required Put Documents" shall have the meaning set forth in Section 2.3.5. "Restrictive Legend" shall have the meaning set forth in Section 4.7. "Right of First Refusal" shall have the meaning set forth in Section 6.5.2. "Risk Factors" shall have the meaning set forth in Section 3.2.4, attached hereto as Exhibit J. "Schedule of Exceptions" shall have the meaning set forth in Section 5, attached hereto as Exhibit C. "SEC" shall mean the Securities and Exchange Commission. "Securities" shall mean this Investment Agreement, together with the Common Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to this Investment Agreement. 8 "Share Authorization Increase Approval" shall have the meaning set forth in Section 5.25. "Stockholder 20% Approval" shall have the meaning set forth in Section 6.11. "Supplemental Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. "Term" shall mean the term of this Agreement, which shall be a period of time beginning on the date of this Agreement and ending on the Termination Date. "Termination Date" shall mean the earlier of (i) the date that is three (3) years after the Effective Date, or (ii) the date that is thirty (30) Business Days after the later of (a) the Put Closing Date on which the sum of the aggregate Put Share Price for all Put Shares equal the Maximum Offering Amount, (b) the date that the Company has delivered a Termination Notice to the Investor, (c) the date of an Automatic Termination, and (d) the date that all of the Warrants have been exercised. "Termination Fee" shall have the meaning as set forth in Section 2.6. "Termination Notice" shall have the meaning as set forth in Section 2.3.12. "Third Party Report" shall have the meaning set forth in Section 3.2.4. "Trading Volume " shall mean the volume of shares of the Company's Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any Business Day, and shall expressly exclude any shares trading during "after hours" trading. "Transaction Documents" shall have the meaning set forth in Section 9. "Transfer Agent" shall mean the Company's transfer agent for the Common Stock, which is currently Continental Stock Transfer and Trust Company. "Transfer Agent Instructions" shall mean the Company's instructions to its transfer agent, substantially in the form attached as Exhibit T, or such other form as agreed upon by the parties. "Trigger Price" shall have the meaning set forth in Section 2.3.1(b). "Truncated Pricing Period" shall have the meaning set forth in Section 2.3.11(d). "Truncated Put Share Amount" shall have the meaning set forth in Section 2.3.11(b). "Unlegended Share Certificates" shall mean a certificate or certificates (or electronically delivered shares, as appropriate) (in denominations as instructed by Investor) representing the shares of Common Stock to which the Investor is then entitled to receive, registered in the name of Investor or its 9 nominee (as instructed by Investor) and not containing a restrictive legend or stop transfer order, including but not limited to the Put Shares for the applicable Put and Warrant Shares. "Use of Proceeds Schedule" shall have the meaning as set forth in Section 3.2.4, attached hereto as Exhibit L. "Volume Limitations" shall have the meaning set forth in Section 2.3.1(b). "Warrant Shares" shall mean the Common Stock issued or issuable upon exercise of the Warrants. "Warrants" shall mean Purchase Warrants and Commitment Warrants. 2. Purchase and Sale of Common Stock. 2.1 Offer to Subscribe. Subject to the terms and conditions herein and the satisfaction of the conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby agrees to purchase such amounts of Common Stock and accompanying Warrants as the Company may, in its sole and absolute discretion, from time to time elect to issue and sell to Investor according to one or more Puts pursuant to Section 2.3 below. 2.2 Investment Commitment. 2.2.1 Investment Commitment Closing. The closing of this Agreement (the "Investment Commitment Closing") shall be deemed to occur when this Agreement and the Registration Rights Agreement have been executed by both Investor and the Company, the Transfer Agent Instructions have been executed by both the Company and the Transfer Agent, and the other Conditions to Investor's Obligations set forth in Section 2.2.2 below have been met. 2.2.2 Conditions to Investor's Obligations. As a prerequisite to the Investment Commitment Closing and the Investor's obligations hereunder, all of the following (the "Conditions to Investor's Obligations") shall have been satisfied prior to or concurrently with the Company's execution and delivery of this Agreement: (a) the following documents shall have been delivered to the Investor: (i) the Registration Rights Agreement (executed by the Company and Investor), (ii) the Investment Commitment Opinion of Counsel (signed by the Company's counsel), (iii) the Transfer Agent Instructions (executed by the Company and the Transfer Agent), and (iv) a Secretary's Certificate as to (A) the resolutions of the Company's board of directors authorizing this transaction, (B) the Company's Certificate of Incorporation, and (C) the Company's Bylaws; 10 (b) this Investment Agreement, accepted by the Company, shall have been received by the Investor; (c) the Company's Common Stock shall be listed for trading and actually trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange; (d) other than continuing losses described in the Risk Factors set forth in the Disclosure Documents (provided for in Section 3.2.4), as of the Closing there have been no material adverse changes in the Company's business prospects or financial condition since the date of the last balance sheet included in the Disclosure Documents, including but not limited to incurring material liabilities; and (e) the representations and warranties of the Company in this Agreement shall be true and correct in all material respects and the conditions to Investor's obligations set forth in this Section 2.2.2 shall have been satisfied as of such Closing; and the Company shall deliver an Officer's Certificate, signed by an officer of the Company, to such effect to the Investor. 2.3 Puts of Common Shares to the Investor. 2.3.1 Procedure to Exercise a Put. Subject to the Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and the other conditions and limitations set forth in this Agreement, at any time beginning on the date on which the Registration Statement is declared effective by the SEC (the "Effective Date"), the Company may, in its sole and absolute discretion, elect to exercise one or more Puts according to the following procedure, provided that each subsequent Put Date after the first Put Date shall be no sooner than five (5) Business Days following the preceding Pricing Period End Date: (a) Delivery of Advance Put Notice. At least ten (10) Business Days but not more than twenty (20) Business Days prior to any intended Put Date (unless otherwise agreed in writing by the Investor), the Company shall deliver advance written notice (the "Advance Put Notice," the form of which is attached hereto as Exhibit E, the date of such Advance Put Notice being the "Advance Put Notice Date") to Investor stating the Put Date for which the Company shall, subject to the limitations and restrictions contained herein, exercise a Put and stating the number of shares of Common Stock (subject to the Individual Put Limit and the Maximum Put Dollar Amount) which the Company intends to sell to the Investor for the Put (the "Intended Put Share Amount"). The Company may, at its option, also designate in any Advance Put Notice (i) a maximum dollar amount of Common Stock, not to exceed $2,000,000, which it shall sell to Investor during the Put (the "Company Designated Maximum Put Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which the Investor may purchase shares of Common Stock pursuant to such Put Notice (a "Company Designated Minimum Put Share Price"). The Company Designated Minimum Put 11 Share Price, if applicable, shall be no greater than 80% of the Closing Bid Price of the Company's common stock on the Advance Put Notice Date. The Company may decrease (but not increase) the Company Designated Minimum Put Share Price for a Put at any time by giving the Investor written notice of such decrease not later than 12:00 Noon, New York City time, on the Business Day immediately preceding the Business Day that such decrease is to take effect. A decrease in the Company Designated Minimum Put Share Price shall have no retroactive effect on the determination of Trigger Prices and Excluded Days for days preceding the Business Day that such decrease takes effect. Notwithstanding the above, if, at the time of delivery of an Advance Put Notice, more than two (2) Calendar Months have passed since the date of the previous Put Closing, such Advance Put Notice shall provide at least twenty (20) Business Days notice of the intended Put Date, unless waived in writing by the Investor. In order to effect delivery of the Advance Put Notice, the Company shall (i) send the Advance Put Notice by facsimile on such date so that such notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender such notice on such date to a courier for overnight delivery to the Investor (or two (2) day delivery in the case of an Investor residing outside of the U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a confirmation of receipt (the "Advance Put Notice Confirmation," the form of which is attached hereto as Exhibit F) of the Advance Put Notice to the Company specifying that the Advance Put Notice has been received and affirming the intended Put Date and the Intended Put Share Amount. (b) Put Share Amount. The "Put Share Amount" is the number of shares of Common Stock that the Investor shall be obligated to purchase in a given Put, and shall equal the lesser of (i) the Intended Put Share Amount, and (ii) the Individual Put Limit. The "Individual Put Limit" shall equal the lesser of (i) 15% of the sum of the aggregate daily reported Trading Volumes in the outstanding Common Stock on the Company's Principal Market, excluding any block trades of 20,000 or more shares of Common Stock, for all Evaluation Days (as defined below) in the Pricing Period, (ii) the number of Put Shares which, when multiplied by their respective Put Share Prices, equals the Maximum Put Dollar Amount, and (iii) the 9.9% Limitation, but in no event shall the Individual Put Limit exceed 15% of the sum of the aggregate daily reported Trading Volumes in the outstanding Common Stock on the Company's Principal Market, excluding any block trades of 20,000 or more shares of Common Stock, for the twenty (20) Business Days immediately preceding the Put Date (this limitation, together with the limitation in (i) immediately above, are collectively referred to herein as the "Volume Limitations"). Company agrees not to trade Common Stock or arrange for Common Stock to be traded for the purpose of artificially increasing the Volume Limitations. For purposes of this Agreement: "Trigger Price" for any Pricing Period shall mean the greater of (i) the Company Designated Minimum Put Share Price, plus $.10, or (ii) the Company Designated Minimum Put Share Price divided by .91. An "Excluded Day" shall mean each Business Day during a Pricing Period where the lowest intra-day trading price of the Common Stock is less than the Trigger Price. 