-----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, HUpVBjy4oq+tt1Lp4PBOO9HMyqmyROjVnA2eU6QQurakzPG+luBvHqkeeOQYZxMX UTQkJDxuJkRtrRKC2hRlvg== 0001125282-01-501430.txt : 20010809 0001125282-01-501430.hdr.sgml : 20010809 ACCESSION NUMBER: 0001125282-01-501430 CONFORMED SUBMISSION TYPE: PREM14A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010831 FILED AS OF DATE: 20010808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMECOM INC CENTRAL INDEX KEY: 0001085243 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 931207631 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PREM14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28381 FILM NUMBER: 1700854 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 PREM14A 1 b312960_prem14a.txt PRELIMINARY PROXY STATEMENTS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [_] Filed by a Party other than the Registrant [_] Check the appropriate box: [X] Preliminary Proxy Statement [_] Soliciting Material Pursuant to [_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12 Commission Only (as permitted by Rule 14a-6(e)(2)) [_] Definitive Proxy Statement [_] Definitive Additional Materials GAMECOM, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [_] No fee required. [X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. ________________________________________________________________________________ 1) Title of each class of securities to which transaction applies: Common stock, par value $.005 per share of GameCom, Inc. ________________________________________________________________________________ 2) Aggregate number of securities to which transaction applies: 18,072,289 shares of GameCom common stock ________________________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $0.41 per share based on closing price on OTCBB ________________________________________________________________________________ 4) Proposed maximum aggregate value of transaction: $7,409,638 ________________________________________________________________________________ 5) Total fee paid: $1,481.93 ________________________________________________________________________________ [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ________________________________________________________________________________ 2) Form, Schedule or Registration Statement No.: ________________________________________________________________________________ 3) Filing Party: ________________________________________________________________________________ 4) Date Filed: ________________________________________________________________________________ SEC 1913 (3-99) GAMECOM, INC. 440 North Center Arlington, Texas 76011 August 20, 2001 To our stockholders: You are cordially invited to attend a special meeting of stockholders of GameCom, Inc. This meeting will be held at GameCom's headquarters at 440 North Center, Arlington, Texas 76011 on September 14, 2001 at 4:30 p.m., CDT. At the meeting, we will ask you to vote on a proposal to combine our company with Ferris Productions, Inc. If the merger proposal is approved, the former shareholders of Ferris will own 56.9 percent and you collectively will own 43.1 percent of the combined company. The percentage ownership of both groups of stockholders may be further reduced by options to Ferris employees. We will also ask you to o approve an amendment to the articles of incorporation to increase our authorized shares by an additional 50,000,000 shares of common stock, to a total of 100,000,000 shares of authorized common stock, o approve our incentive stock option plan with an increase in the number of shares which may be issued under the plan to six million shares, and o authorize the board of directors to amend the articles of incorporation to elect a new corporate name as may be determined by the board within the following calendar year. After careful consideration, our board of directors unanimously approved this proposed merger and determined the merger to be fair and in the best interests of GameCom and you, our stockholders. Our board of directors has approved the issuance of shares of GameCom common stock in the merger, the increase in authorized shares, the increase in the shares available under the incentive stock option plan, and potentially changing the corporate name, all subject to shareholder approval. Our board of directors unanimously recommends a vote FOR each proposal to be voted upon at the meeting. A notice of the meeting and a proxy statement relating to the proposed merger is enclosed. The proxy statement describes each proposal in detail and presents significant related information. I urge you to read it carefully. It is important that you use this opportunity to take part in the affairs of GameCom by voting on the business to come before this meeting. Whether or not you expect to attend the meeting, please complete, date, sign and promptly return the accompanying proxy in the enclosed postage-paid envelope so that your shares may be represented at the meeting. Your vote is very important. Returning the proxy does not deprive you of your right to attend the meeting and to vote your shares in person. You will not be required to exchange your GameCom stock certificates for stock certificates of the combined company. PLEASE DO NOT SEND YOUR STOCK CERTIFICATES. Sincerely, /s/ L. Kelly Jones L. Kelly Jones Chairman of the Board This document is being first sent to stockholders on or about August 