12 An "Evaluation Day" shall mean each Business Day during a Pricing Period that is not an Excluded Day. (c) Put Share Price. The purchase price for the Put Shares (the "Put Share Price") shall equal the lesser of (i) the Market Price for such Put, minus $.10, or (ii) 91% of the Market Price for such Put, but shall in no event be less than the Company Designated Minimum Put Share Price for such Put, if applicable. . (d) Delivery of Put Notice. After delivery of an Advance Put Notice, on the Put Date specified in the Advance Put Notice the Company shall deliver written notice (the "Put Notice," the form of which is attached hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the Intended Put Share Amount as specified in the Advance Put Notice (such exercise a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if applicable), and (iv) the Company Designated Minimum Put Share Price (if applicable). In order to effect delivery of the Put Notice, the Company shall (i) send the Put Notice by facsimile on the Put Date so that such notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender such notice on the Put Date to a courier for overnight delivery to the Investor (or two (2) day delivery in the case of an Investor residing outside of the U.S.). Upon receipt by the Investor of a facsimile copy of the Put Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a confirmation of receipt (the "Put Notice Confirmation," the form of which is attached hereto as Exhibit H) of the Put Notice to Company specifying that the Put Notice has been received and affirming the Put Date and the Intended Put Share Amount. (e) Delivery of Required Put Documents. On or before the Put Date for such Put, the Company shall deliver the Required Put Documents (as defined in Section 2.3.5 below) to the Investor (or to an agent of Investor, if Investor so directs). Unless otherwise specified by the Investor, the Put Shares of Common Stock shall be transmitted electronically pursuant to such electronic delivery system as the Investor shall request; otherwise delivery shall be by physical certificates. If the Company has not delivered all of the Required Put Documents to the Investor on or before the Put Date, the Put shall be automatically cancelled, unless the Investor agrees to delay the Put Date by up to three (3) Business Days, in which case the Pricing Period begins on the Business Day following such new Put Date. If the Company has not delivered all of the Required Put Documents to the Investor on or before the Put Date (or new Put Date, if applicable), and the Investor has not agreed in writing to delay the Put Date, the Put is automatically canceled (an "Impermissible Put Cancellation") and, unless the Put was otherwise canceled in accordance with the terms of Section 2.3.11, the Company shall pay the Investor $5,000 for its reasonable due diligence expenses incurred in preparation for the canceled Put and the Company may deliver an Advance Put Notice for the subsequent Put no sooner than ten (10) Business Days after the date that such Put was canceled, unless otherwise agreed by the Investor. (f) Limitation on Investor's Obligation to Purchase Shares. Notwithstanding anything to the contrary in this Agreement, in no event shall the Investor be required to 13 purchase, and an Intended Put Share Amount may not include, an amount of Put Shares, which when added to the number of Put Shares acquired by the Investor pursuant to this Agreement during the 31 days preceding the Put Date with respect to which this determination of the permitted Intended Put Share Amount is being made, would exceed 9.99% of the number of shares of Common Stock outstanding (on a fully diluted basis, to the extent that inclusion of unissued shares is mandated by Section 13(d) of the Exchange Act) on the Put Date for such Pricing Period, as determined in accordance with Section 13(d) of the Exchange Act (the "Section 13(d) Outstanding Share Amount"). Each Put Notice shall include a representation of the Company as to the Section 13(d) Outstanding Share Amount on the related Put Date. In the event that the Section 13(d) Outstanding Share Amount is different on any date during a Pricing Period than on the Put Date associated with such Pricing Period, then the number of shares of Common Stock outstanding on such date during such Pricing Period shall govern for purposes of determining whether the Investor, when aggregating all purchases of Shares made pursuant to this Agreement in the 31 calendar days preceding such date, would have acquired more than 9.99% of the Section 13(d) Outstanding Share Amount. The limitation set forth in this Section 2.3.1(f) is referred to as the "9.9% Limitation." 2.3.2 Termination of Right to Put. The Company's right to require the Investor to purchase any subsequent Put Shares shall terminate permanently (each, an "Automatic Termination") upon the occurrence of any of the following: (a) the Company shall not exercise a Put or any Put thereafter if, at any time, either the Company or any current or future director or executive officer of the Company has engaged in a transaction or conduct related to the Company that has resulted in (i) a Securities and Exchange Commission enforcement action, or (ii) a civil judgment or criminal conviction for fraud or misrepresentation, or for any other offense that, if prosecuted criminally, would constitute a felony under applicable law; (b) the Company shall not exercise a Put or any Put thereafter, on any date after a cumulative time period or series of time periods, including both Ineffective Periods and Delisting Events, that lasts for an aggregate of four (4) months; (c) the Company shall not exercise a Put or any Put thereafter if at any time the Company has filed for and/or is subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors instituted by or against the Company or any subsidiary of the Company; except for the contemplated bankruptcy filing by First Brewery of Dallas, Inc. as described in the Disclosure Documents. (d) the Company shall not exercise a Put after the sooner of (i) the date that is three (3) years after the Effective Date, or (ii) the Put Closing Date on which the aggregate of the Put Dollar Amounts for all Puts equal the Maximum Offering Amount; and (e) the Company shall not exercise a Put after the Company has breached any covenant in Section 2.6, Section 6, or Section 9 hereof. 14 (f) if no Registration Statement has been declared effective by the date that is one (1) year after the date of this Agreement, the Automatic Termination shall occur on the date that is one (1) year after the date of this Agreement. 2.3.3 Put Limitations. The Company's right to exercise a Put shall be limited as follows: (a) notwithstanding the amount of any Put, the Investor shall not be obligated to purchase any additional Put Shares once the aggregate Put Dollar Amount paid by Investor equals the Maximum Offering Amount; (b) the Investor shall not be obligated to acquire and pay for the Put Shares with respect to any Put for which the Company has announced a subdivision or combination, including a reverse split, of its Common Stock or has subdivided or combined its Common Stock during the Extended Put Period; (c) the Investor shall not be obligated to acquire and pay for the Put Shares with respect to any Put for which the Company has paid a dividend of its Common Stock or has made any other distribution of its Common Stock during the Extended Put Period; (d) the Investor shall not be obligated to acquire and pay for the Put Shares with respect to any Put for which the Company has made, during the Extended Put Period, a distribution of all or any portion of its assets or evidences of indebtedness to the holders of its Common Stock; (e) the Investor shall not be obligated to acquire and pay for the Put Shares with respect to any Put for which a Major Transaction has occurred during the Extended Put Period. 2.3.4 Conditions Precedent to the Right of the Company to Deliver an Advance Put Notice or a Put Notice and the Obligation of the Investor to Purchase Put Shares. The right of the Company to deliver an Advance Put Notice or a Put Notice and the obligation of the Investor hereunder to acquire and pay for the Put Shares incident to a Closing is subject to the satisfaction, on (i) the date of delivery of such Advance Put Notice or Put Notice and (ii) the applicable Put Closing Date, of each of the following conditions: (a) the Company's Common Stock shall be listed for and actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market or the New York Stock Exchange and the Put Shares shall be so listed, and to the Company's knowledge there is no notice of any suspension or delisting with respect to the trading of the shares of Common Stock on such market or exchange; 15 (b) the Company shall have satisfied any and all obligations pursuant to the Registration Rights Agreement, including, but not limited to, the filing of the Registration Statement with the SEC with respect to the resale of all Registrable Securities and the requirement that the Registration Statement shall have been declared effective by the SEC for the resale of all Registrable Securities and the Company shall have satisfied and shall be in compliance with any and all obligations pursuant to this Agreement and the Warrants; (c) the representations and warranties of the Company are true and correct in all material respects as if made on such date and the conditions to Investor's obligations set forth in this Section 2.3.4 are satisfied as of such Closing, and the Company shall deliver a certificate, signed by an officer of the Company, to such effect to the Investor; (d) the Company shall have reserved for issuance a sufficient number of Common Shares for the purpose of enabling the Company to satisfy any obligation to issue Common Shares pursuant to any Put and to effect exercise of the Warrants; (e) the Registration Statement is not subject to an Ineffective Period as defined in the Registration Rights Agreement, the prospectus included therein is current and deliverable, and to the Company's knowledge there is no notice of any investigation or inquiry concerning any stop order with respect to the Registration Statement; and (f) if the Aggregate Issued Shares after the Closing of the Put would exceed the Cap Amount, the Company shall have obtained the Stockholder 20% Approval as specified in Section 6.11, if the Company's Common Stock is listed on the NASDAQ Small Cap Market or NMS, and such approval is required by the rules of the NASDAQ. (g) the Company shall not have been required by the SEC to disclose in the prospectus for the Registration Statement that the offering or sale of the Securities may violate Section 5 of the Act. 2.3.5 Documents Required to be Delivered on the Put Date as Conditions to Closing of any Put. The Closing of any Put and Investor's obligations hereunder shall additionally be conditioned upon the delivery to the Investor of each of the following (the "Required Put Documents") on or before the applicable Put Date: (a) a number of Unlegended Share Certificates (or freely tradeable electronically delivered shares, as appropriate) equal to the Intended Put Share Amount, in denominations of not more than 50,000 shares per certificate; 16 (b) the following documents: Put Opinion of Counsel, Officer's Certificate, Put Notice, Registration Opinion, and any report or disclosure required under Section 2.3.6 or Section 2.5; (c) all documents, instruments and other writings required to be delivered on or before the Put Date pursuant to any provision of this Agreement in order to implement and effect the transactions contemplated herein. 2.3.6 Accountant's Letter and Registration Opinion. (a) The Company shall have caused to be delivered to the Investor, (i) whenever required by Section 2.3.6(b) or by Section 2.5.3, and (ii) on the date that is three (3) Business Days prior to each Put Date (the "Registration Opinion Deadline"), an opinion of the Company's independent counsel, in substantially the form of Exhibit R (the "Registration Opinion"), addressed to the Investor stating, inter alia, that no facts ("Material Facts") have come to such counsel's attention that have caused it to believe that the Registration Statement is subject to an Ineffective Period or to believe that the Registration Statement, any Supplemental Registration Statement (as each may be amended, if applicable), and any related prospectuses, contain an untrue statement of material fact or omits a material fact required to make the statements contained therein, in light of the circumstances under which they were made, not misleading. If a Registration Opinion cannot be delivered by the Company's independent counsel to the Investor on the Registration Opinion Deadline due to the existence of Material Facts or an Ineffective Period, the Company shall promptly notify the Investor and as promptly as possible amend each of the Registration Statement and any Supplemental Registration Statements, as applicable, and any related prospectus or cause such Ineffective Period to terminate, as the case may be, and deliver such Registration Opinion and updated prospectus as soon as possible thereafter. If at any time after a Put Notice shall have been delivered to Investor but before the related Pricing Period End Date, the Company acquires knowledge of such Material Facts or any Ineffective Period occurs, the Company shall promptly notify the Investor and shall deliver a Put Cancellation Notice to the Investor pursuant to Section 2.3.11 by facsimile and overnight courier by the end of that Business Day. (b) (i) the Company shall engage its independent auditors to perform the procedures in accordance with the provisions of Statement on Auditing Standards No. 71, as amended, as agreed to by the parties hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as shall have been reasonably requested by the Investor with respect to certain financial information contained in the Registration Statement and shall have delivered to the Investor such a report addressed to the Investor, on the date that is three (3) Business Days prior to each Put Date. (ii) in the event that the Investor shall have requested delivery of an Agreed Upon Procedures Report pursuant to Section 2.5.3, the Company shall engage its independent auditors to perform certain agreed upon procedures and report thereon as shall have been reasonably requested by the Investor with respect to certain financial information of the Company and the Company shall deliver to the Investor a copy of such report addressed to the Investor. In the event that the report required by this Section 2.3.6(b) cannot be delivered by the Company's independent 17 auditors, the Company shall, if necessary, promptly revise the Registration Statement and the Company shall not deliver a Put Notice until such report is delivered. 2.3.7 Investor's Obligation and Right to Purchase Shares. Subject to the conditions set forth in this Agreement, following the Investor's receipt of a validly delivered Put Notice, the Investor shall be required to purchase (each a "Purchase") from the Company a number of Put Shares equal to the Put Share Amount, in the manner described below. 2.3.8 Mechanics of Put Closing. Each of the Company and the Investor shall deliver all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement at or prior to each Closing. Subject to such delivery and the satisfaction of the conditions set forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor of Shares shall occur by 5:00 PM, New York City Time, on the date which is five (5) Business Days following the applicable Pricing Period End Date (or such other time or later date as is mutually agreed to by the Company and the Investor) (the "Payment Due Date") at the offices of Investor. On each or before each Payment Due Date, the Investor shall deliver to the Company, in the manner specified in Section 8 below, the Put Dollar Amount to be paid for such Put Shares, determined as aforesaid. The closing (each a "Put Closing") for each Put shall occur on the date that both (i) the Company has delivered to the Investor all Required Put Documents, and (ii) the Investor has delivered to the Company such Put Dollar Amount and any Late Payment Amount, if applicable (each a "Put Closing Date"). If the Investor does not deliver to the Company the Put Dollar Amount for such Put Closing on or before the Payment Due Date, then the Investor shall pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late Payment Amount") at a rate of X% per month, accruing daily, multiplied by such Put Dollar Amount, where "X" equals one percent (1%) for the first month following the date in question, and increases by an additional one percent (1%) for each month that passes after the date in question, up to a maximum of five percent (5%) per month; provided, however, that in no event shall the amount of interest that shall become due and payable hereunder exceed the maximum amount permissible under applicable law. 2.3.9 Limitation on Short Sales. The Investor and its Affiliates shall not engage in short sales of the Company's Common Stock; provided, however, that the Investor may enter into any short exempt sale or any short sale or other hedging or similar arrangement it deems appropriate with respect to Put Shares after it receives a Put Notice with respect to such Put Shares so long as such sales or arrangements do not involve more than the number of such Put Shares specified in the Put Notice. 2.3.10 Cap Amount. If the Company becomes listed on the Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the Company has obtained Stockholder 20% Approval as set forth in Section 6.11 or unless otherwise permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the maximum number of shares of Common Stock (the "Cap Amount") that the Company can, without stockholder approval, so issue pursuant to Nasdaq Rule 4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule) (the "Nasdaq 20% Rule"). 18 2.3.11 Put Cancellation. (a) Mechanics of Put Cancellation. If at any time during a Pricing Period the Company discovers the existence of Material Facts or any Ineffective Period or Delisting Event occurs, the Company shall cancel the Put (a "Put Cancellation"), by delivering written notice to the Investor (the "Put Cancellation Notice"), attached as Exhibit Q, by facsimile and overnight courier. The "Put Cancellation Date" shall be the date that the Put Cancellation Notice is first received by the Investor, if such notice is received by the Investor by 6:00 p.m., New York, NY time, and shall be the following date, if such notice is received by the Investor after 6:00 p.m., New York, NY time. (b) Effect of Put Cancellation. Anytime a Put Cancellation Notice is delivered to Investor after the Put Date, the Put, shall remain effective with respect to a number of Put Shares (the "Truncated Put Share Amount") equal to the Individual Put Limit for the Truncated Pricing Period. (c) Put Cancellation Notice Confirmation. Upon receipt by the Investor of a facsimile copy of the Put Cancellation Notice, the Investor shall promptly send, via facsimile, a confirmation of receipt (the "Put Cancellation Notice Confirmation," a form of which is attached as Exhibit S) of the Put Cancellation Notice to the Company specifying that the Put Cancellation Notice has been received and affirming the Put Cancellation Date. (d) Truncated Pricing Period. If a Put Cancellation Notice has been delivered to the Investor after the Put Date, the Pricing Period for such Put shall end at on the close of trading on the last full trading day on the Principal Market that ends prior to the moment of initial delivery of the Put Cancellation Notice (a "Truncated Pricing Period") to the Investor. 2.3.12 Investment Agreement Cancellation. The Company may terminate (a "Company Termination") its right to initiate future Puts by providing written notice ("Termination Notice") to the Investor, by facsimile and overnight courier, at any time other than during an Extended Put Period, provided that such termination shall have no effect on the parties' other rights and obligations under this Agreement, the Registration Rights Agreement or the Warrants. Notwithstanding the above, any cancellation occurring during an Extended Put Period is governed by Section 2.3.11. 2.3.13 Return of Excess Common Shares. In the event that the number of Shares purchased by the Investor pursuant to its obligations hereunder is less than the Intended Put Share Amount, the Investor shall promptly return to the Company any shares of Common Stock in the Investor's possession that are not being purchased by the Investor. 2.4 Warrants. 2.4.1 Commitment Warrants. In partial consideration hereof, following the execution of the Letter of Agreement dated on or about April 14, 2000 between the Company and the Investor, the Company issued and delivered to Investor or its designated assignees, warrants (the "Commitment Warrants") in the form attached hereto as Exhibit U, or such other form as agreed upon 19 by the parties, to purchase 490,000 shares of Common Stock. Each Commitment Warrant shall be immediately exercisable at the Commitment Warrant Exercise Price, and shall have a term beginning on the date of issuance and ending on date that is five (5) years thereafter. The Warrant Shares shall be registered for resale pursuant to the Registration Rights Agreement. The Investment Commitment Opinion of Counsel shall cover the issuance of the Commitment Warrant and the issuance of the common stock upon exercise of the Commitment Warrant. Notwithstanding any Termination or Automatic Termination of this Agreement, regardless of whether or not the Registration Statement is or is not filed, and regardless of whether or not the SEC declares the Registration Statement effective or declines to declare the Registration Statement effective, the Investor shall retain full ownership of the Commitment Warrant as partial consideration for its commitment hereunder. 2.4.2 Purchase Warrants. Within five (5) Business Days of the end of each Pricing Period, the Company shall issue and deliver to the Investor a warrant ("Purchase Warrant"), in the form attached hereto as Exhibit D, or such other form as agreed upon by the parties, to purchase a number of shares of Common Stock equal to 10% of the Put Share Amount for that Put. Each Purchase Warrant shall be exerciseable at a price (the "Purchase Warrant Exercise Price") which shall initially equal 110% of the Market Price for the applicable Put, and shall have semi-annual reset provisions. Each Purchase Warrant shall be immediately exercisable at the Purchase Warrant Exercise Price, and shall have a term beginning on the date of issuance and ending on the date that is five (5) years thereafter. The Warrant Shares shall be registered for resale pursuant to the Registration Rights Agreement. 2.5 Due Diligence Review. The Company shall make available for inspection and review by the Investor (the "Due Diligence Review"), advisors to and representatives of the Investor (who may or may not be affiliated with the Investor and who are reasonably acceptable to the Company), any underwriter participating in any disposition of Common Stock on behalf of the Investor pursuant to the Registration Statement, any Supplemental Registration Statement, or amendments or supplements thereto or any blue sky, NASD or other filing, all financial and other records, all filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees to supply all such information reasonably requested by the Investor or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investor and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. 2.5.1 Treatment of Nonpublic Information. The Company shall not disclose nonpublic information to the Investor or to its advisors or representatives unless prior to disclosure of such information the Company identifies such information as being nonpublic information and provides the Investor and such advisors and representatives with the opportunity to accept or 20 refuse to accept such nonpublic information for review. The Company may, as a condition to disclosing any nonpublic information hereunder, require the Investor and its advisors and representatives to enter into a confidentiality agreement (including an agreement with such advisors and representatives prohibiting them from trading in Common Stock during such period of time as they are in possession of nonpublic information) in form reasonably satisfactory to the Company and the Investor. Nothing herein shall require the Company to disclose nonpublic information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate nonpublic information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting nonpublic information (whether or not requested of the Company specifically or generally during the course of due diligence by and such persons or entities), which, if not disclosed in the Prospectus included in the Registration Statement, would cause such Prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 2.5 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain nonpublic information in the course of conducting due diligence in accordance with the terms of this Agreement; provided, however, that in no event shall the Investor's advisors or representatives disclose to the Investor the nature of the specific event or circumstances constituting any nonpublic information discovered by such advisors or representatives in the course of their due diligence without the written consent of the Investor prior to disclosure of such information. 