20, 2001 GAMECOM, INC. 440 North Center Arlington, TX 76011 ------------ NOTICE OF SPECIAL MEETING OF STOCKHOLDERS to be held September 14, 2001 at 4:30 p.m. CDT To our stockholders: GameCom, Inc. will hold a special meeting of its stockholders at its headquarters at 440 North Center, Arlington, Texas on September 14, 2001 at 4:30 p.m., CDT. At the meeting, we will ask you: 1. to approve the merger with Ferris Productions, Inc.; 2. to amend GameCom's articles of incorporation to increase the authorized number of shares of common stock to 100 million shares; 3. to approve GameCom's incentive stock option plan with an increase in the number of shares of common stock that may be issued under the plan from 1,500,000 shares to 6,000,000; and 4. to authorize the board of directors to amend GameCom's articles of incorporation to change its corporate name at any time within one year from the date of the meeting. We do not anticipate that any other matter will be presented for action at the meeting. If any other matters are properly brought before the meeting, the persons named in the proxies will have discretion to vote on these matters in accordance with their respective judgments. These proposals are more fully described in the proxy statement that accompanies this notice. You should read this document carefully. Only GameCom stockholders of record at the close of business on August 10, 2001 are entitled to notice of and to vote at the meeting or at any adjournment of the meeting. By Order of the Board of Directors of GameCom, Inc. /s/ Kimberly Biggs Kimberly Biggs, secretary Arlington, Texas August 20, 2001 2
TABLE OF CONTENTS FREQUENTLY ASKED QUESTIONS........................................................................................4 Summary...........................................................................................................7 Summary of the Transaction.......................................................................................10 The GameCom Meeting..............................................................................................10 Proposal No. 1-- Approval of the Merger..........................................................................12 Proposal No. 2-- Increase in Number of Shares Gamecom is Authorized to Issue.....................................75 Proposal No. 3-- Approval of Amendments to the Gamecom, Inc. 2000 Stock Option Plan..............................76 Proposal No. 4--Authorizing the Board of Directors to Amend the Articles of Incorporation, at Any Time Within One Year from the Date of the Meeting, to Provide a New Corporate Name...........................79 Stockholder Proposals............................................................................................80 Forms 10-K and 10-Q Filed with the Securities and Exchange Commission............................................80 Statements Regarding Forward-Looking Information.................................................................80
3 FREQUENTLY ASKED QUESTIONS Q: What is the merger? A: The merger is the combination of two businesses, GameCom and Ferris. The merger will be effected by converting the outstanding shares of Ferris common stock into shares of GameCom common stock. For a more complete description of the merger, see the section entitled "The Merger" on page 12. Q: Why are GameCom and Ferris proposing to merge? A: This merger will combine Ferris' technology in the field of interactive virtual reality and gaming devices, as well as its installed base at major entertainment centers, with GameCom's technology in the area of Internet-enabled gaming devices and GameCom's status as a publicly reporting company; In addition, we believe it will strengthen GameCom's management through the addition of senior level executives familiar with both the technology and business aspects of electronic entertainment systems. Overall, both GameCom and Ferris believe that the merger will provide added value to their stockholders. For a complete description of GameCom's and Ferris's reasons for the merger, we encourage you to refer to page 12 of this document. Q: If the merger is approved, what does GameCom's management see as the future for the combined company? A: Ferris' reputation within the gaming industry, and particularly its relationship with theme parks across the country, gives GameCom the distribution channels and relationships to advance the market penetration of GameCom's 'Net GameLink(TM) entertainment system beyond neighborhood gathering places. Further, we believe Ferris has achieved a dominant position in the budding field of immersive virtual reality and its commercial applications. We believe there is also a strong opportunity for significant growth in custom promotional applications of virtual reality, similar to Ferris' recent projects for Buick, Red Baron Pizza, and other ongoing projects. Q: Ferris seems to have a lot of debt. Why would GameCom take on Ferris' debt? A: We believe that most of Ferris' debt is the result of its research and development in the field of immersive virtual reality, and that Ferris' overall debt is low relative to the level of opportunity it has reached. We believe that Ferris, despite being undercapitalized, has achieved a dominant position in its industry, and has a strong infrastructure. Third party research indicates significant growth potential for the real and related fields of interactive computer