2.5.2 Disclosure of Misstatements and Omissions. The Investor's advisors or representatives shall make complete disclosure to the Investor's counsel of all events or circumstances constituting nonpublic information discovered by such advisors or representatives in the course of their due diligence upon which such advisors or representatives form the opinion that the Registration Statement contains an untrue statement of a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in the light of the circumstances in which they were made, not misleading. Upon receipt of such disclosure, the Investor's counsel shall consult with the Company's independent counsel in order to address the concern raised as to the existence of a material misstatement or omission and to discuss appropriate disclosure with respect thereto; provided, however, that such consultation shall not constitute the advice of the Company's independent counsel to the Investor as to the accuracy of the Registration Statement and related Prospectus. 2.5.3 Procedure if Material Facts are Reasonably Believed to be Untrue or are Omitted. In the event after such consultation the Investor or the Investor's counsel reasonably believes that the Registration Statement contains an untrue statement or a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading, 21 (a) the Company shall file with the SEC an amendment to the Registration Statement responsive to such alleged untrue statement or omission and provide the Investor, as promptly as practicable, with copies of the Registration Statement and related Prospectus, as so amended, or (b) if the Company disputes the existence of any such material misstatement or omission, (i) the Company's independent counsel shall provide the Investor's counsel with a Registration Opinion and (ii) in the event the dispute relates to the adequacy of financial disclosure and the Investor shall reasonably request, the Company's independent auditors shall provide to the Company a letter ("Agreed Upon Procedures Report") outlining the performance of such "agreed upon procedures" as shall be reasonably requested by the Investor and the Company shall provide the Investor with a copy of such letter. 2.6 Commitment Payments. On the last Business Day of each one calendar year period following the Effective Date (each such period a "Commitment Evaluation Period"), if the Company has not Put at least $1,000,000 in aggregate Put Dollar Amount during that Commitment Evaluation Period, the Company, in consideration of Investor's commitment costs, including, but not limited to, due diligence expenses, shall pay to the Investor an amount (the "Annual Non-Usage Fee ") equal to the difference of (i) $100,000, minus (ii) 10% of the aggregate Put Dollar Amount of the Put Shares put to Investor during that Commitment Evaluation Period. In the event that the Company delivers a Termination Notice to the Investor or an Automatic Termination occurs, the Company shall pay to the Investor (the "Termination Fee") the greater of (i) the Annual Non-Usage Fee for the applicable Commitment Evaluation Period, or (ii) the difference of (x) $200,000, minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares put to Investor during all Puts to date, and the Company shall not be required to pay the Annual Non-Usage Fee thereafter. Each Annual Non-Usage Fee or Termination Fee is payable, in cash, within five (5) business days of the date it accrued. The Company shall not be required to deliver any payments to Investor under this subsection until Investor has paid all Put Dollar Amounts that are then due. 3. Representations, Warranties and Covenants of Investor. Investor hereby represents and warrants to and agrees with the Company as follows: 3.1 Accredited Investor. Investor is an accredited investor ("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked the applicable box set forth in Section 10 of this Agreement. 3.2 Investment Experience; Access to Information; Independent Investigation. 3.2.1 Access to Information. Investor or Investor's professional advisor has been granted the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the terms and conditions of this 22 Offering, the Company and its business and prospects, and to obtain any additional information which Investor or Investor's professional advisor deems necessary to verify the accuracy and completeness of the information received. 3.2.2 Reliance on Own Advisors. Investor has relied completely on the advice of, or has consulted with, Investor's own personal tax, investment, legal or other advisors and has not relied on the Company or any of its affiliates, officers, directors, attorneys, accountants or any affiliates of any thereof and each other person, if any, who controls any of the foregoing, within the meaning of Section 15 of the Act for any tax or legal advice (other than reliance on information in the Disclosure Documents as defined in Section 3.2.4 below and on the Opinion of Counsel). The foregoing, however, does not limit or modify Investor's right to rely upon covenants, representations and warranties of the Company in this Agreement. 3.2.3 Capability to Evaluate. Investor has such knowledge and experience in financial and business matters so as to enable such Investor to utilize the information made available to it in connection with the Offering in order to evaluate the merits and risks of the prospective investment, which are substantial, including without limitation those set forth in the Disclosure Documents (as defined in Section 3.2.4 below). 3.2.4 Disclosure Documents. Investor, in making Investor's investment decision to subscribe for the Investment Agreement hereunder, represents that (a) Investor has received and had an opportunity to review (i) the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999, (ii) the Company's quarterly report on Form 10-QSB for the quarter ended March 31, 2000, (iii) the Risk Factors, attached as Exhibit J, (the "Risk Factors") (iv) the Capitalization Schedule, attached as Exhibit K, (the "Capitalization Schedule") and (v) the Use of Proceeds Schedule, attached as Exhibit L, (the "Use of Proceeds Schedule"); (b) Investor has read, reviewed, and relied solely on the documents described in (a) above, the Company's representations and warranties and other information in this Agreement, including the exhibits, documents prepared by the Company which have been specifically provided to Investor in connection with this Offering (the documents described in this Section 3.2.4 (a) and (b) are collectively referred to as the "Disclosure Documents"), and an independent investigation made by Investor and Investor's representatives, if any; (c) Investor has, prior to the date of this Agreement, been given an opportunity to review material contracts and documents of the Company which have been filed as exhibits to the Company's filings under the Act and the Exchange Act and has had an opportunity to ask questions of and receive answers from the Company's officers and directors; and (d) is not relying on any oral representation of the Company or any other person, nor any written representation or assurance from the Company other than those contained in the Disclosure Documents or incorporated herein or therein. The foregoing, however, does not limit or modify Investor's right to rely upon covenants, representations and warranties of the Company in Sections 5 and 6 of this Agreement. Investor acknowledges and agrees that the Company has no responsibility for, does not ratify, and is under no responsibility whatsoever to comment upon or correct any reports, analyses or other comments made about the Company by any third parties, including, but not limited to, analysts' research reports or comments (collectively, "Third Party Reports"), and Investor has not relied upon any Third Party Reports in making the decision to invest. 23 3.2.5 Investment Experience; Fend for Self. Investor has substantial experience in investing in securities and it has made investments in securities other than those of the Company. Investor acknowledges that Investor is able to fend for Investor's self in the transaction contemplated by this Agreement, that Investor has the ability to bear the economic risk of Investor's investment pursuant to this Agreement and that Investor is an "Accredited Investor" by virtue of the fact that Investor meets the investor qualification standards set forth in Section 3.1 above. Investor has not been organized for the purpose of investing in securities of the Company, although such investment is consistent with Investor's purposes. 3.3 Exempt Offering Under Regulation D. 3.3.1 No General Solicitation. The Investment Agreement was not offered to Investor through, and Investor is not aware of, any form of general solicitation or general advertising, including, without limitation, (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. 3.3.2 Restricted Securities. Investor understands that the Investment Agreement is, the Common Stock and Warrants issued at each Put Closing will be, and the Warrant Shares will be, characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction exempt from the registration requirements of the federal securities laws and that under such laws and applicable regulations such securities may not be transferred or resold without registration under the Act or pursuant to an exemption therefrom. In this connection, Investor represents that Investor is familiar with Rule 144 under the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.3.3 Disposition. Without in any way limiting the representations set forth above, Investor agrees that until the Securities are sold pursuant to an effective Registration Statement or an exemption from registration, they will remain in the name of Investor and will not be transferred to or assigned to any broker, dealer or depositary. Investor further agrees not to sell, transfer, assign, or pledge the Securities (except for any bona fide pledge arrangement to the extent that such pledge does not require registration under the Act or unless an exemption from such registration is available and provided further that if such pledge is realized upon, any transfer to the pledgee shall comply with the requirements set forth herein), or to otherwise dispose of all or any portion of the Securities unless and until: (a) There is then in effect a registration statement under the Act and any applicable state securities laws covering such proposed disposition and such disposition is made in accordance with such registration statement and in compliance with applicable prospectus delivery requirements; or (b) (i) Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition to the extent relevant for determination of the availability of an exemption from registration, and (ii) if reasonably requested by the Company, Investor shall have furnished the 24 Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of the Securities under the Act or state securities laws. It is agreed that the Company will not require the Investor to provide opinions of counsel for transactions made pursuant to Rule 144 provided that Investor and Investor's broker, if necessary, provide the Company with the necessary representations for counsel to the Company to issue an opinion with respect to such transaction. The Investor is entering into this Agreement for its own account and the Investor has no present arrangement (whether or not legally binding) at any time to sell the Common Stock to or through any person or entity; provided, however, that by making the representations herein, the Investor does not agree to hold the Common Stock for any minimum or other specific term and reserves the right to dispose of the Common Stock at any time in accordance with federal and state securities laws applicable to such disposition. 3.4 Due Authorization. 3.4.1 Authority. The person executing this Investment Agreement, if executing this Agreement in a representative or fiduciary capacity, has full power and authority to execute and deliver this Agreement and each other document included herein for which a signature is required in such capacity and on behalf of the subscribing individual, partnership, trust, estate, corporation or other entity for whom or which Investor is executing this Agreement. Investor has reached the age of majority (if an individual) according to the laws of the state in which he or she resides. 3.4.2 Due Authorization. Investor is duly and validly organized, validly existing and in good standing as a limited liability company under the laws of Georgia with full power and authority to purchase the Securities to be purchased by Investor and to execute and deliver this Agreement. 3.4.3 Partnerships. If Investor is a partnership, the representations, warranties, agreements and understandings set forth above are true with respect to all partners of Investor (and if any such partner is itself a partnership, all persons holding an interest in such partnership, directly or indirectly, including through one or more partnerships), and the person executing this Agreement has made due inquiry to determine the truthfulness of the representations and warranties made hereby. 3.4.4 Representatives. If Investor is purchasing in a representative or fiduciary capacity, the representations and warranties shall be deemed to have been made on behalf of the person or persons for whom Investor is so purchasing. 4. Acknowledgments Investor is aware that: 4.1 Risks of Investment. Investor recognizes that an investment in the Company involves substantial risks, including the potential loss of Investor's entire investment therein. Investor recognizes that the Disclosure Documents, this Agreement and the exhibits hereto do not purport to contain all the information, which would be contained in a registration statement under the Act; 25 4.2 No Government Approval. No federal or state agency has passed upon the Securities, recommended or endorsed the Offering, or made any finding or determination as to the fairness of this transaction; 4.3 No Registration, Restrictions on Transfer. As of the date of this Agreement, the Securities and any component thereof have not been registered under the Act or any applicable state securities laws by reason of exemptions from the registration requirements of the Act and such laws, and may not be sold, pledged (except for any limited pledge in connection with a margin account of Investor to the extent that such pledge does not require registration under the Act or unless an exemption from such registration is available and provided further that if such pledge is realized upon, any transfer to the pledgee shall comply with the requirements set forth herein), assigned or otherwise disposed of in the absence of an effective registration of the Securities and any component thereof under the Act or unless an exemption from such registration is available; 4.4 Restrictions on Transfer. Investor may not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Securities or any component thereof in the absence of either an effective registration statement or an exemption from the registration requirements of the Act and applicable state securities laws; 4.5 No Assurances of Registration. There can be no assurance that any registration statement will become effective at the scheduled time, or ever, or remain effective when required, and Investor acknowledges that it may be required to bear the economic risk of Investor's investment for an indefinite period of time; 4.6 Exempt Transaction. Investor understands that the Securities are being offered and sold in reliance on specific exemptions from the registration requirements of federal and state law and that the representations, warranties, agreements, acknowledgments and understandings set forth herein are being relied upon by the Company in determining the applicability of such exemptions and the suitability of Investor to acquire such Securities. 4.7 Legends. The certificates representing the Put Shares shall not bear a legend restricting transfer thereof ("Restrictive Legend"). The certificates representing the Warrant Shares shall not bear a Restrictive Legend unless they are issued at a time when the Registration Statement is not effective for resale. It is understood that the certificates evidencing any Warrant Shares issued at a time when the Registration Statement is not effective for resale, subject to legend removal under the terms of Section 6.8 below, shall bear the following legend (the "Legend"): "The securities represented hereby have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws, nor the securities laws of any other jurisdiction. They may not be sold or transferred in the absence of an effective registration statement under those securities laws or pursuant to an exemption therefrom." 5. Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to Investor (which shall be true at the signing of this 26 Agreement, and as of any such later date as contemplated hereunder) and agrees with Investor that, except as set forth in the "Schedule of Exceptions" attached hereto as Exhibit C: 5.1 Organization, Good Standing, and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, USA and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the business or properties of the Company and its subsidiaries taken as a whole. The Company is not the subject of any pending, threatened or, to its knowledge, contemplated investigation or administrative or legal proceeding (a "Proceeding") by the Internal Revenue Service, the taxing authorities of any state or local jurisdiction, or the Securities and Exchange Commission, The National Association of Securities Dealer, Inc., The Nasdaq Stock Market, Inc. or any state securities commission, or any other governmental entity, which have not been disclosed in the Disclosure Documents. None of the disclosed Proceedings, if any, will have a material adverse effect upon the Company or the market for the Common Stock. The Company has the following subsidiaries: First Brewery of Dallas, Inc. 5.2 Corporate Condition. The Company's condition is, in all material respects, as described in the Disclosure Documents (as further set forth in any subsequently filed Disclosure Documents, if applicable), except for changes in the ordinary course of business and normal year-end adjustments that are not, in the aggregate, materially adverse to the Company. Except for continuing losses, there have been no material adverse changes to the Company's business, financial condition, or prospects since the dates of such Disclosure Documents. The financial statements as contained in the 10-KSB and 10-QSB have been prepared in accordance with generally accepted accounting principles, consistently applied (except as otherwise permitted by Regulation S-X of the Exchange Act), subject, in the case of unaudited interim financial statements, to customary year end adjustments and the absence of certain footnotes, and fairly present the financial condition of the Company as of the dates of the balance sheets included therein and the consolidated results of its operations and cash flows for the periods then ended,. Without limiting the foregoing, there are no material liabilities, contingent or actual, that are not disclosed in the Disclosure Documents (other than liabilities incurred by the Company in the ordinary course of its business, consistent with its past practice, after the period covered by the Disclosure Documents). The Company has paid all material taxes that are due, except for taxes that it reasonably disputes. There is no material claim, litigation, or administrative proceeding pending or, to the best of the Company's knowledge, threatened against the Company, except as disclosed in the Disclosure Documents. This Agreement and the Disclosure Documents do not contain any untrue statement of a material fact and do not omit to state any material fact required to be stated therein or herein necessary to make the statements contained therein or herein not misleading in the light of the circumstances under which they were made. No event or circumstance exists relating to the Company which, under applicable law, requires public disclosure but which has not been so publicly announced or disclosed. 5.3 Authorization. All corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance and delivery of the Common Stock being sold hereunder and the issuance (and/or the reservation for issuance) of the 27 Warrants and the Warrant Shares have been taken, and this Agreement and the Registration Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, except insofar as the enforceability may be limited by applicable bankruptcy, insolvency, reorganization, or other similar laws affecting creditors' rights generally or by principles governing the availability of equitable remedies. The Company has obtained all consents and approvals required for it to execute, deliver and perform each agreement referenced in the previous sentence. 5.4 Valid Issuance of Common Stock. The Common Stock and the Warrants, when issued, sold and delivered in accordance with the terms hereof, for the consideration expressed herein, will be validly issued, fully paid and nonassessable and, based in part upon the representations of Investor in this Agreement, will be issued in compliance with all applicable U.S. federal and state securities laws. The Warrant Shares, when issued in accordance with the terms of the Warrants, shall be duly and validly issued and outstanding, fully paid and nonassessable, and based in part on the representations and warranties of Investor, will be issued in compliance with all applicable U.S. federal and state securities laws. The Put Shares, the Warrants and the Warrant Shares will be issued free of any preemptive rights. 5.5 Compliance with Other Instruments. The Company is not in violation or default of any provisions of its Certificate of Incorporation or Bylaws, each as amended and in effect on and as of the date of the Agreement, or of any material provision of any material instrument or material contract to which it is a party or by which it is bound or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which would have a material adverse effect on the Company's business or prospects, or on the performance of its obligations under this Agreement or the Registration Rights Agreement. The execution, delivery and performance of this Agreement and the other agreements entered into in conjunction with the Offering and the consummation of the transactions contemplated hereby and thereby will not (a) result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company, which would have a material adverse effect on the Company's business or prospects, or on the performance of its obligations under this Agreement, or the Registration Rights Agreement, (b) violate the Company's Certificate of Incorporation or By-Laws or (c) violate any statute, rule or governmental regulation applicable to the Company which violation would have a material adverse effect on the Company's business or prospects. 5.6 Reporting Company. The Company is subject to the reporting requirements of the Exchange Act, has a class of securities registered under Section 12 of the Exchange Act, and has filed all reports required by the Exchange Act since the date the Company first became subject to such reporting obligations. The Company undertakes to furnish Investor with copies of such reports as may be reasonably requested by Investor prior to consummation of this Offering and thereafter, to make such reports available, for the full term of this Agreement, including any extensions thereof, and for as long as Investor holds the Securities. The Common Stock is duly approved for quotation on the O.T.C. Bulletin Board. The Company is not in violation of the listing requirements of the O.T.C. Bulletin Board and does not reasonably anticipate that the Common Stock will be delisted by the O.T.C. Bulletin Board for the foreseeable future. The Company has filed all reports required under the Exchange Act. 28 The Company has not furnished to the Investor any material nonpublic information concerning the Company. 