gaming and immersive virtual reality, and we believe, with sufficient funding, based on Ferris' growth projections for the next few years, that this merger will allow GameCom greatly expanded revenue with the likelihood of significant earnings per share. Q: What will Ferris shareholders receive in the merger? A: As a result of the merger, Ferris shareholders will receive shares of GameCom common stock in exchange for their shares of Ferris common stock. The shares of GameCom common stock that they receive in the merger will represent stock ownership in the combined company after the merger. Specifically, each Ferris shareholder will receive 6.799 shares of GameCom common stock for each share of Ferris common stock owned. This will result in the Ferris shareholders owning approximately 56.9% of the shares of the combined companies. Holders of Ferris employee stock options will automatically receive options to purchase GameCom common stock on terms substantially the same as their Ferris stock options, with quantity and exercise price adjusted for the exchange ratio. The number of shares of GameCom common stock to be issued for each share of Ferris common stock is fixed and will not be adjusted further based upon changes in the values of GameCom common stock. As a result, the value of the GameCom shares the Ferris shareholders will receive in the merger will not be known before the merger, and will go up or down as the market price of GameCom common stock goes up or down. Q: What will GameCom stockholders receive in the merger? A: GameCom stockholders will not receive any new shares of GameCom common stock as a result of the merger. GameCom stockholders before the merger will continue to own their shares of GameCom common stock, which will represent stock ownership in the combined company, after the merger. Q: What will the name of the combined company be after the merger? A: Immediately after the merger, the name of the combined company will be GameCom, Inc. After we have had a chance to consult some marketing professionals, we may decide to change the name of the combined company some time in the near future. For that reason, we are asking authorization now to make the change if and when a new name is selected. Q: Will I recognize a taxable gain or loss as a result of the merger? A: We expect that if the merger is completed, you will not recognize gain or loss for income tax purposes. However, we urge you to consult your own tax advisor to determine your particular tax consequences. 4 For a more complete description of the tax consequences, see the section entitled "The Merger--Material United States federal income tax consequences of the merger " on page 15. Q: Does the board of directors recommend voting in favor of the merger? A: Yes. After careful consideration, the GameCom board of directors unanimously recommends that its stockholders vote in favor of the merger. Q: Do the executive officers and directors of GameCom intend to vote their shares in favor of the merger? A: Yes. Q: Are there risks I should consider in deciding whether to vote for the merger? A: Yes. For example, the combined company might not realize the expected benefits of the merger. In evaluating the merger, you should carefully consider the factors discussed in the section entitled "Other Factors to be Considered" on page 73. Q: Should I do anything with my GameCom stock certificates? A: No. Your GameCom stock certificates will represent stock ownership of the combined company after the merger. Q: When do you expect the merger to be completed? A: We are working toward completing the merger as quickly as possible. We hope to complete it promptly following the GameCom shareholder meeting. However, the merger is subject to several conditions that could affect the timing of the completion of the merger. For a more complete description of the conditions to the merger, see the section entitled "The Merger Agreement--Conditions of all parties to closing the merger," "Conditions to Ferris's Obligations," and "Error! Bookmark not defined.," beginning at page 20. Q: If my broker holds my shares in "street name", will my broker vote my shares in favor of the merger for me? A: No, unless you instruct your broker to do so. Your broker does not have discretion to vote your shares on the merger. As a result, because of the vote required for approval by GameCom's shareholders, if you fail to vote directly or by instructing your broker to vote your shares, this will have the effect of a vote against the merger. For a more complete description of voting shares held in "street name," see the sections entitled "The GameCom Meeting--Voting of proxies on page 12. Q: Why do you need any more authorized shares? A: Under the Articles of Incorporation, GameCom cannot issue any more than 50 million shares at the present time. There are now 13,683,978 shares outstanding and an additional 1,500,000 shares reserved under the stock option plan for employees and for other incentive type options. We expect to use additional shares to raise capital under our line of credit arrangement with Swartz. The merger agreement calls for the senior managers who will be joining the company with the merger to get stock options, and we expect that with the addition of additional managers and employees from Ferris more options will be granted in the future. After issuing the shares to Ferris in the merger and taking account of the other commitments