5.7 Capitalization. The capitalization of the Company as of the date hereof, is, and the capitalization as of the Closing, subject to exercise of any outstanding warrants and/or exercise of any outstanding stock options, after taking into account the offering of the Securities contemplated by this Agreement and all other share issuances occurring prior to this Offering, will be, as set forth in the Capitalization Schedule as set forth in Exhibit K. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities. Except as disclosed in the Capitalization Schedule, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Act (except the Registration Rights Agreement). 5.8 Intellectual Property. All patents, patent applications, trademark registrations and applications for trademark registration identified in Exhibit M are owned by the Company free and clear of all mortgages, liens, charges or encumbrances whatsoever. No licenses have been granted with respect to these items and the Company has not received notice of any claims by a third party suggesting that its practice of the inventions covered by those patents or patent applications, or its use of the trademarks covered by such registrations or applications would infringe the rights of any third party. The Company has not received any notice that its practice of any unpatented technology used by it in its business, or its use of any trademarks used by it in its business infringe the rights of any third party. 5.9 Use of Proceeds. As of the date hereof, the Company expects to use the proceeds from this Offering (less fees and expenses) for the purposes and in the approximate amounts set forth on the Use of Proceeds Schedule set forth as Exhibit L hereto. These purposes and amounts are estimates and are subject to change without notice to any Investor. 5.10 No Rights of Participation. No person or entity, including, but not limited to, current or former stockholders of the Company, underwriters, brokers, agents or other third parties, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the financing contemplated by this Agreement which has not been waived. 5.11 Company Acknowledgment. The Company hereby acknowledges that Investor may elect to hold the Securities for various periods of time, as permitted by the terms of this Agreement, the Warrants, and other agreements contemplated hereby, and the Company further acknowledges that Investor has made no representations or warranties, either written or oral, as to how long the Securities will be held by Investor or regarding Investor's trading history or investment strategies. 29 5.12 No Advance Regulatory Approval. The Company acknowledges that this Investment Agreement, the transaction contemplated hereby and the Registration Statement contemplated hereby have not been approved by the SEC, or any other regulatory body and there is no guarantee that this Investment Agreement, the transaction contemplated hereby and the Registration Statement contemplated hereby will ever be approved by the SEC or any other regulatory body. The Company is relying on its own analysis and is not relying on any representation by Investor that either this Investment Agreement, the transaction contemplated hereby or the Registration Statement contemplated hereby has been or will be approved by the SEC or other appropriate regulatory body. 5.13 Underwriter's Fees and Rights of First Refusal. The Company is not obligated to pay any compensation or other fees, costs or related expenditures in cash or securities to any underwriter, broker, agent or other representative other than the Investor in connection with this Offering. 5.14 [Intentionally Left Blank]. 5.15 No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any of the Company's securities or solicited any offers to buy any security under circumstances that would prevent the parties hereto from consummating the transactions contemplated hereby pursuant to an exemption from registration under Regulation D of the Act or would require the issuance of any other securities to be integrated with this Offering under applicable securities laws. The Company has not engaged in any form of general solicitation or advertising in connection with the offering of the Common Stock or the Warrants. 5.16 Foreign Corrupt Practices. Neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of its actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. 5.17 Key Employees. Each "Key Employee" (as defined in Exhibit N) is currently serving the Company in the capacity disclosed in Exhibit N. No Key Employee, to the best knowledge of the Company and its subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its subsidiaries to any liability with respect to any of the foregoing matters. No Key Employee has, to the best knowledge of the Company and its subsidiaries, any intention to terminate his employment with, or services to, the Company or any of its subsidiaries. 30 5.18 Representations Correct. The foregoing representations, warranties and agreements are true, correct and complete in all material respects, and shall survive any Put Closing and the issuance of the shares of Common Stock thereby. 5.19 Tax Status. The Company has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and as set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. 5.20 Transactions With Affiliates. Except as set forth in the Disclosure Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 5.21 Application of Takeover Protections. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination or other similar anti-takeover provision under Texas law which is or could become applicable to the Investor as a result of the transactions contemplated by this Agreement, including, without limitation, the issuance of the Common Stock, any exercise of the Warrants and ownership of the Common Shares and Warrant Shares. The Company has not adopted and will not adopt any "poison pill" provision that will be applicable to Investor as a result of transactions contemplated by this Agreement. 5.22 Other Agreements. The Company has not, directly or indirectly, made any agreements with the Investor under a subscription in the form of this Agreement for the purchase of Common Stock, relating to the terms or conditions of the transactions contemplated hereby or thereby except as expressly set forth herein, respectively, or in exhibits hereto or thereto. 5.23 Major Transactions. There are no other Major Transactions currently pending or contemplated by the Company. 5.24 Financings. There are no other financings currently pending or contemplated by the Company. 31 5.25 Shareholder Authorization. The Company shall, at its next annual shareholder meeting following its listing on either the Nasdaq Small Cap Market or the Nasdaq National Market, or at a special meeting to be held as soon as practicable thereafter, use its best efforts to obtain approval of its shareholders to (i) authorize the issuance of the full number of shares of Common Stock which would be issuable under this Agreement and eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of its securities with respect to the Company's ability to issue shares of Common Stock in excess of the Cap Amount (such approvals being the "20% Approval") and (ii) the increase in the number of authorized shares of Common Stock of the Company (the "Share Authorization Increase Approval") such that at least 20,000,000 shares can be reserved for this Offering. In connection with such shareholder vote, the Company shall use its best efforts to cause all officers and directors of the Company to promptly enter into irrevocable agreements to vote all of their shares in favor of eliminating such prohibitions. As soon as practicable after the 20% Approval and the Share Authorization Increase Approval, the Company agrees to use its best efforts to reserve 20,000,000 shares of Common Stock for issuance under this Agreement. 5.26 Acknowledgment of Limitations on Put Amounts. The Company understands and acknowledges that the amounts available under this Investment Agreement are limited, among other things, based upon the liquidity of the Company's Common Stock traded on its Principal Market. 6. Covenants of the Company 6.1 Independent Auditors. The Company shall, until at least the Termination Date, maintain as its independent auditors an accounting firm authorized to practice before the SEC. 6.2 Corporate Existence and Taxes. The Company shall, until at least the Termination Date, maintain its corporate existence in good standing and, once it becomes a "Reporting Issuer" (defined as a Company which files periodic reports under the Exchange Act), remain a Reporting Issuer (provided, however, that the foregoing covenant shall not prevent the Company from entering into any merger or corporate reorganization as long as the surviving entity in such transaction, if not the Company, assumes the Company's obligations with respect to the Common Stock and has Common Stock listed for trading on a stock exchange or on Nasdaq and is a Reporting Issuer) and shall pay all its taxes when due except for taxes which the Company disputes. 6.3 Registration Rights. The Company will enter into a registration rights agreement covering the resale of the Common Shares and the Warrant Shares substantially in the form of the Registration Rights Agreement attached as Exhibit A. 6.4 Asset Transfers. The Company shall not (i) transfer, sell, convey or otherwise dispose of any of its material assets to any subsidiary of the Company except for a cash or cash equivalent consideration and for a proper business purpose or (ii) transfer, sell, convey or otherwise dispose of any of its material assets to any Affiliate, as defined below, during the Term of this Agreement. For purposes hereof, "Affiliate" shall mean any officer of the Company, director of the 32 Company or owner of twenty percent (20%) or more of the Common Stock or other securities of the Company. 6.5 Capital Raising Limitations and Rights of First Refusal. 6.5.1 Capital Raising Limitations. During the period from the date of this Agreement until the date that is one year after the Termination Date, the Company shall not issue or sell, or agree to issue or sell Equity Securities (as defined below), for cash in private capital raising transactions without obtaining the prior written approval of the Investor of the Offering (the limitations referred to in this subsection 6.6.1 are collectively referred to as the "Capital Raising Limitations"). For purposes hereof, the following shall be collectively referred to herein as, the "Equity Securities": (i) Common Stock or any other equity securities, (ii) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional shares of Common Stock or other equity securities, or (iii) any securities of the Company pursuant to an equity line structure or format similar in nature to this Offering. 6.5.2 Investor's Right of First Refusal. For any private capital raising transactions of Equity Securities which close after the date hereof and on or prior to the date that is one (1) year after the Termination Date of this Agreement, not including any warrants issued in conjunction with this Investment Agreement, the Company agrees to deliver to Investor, at least ten (10) days prior to the closing of such transaction, written notice describing the proposed transaction, including the terms and conditions thereof, and providing the Investor and its affiliates an option (the "Right of First Refusal") during the ten (10) day period following delivery of such notice to purchase the securities being offered in such transaction on the same terms as contemplated by such transaction. 6.5.3 Exceptions to Rights of First Refusal. Notwithstanding the above, the Rights of First Refusal shall not apply to any transaction involving issuances of securities in connection with a merger, consolidation, acquisition or sale of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or license by the Company or exercise of options by employees, consultants or directors, or a primary underwritten offering of the Company's Common Stock, or the transactions set forth on Schedule 6.5.1. The Capital Raising Limitations also shall not apply to (a) the issuance of securities upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date hereof, (b) the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan for the benefit of the Company's employees, directors or consultants, or (c) the issuance of debt securities, with no equity feature, incurred solely for working capital purposes. If the Investor, at any time, is more than five (5) business days late in paying any Put Dollar Amounts that are then due, the Investor shall not be entitled to the benefits of Sections 6.5.1 and 6.5.2 above until the date that the Investor has paid all Put Dollar Amounts that are then due. 6.6 Financial 10-KSB Statements, Etc. and Current Reports on Form 8-K. The Company shall deliver to the Investor copies of its annual reports on Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the Investor current reports on Form 8-K within two (2) days of filing for the Term of this Agreement. 33 6.7 Opinion of Counsel. Investor shall, concurrent with the Investment Commitment Closing, receive an opinion letter from the Company's legal counsel, in the form attached as Exhibit B, or in such form as agreed upon by the parties, and shall, concurrent with each Put Date, receive an opinion letter from the Company's legal counsel, in the form attached as Exhibit I or in such form as agreed upon by the parties. 6.8 Removal of Legend. If the certificates representing any Securities are issued with a restrictive Legend in accordance with the terms of this Agreement, the Legend shall be removed and the Company shall issue a certificate without such Legend to the holder of any Security upon which it is stamped, and a certificate for a security shall be originally issued without the Legend, if (a) the sale of such Security is registered under the Act, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions (the reasonable cost of which shall be borne by the Investor), to the effect that a public sale or transfer of such Security may be made without registration under the Act, or (c) such holder provides the Company with reasonable assurances that such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all Securities, including those represented by a certificate(s) from which the Legend has been removed, or which were originally issued without the Legend, pursuant to an effective registration statement and to deliver a prospectus in connection with such sale or in compliance with an exemption from the registration requirements of the Act. 6.9 Listing. Subject to the remainder of this Section 6.9, the Company shall ensure that its shares of Common Stock (including all Warrant Shares and Put Shares) are listed and available for trading on the O.T.C. Bulletin Board. Thereafter, the Company shall (i) use its best efforts to continue the listing and trading of its Common Stock on the O.T.C. Bulletin Board or to become eligible for and listed and available for trading on the Nasdaq Small Cap Market, the NMS, or National Association of Securities Dealers ("NASD")and (ii) comply in all material respects with the Company's reporting, filing and other obligations under the By-Laws or rules of the New York Stock Exchange ("NYSE"); and such exchanges, as applicable. 6.10 The Company's Instructions to Transfer Agent. The Company will instruct the Transfer Agent of the Common Stock, by delivering instructions in the form of Exhibit T hereto, to issue certificates, registered in the name of each Investor or its nominee, for the Put Shares and Warrant Shares in such amounts as specified from time to time by the Company upon any exercise by the Company of a Put and/or exercise of the Warrants by the holder thereof. Such certificates shall not bear a Legend unless issuance with a Legend is permitted by the terms of this Agreement and Legend removal is not permitted by Section 6.8 hereof and the Company shall cause the Transfer Agent to issue such certificates without a Legend. Nothing in this Section shall affect in any way Investor's obligations and agreement set forth in Sections 3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an effective registration statement and to deliver a prospectus in connection with such sale or in compliance with an exemption from the registration requirements of applicable securities laws. If (a) an Investor provides the Company with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from registration or (b) an Investor transfers Securities, pursuant to Rule 144, to a transferee which is an accredited investor, the Company shall permit the transfer, and, in the case of Put Shares and Warrant Shares, promptly instruct 34 its transfer agent to issue one or more certificates in such name and in such denomination as specified by such Investor. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to an Investor by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 6.10 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 6.10, that an Investor shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6.11 Stockholder 20% Approval. Prior to the closing of any Put that would cause the Aggregate Issued Shares to exceed the Cap Amount, if required by the rules of NASDAQ because the Company's Common Stock is listed on NASDAQ, the Company shall obtain approval of its stockholders to authorize (i) the issuance of the full number of shares of Common Stock which would be issuable pursuant to this Agreement but for the Cap Amount and eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of its securities with respect to the Company's ability to issue shares of Common Stock in excess of the Cap Amount (such approvals being the "Stockholder 20% Approval"). 6.12 Press Release. The Company agrees that the Investor shall have the right to review and comment upon any press release issued by the Company in connection with the Offering which approval shall not be unreasonably withheld by Investor. 6.13 Change in Law or Policy. In the event of a change in law, or policy of the SEC, as evidenced by a No-Action letter or other written statements of the SEC or the NASD which causes the Investor to be unable to perform its obligations hereunder, this Agreement shall be automatically terminated and no Termination Fee shall be due, provided that notwithstanding any termination under this section 6.13, the Investor shall retain full ownership of the Commitment Warrant as partial consideration for its commitment and its consulting, legal and other services rendered hereunder. 7. Investor Covenant/Miscellaneous. 7.1 Representations and Warranties Survive the Closing; Severability. Investor's and the Company's representations and warranties shall survive the Investment Date and any Put Closing contemplated by this Agreement notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, or is altered by a term required by the Securities Exchange Commission to be included in the Registration Statement, this Agreement shall continue in full force and effect without said provision; provided that if the removal of such provision materially changes the economic benefit of this Agreement to the Investor, this Agreement shall terminate. 35 7.2 Successors and Assigns. This Agreement shall not be assignable without the Company's written consent, If assigned, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Investor may assign Investor's rights hereunder, in connection with any private sale of the Common Stock of such Investor, so long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement in a form acceptable to the Company and provides an original copy of such acknowledgment to the Company. 7.3 Execution in Counterparts Permitted. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one (1) instrument. 7.4 Titles and Subtitles; Gender. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. The use in this Agreement of a masculine, feminine or neither pronoun shall be deemed to include a reference to the others. 7.5 Written Notices, Etc. Any notice, demand or request required or permitted to be given by the Company or Investor pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally, or by facsimile or upon receipt if by overnight or two (2) day courier, addressed to the parties at the addresses and/or facsimile telephone number of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing; provided, however, that in order for any notice to be effective as to the Investor such notice shall be delivered and sent, as specified herein, to all the addresses and facsimile telephone numbers of the Investor set forth at the end of this Agreement or such other address and/or facsimile telephone number as Investor may request in writing. 7.6 Expenses. Except as set forth in the Registration Rights Agreement, each of the Company and Investor shall pay all costs and expenses that it respectively incurs, with respect to the negotiation, execution, delivery and performance of this Agreement. 7.7 Entire Agreement; Written Amendments Required. This Agreement, including the Exhibits attached hereto, the Common Stock certificates, the Warrants, the Registration Rights Agreement, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants, whether oral, written, or otherwise except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 36 7.8 Actions at Law or Equity; Jurisdiction and Venue. The parties acknowledge that any and all actions, whether at law or at equity, and whether or not said actions are based upon this Agreement between the parties hereto, shall be filed in any state or federal court sitting in Atlanta, Georgia. Georgia law shall govern both the proceeding as well as the interpretation and construction of the Transaction Documents and the transaction as a whole. In any litigation between the parties hereto, the prevailing party, as found by the court, shall be entitled to an award of all attorney's fees and costs of court. Should the court refuse to find a prevailing party, each party shall bear its own legal fees and costs. 8. Subscription and Wiring Instructions; Irrevocability. 8.1 Subscription (a) Wire transfer of Subscription Funds. Investor shall deliver Put Dollar Amounts (as payment towards any Put Share Price) by wire transfer, to the Company pursuant to a wire instruction letter to be provided by the Company, and signed by the Company. (b) Irrevocable Subscription. Investor hereby acknowledges and agrees, subject to the provisions of any applicable laws providing for the refund of subscription amounts submitted by Investor, that this Agreement is irrevocable and that Investor is not entitled to cancel, terminate or revoke this Agreement or any other agreements executed by such Investor and delivered pursuant hereto, and that this Agreement and such other agreements shall survive the death or disability of such Investor and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns. If the Securities subscribed for are to be owned by more than one person, the obligations of all such owners under this Agreement shall be joint and several, and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators, successors, legal representatives and assigns. 8.2 Acceptance of Subscription. Ownership of the number of securities purchased hereby will pass to Investor upon the Warrant Closing or any Put Closing. 9. Indemnification. In consideration of the Investor's execution and delivery of the Investment Agreement, the Registration Rights Agreement and the Warrants (the "Transaction Documents") and acquiring the Securities thereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless Investor and all of its 37 stockholders, officers, directors, employees and direct or indirect investors and any of the foregoing person's agents, members, partners or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorney's fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or documents contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim, derivative or otherwise, by any stockholder of the Company based on a breach or alleged breach by the Company or any of its officers or directors of their fiduciary or other obligations to the stockholders of the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which it would be required to make if such foregoing undertaking was enforceable which is permissible under applicable law. Promptly after receipt by an Indemnitee of notice of the commencement of any action pursuant to which indemnification may be sought, such Indemnitee will, if a claim in respect thereof is to be made against the other party (hereinafter "Indemnitor") under this Section 9, deliver to the Indemnitor a written notice of the commencement thereof and the Indemnitor shall have the right to participate in and to assume the defense thereof with counsel reasonably selected by the Indemnitor, provided, however, that an Indemnitee shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of such counsel to be paid by the Indemnitor, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential conflicts of interest between such Indemnitee and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the Indemnitor within a reasonable time of the commencement of any such action, if prejudicial to the Indemnitor's ability to defend such action, shall relieve the Indemnitor of any liability to the Indemnitee under this Section 9, but the omission to so deliver written notice to the Indemnitor will not relieve it of any liability that it may have to any Indemnitee other than under this Section 9 to the extent it is prejudicial. [INTENTIONALLY LEFT BLANK] 38 10. Accredited Investor. Investor is an "Accredited Investor" because (check all applicable boxes): (a) |_| it is an organization described in Section 501(c)(3) of the Internal Revenue Code, or a corporation, limited duration company, limited liability company, business trust, or partnership not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000. (b) |_| any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment. (c) |_| a natural person, who |_| is a director, executive officer or general partner of the issuer of the securities being offered or sold or a director, executive officer or general partner of a general partner of that issuer. |_| has an individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeding $1,000,000. |_| had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. (d) |_| an entity each equity owner of which is an entity described in a - b above or is an individual who could check one (1) of the last three (3) boxes under subparagraph (c) above. (e) |_| other [specify] -------------------------------------------------------------- 39 The undersigned hereby subscribes the Maximum Offering Amount and acknowledges that this Agreement and the subscription represented hereby shall not be effective unless accepted by the Company as indicated below. IN WITNESS WHEREOF, the undersigned Investor does represent and certify under penalty of perjury that the foregoing statements are true and correct and that Investor by the following signature(s) executed this Agreement. Dated this 1st day of June, 2000. SWARTZ PRIVATE EQUITY, LLC By: ____________________________________ Eric S. Swartz, Manager SECURITY DELIVERY INSTRUCTIONS: Swartz Private Equity, LLC C/o Eric S. Swartz 200 Roswell Summit, Suite 285 1080 Holcomb Bridge Road Roswell, GA 30076 Telephone: (770) 640-8130 THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM OFFERING AMOUNT ON THE 1ST DAY OF JUNE, 2000. GAMECOM, INC. By: ________________________________________ L. Kelly Jones, CEO Address: Attn: L. Kelly Jones 440 North Center Arlington, TX 76011 Telephone (817) 265-0440 Facsimile (817) 265-0440 40 ADVANCE PUT NOTICE GAMECOM, INC. (the "Company") hereby intends, subject to the Individual Put Limit (as defined in the Investment Agreement), to elect to exercise a Put to sell the number of shares of Common Stock of the Company specified below, to _____________________________, the Investor, as of the Intended Put Date written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about June 1, 2000. Date of Advance Put Notice: ___________________ Intended Put Date :___________________________ Intended Put Share Amount: __________________ Company Designation Maximum Put Dollar Amount (Optional): ________________________________________. Company Designation Minimum Put Share Price (Optional): ________________________________________. GAMECOM, INC. By: ________________________________________ L. Kelly Jones, CEO Address: Attn: L. Kelly Jones 440 North Center Arlington, TX 76011 Telephone (817) 265-0440 Facsimile (817) 265-0440 EXHIBIT E 41 CONFIRMATION of ADVANCE PUT NOTICE _________________________________, the Investor, hereby confirms receipt of GAMECOM, INC.'s (the "Company") Advance Put Notice on the Advance Put Date written below, and its intention to elect to exercise a Put to sell shares of common stock ("Intended Put Share Amount") of the Company to the Investor, as of the intended Put Date written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about June 1, 2000. Date of Confirmation: ____________________ Date of Advance Put Notice: ___________________ Intended Put Date :___________________________ Intended Put Share Amount: __________________ Company Designation Maximum Put Dollar Amount (Optional): ________________________________________. Company Designation Minimum Put Share Price (Optional): ________________________________________. INVESTOR(S) ____________________________________ Investor's Name By: ________________________________ (Signature) Address: ____________________________________ ____________________________________ ____________________________________ Telephone No.: _________________________________ Facsimile No.: ________________________________ EXHIBIT F 42 PUT NOTICE GAMECOM, INC. (the "Company") hereby elects to exercise a Put to sell shares of common stock ("Common Stock") of the Company to _____________________________, the Investor, as of the Put Date, at the Put Share Price and for the number of Put Shares written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about June 1, 2000. Put Date :_________________ Intended Put Share Amount (from Advance Put Notice):_________________ Common Shares Company Designation Maximum Put Dollar Amount (Optional): ________________________________________. Company Designation Minimum Put Share Price (Optional): ________________________________________. Note: Capitalized terms shall have the meanings ascribed to them in this Investment Agreement. GAMECOM, INC. By: ______________________________________ L. Kelly Jones, CEO Address: Attn: L. Kelly Jones 440 North Center Arlington, TX 76011 Telephone (817) 265-0440 Facsimile (817) 265-0440 EXHIBIT G 43 CONFIRMATION of PUT NOTICE _________________________________, the Investor, hereby confirms receipt of GameCom, Inc. (the "Company") Put Notice and election to exercise a Put to sell ___________________________ shares of common stock ("Common Stock") of the Company to Investor, as of the Put Date, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about June 1, 2000. Date of this Confirmation: ________________ Put Date :_________________ Number of Put Shares of Common Stock to be Issued: _____________ Volume Evaluation Period: ____ Business Days Pricing Period: _____ Business Days INVESTOR(S) ___________________________________ Investor's Name By: ________________________________ (Signature) Address: ____________________________________ ____________________________________ ____________________________________ Telephone No.: _________________________________ Facsimile No.: _________________________________ EXHIBIT H 44 PUT CANCELLATION NOTICE GAMECOM, INC. (the "Company") hereby cancels the Put specified below, pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about June 1, 2000, as of the close of trading on the date specified below (the "Cancellation Date," which date must be on or after the date that this notice is delivered to the Investor), provided that such cancellation shall not apply to the number of shares of Common Stock equal to the Truncated Put Share Amount (as defined in the Investment Agreement). Cancellation Date: _____________________ Put Date of Put Being Canceled: __________ Number of Shares Put on Put Date: _________ Reason for Cancellation (check one): |_| Material Facts, Ineffective Registration Period. |_| Delisting Event The Company understands that, by canceling this Put, it must give twenty (20) Business Days advance written notice to the Investor before effecting the next Put. GAMECOM, INC. By: ____________________________________ L. Kelly Jones, CEO Address: Attn: L. Kelly Jones 440 North Center Arlington, TX 76011 Telephone (817) 265-0440 Facsimile (817) 265-0440 EXHIBIT Q 45 PUT CANCELLATION NOTICE CONFIRMATION The undersigned Investor to that certain Investment Agreement (the "Investment Agreement") by and between the GameCom, Inc.'s, and Swartz Private Equity, LLC dated on or about June 1, 2000, hereby confirms receipt of GameCom, Inc.'s (the "Company") Put Cancellation Notice, and confirms the following: Date of this Confirmation: ________________ Put Cancellation Date : ___________________ INVESTOR(S) ___________________________________ Investor's Name By: ________________________________ (Signature) Address: ____________________________________ ____________________________________ ____________________________________ Telephone No.: _________________________________ Facsimile No.: _________________________________ EXHIBIT S 46 EX-5 3 0003.txt OPINION OF RAICE PAYKIN KRIEG & SCHRADER LLP RAICE PAYKIN KRIEG & SCHRADER LLP ATTORNEYS AT LAW 185 MADISON AVENUE. 10TH FLOOR NEW YORK, NEW YORK 10016 (212) 725-4423 o FAX (212) 684-0022 August 8, 2000 GameCom, Inc. 440 North Center Arlington, TX 76011 Re: GameCom, Inc. - Registration Statement on Form SB-2 (File No. 33-41214) (the "Registration Statement") Gentlemen: We are are acting as counsel for GameCom, Inc., a Texas corporation (the "Company"), in connection with the proposed issuance and sale pursuant to the Registration Statement of up to 34,163,470 shares of Common Stock, $.005 par value, of the Company (the "Shares"). We have examined such corporate records, certificates and other documents as we have considered necessary for the purposes of this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to the original documents of all documents submitted to us as copies and the authenticity of the originals of such latter documents. As to any facts material to our opinion, we have, when relevant facts were not independently established, relied upon the records, certificates and documents referred to above. Based on the foregoing, we are of the opinion that, upon issuance and delivery in accordance with the Investment Agreement described in the Registration Statement, the Shares will be duly authorized, validly issued, fully paid and nonassessable. Our opinion is limited in all cases to matters arising under the Business Corporation Act of the State of Texas. We consent to the use of this opinion as an Exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the prospectus that is a part of the Registration Statement. In giving such consent, we do not concede that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Commission thereunder. Very truly yours, Raice Paykin Krieg & Schrader LLP By: ______________________________ EX-23.2 4 0004.txt CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated April 4, 2000, relating to the consolidated financial statements of GameCom, Inc. and Subsidiaries which is contained in that Prospectus. Our report contains an explanatory paragraph regarding our ability to continue as a going concern. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ Thomas O. Bailey & Associates, PC. Dallas, Texas August 4, 2000 -----END PRIVACY-ENHANCED MESSAGE-----