described above, including shares we could sell to Swartz under our line of credit, no additional shares are available. For a more complete description of the present commitments for our unissued shares, see "Proposal No. 2 -- Increase in Number of Shares Gamecom is Authorized to Issue--Current Commitments for Use of Shares" at page 75. We do not have specific plans for the additional 5 shares we are asking to be authorized, but we believe management needs the flexibility to be able to issue shares without having to hold another shareholders' meeting to authorize them. Q: If my broker holds my shares in "street name", will my broker vote my shares for me in favor of increasing the number of authorized shares? A: Yes. Brokers are entitled to vote on routine matters even if no instructions have been received from the owner. We believe this is a routine matter, as it doesn't adversely affect existing holders. Q: Why do you need any more shares authorized under the incentive stock option plan? A So far, GameCom has been operating with a very small number of employees. The merger will result in a major increase in the number of employees, both at the senior management level and below. In order to keep these valuable employees and attract additional management and other personnel, the board of directors believes that it will be necessary to issue substantially more options than were needed when GameCom was a "bare-bones" operation. Q: Why are you asking shareholders to authorize a name change now? A: Over the last several months, management's attention has been focused on completing the merger with Ferris. We suspect that after consulting marketing professionals and considering the overall marketing plan of the combined company, we may want to either adopt Ferris' name as the name for the combined companies or choose an entirely different name. A meeting to consider a specific proposed name could be held separately, but management doesn't believe that the time and expense required for a new proxy solicitation and shareholder meeting is either needed or justified. We are therefore asking authorization to allow the board of directors to choose a new name without the need for an additional shareholder meeting. Q: How will my shares be voted if I sign the proxy but don't provide instructions? A: Although all of the proposals are related to the merger, we need to increase the number of authorized shares and approve the incentive stock option plan even if the merger does not occur. If the merger does not occur there will be no need to authorize a change in the corporate name. Therefore, if no direction is indicated, then the proxies will be voted in favor of the merger and also in favor of the proposals to increase the number of authorized shares and approve the stock option plan (whether or not the merger is approved). If the merger is approved, then proxies for which no instructions are provided will also be voted in favor of the proposal to authorize a change in the corporate name. If the merger is not approved, then the proposal to authorize a change in the corporate name will not be made at the meeting and accordingly shares will not be voted on that proposal. Q: What do I need to do now? A: Mail your signed proxy card in the enclosed return envelope as soon as possible so that your shares may be represented at your shareholders' meeting. If you return your signed proxy but do not include instructions on how to vote it, your shares will be voted "FOR" each of the proposals. IF YOUR SHARES ARE NOT VOTED, THIS WILL HAVE THE EFFECT OF A VOTE AGAINST THE MERGER. For a more complete description of voting your shares, see the sections entitled "The GameCom Meeting--Voting of proxies on page 12. Q: Who should I call with questions? A: GameCom stockholders should call L. Kelly Jones, the chief executive officer, with any questions about the merger. 6 You may also obtain additional information about GameCom from documents we have filed with the Securities and Exchange Commission by following the instructions in the section entitled "Forms 10-K and 10-Q Filed with the Securities and Exchange Commission" on page 80. Summary All four of the proposals we are asking you to approve are related to a proposed merger of Ferris Productions, Inc., a Delaware corporation, into GameCom. In this proxy statement "we" refers to GameCom, Inc. when speaking of the time before the proposed merger is completed, and of the combined company created by the merger when speaking of the time after the merger is completed. The Companies GameCom, Inc. 440 North Center Arlington, Texas 76011 (817) 265-0440 GameCom's 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). In early 1999 we closed down our microbrewery operations. 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. In February, 2000, we changed our jurisdiction of incorporation from Nevada to Texas. Since early 1999 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 placed our former brewpub subsidiary into bankruptcy in July of 2000. We began to receive our first revenues from our Internet gaming business in the fourth 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. 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 7 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 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. 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 appealing the physical attributes of the system, the stylistic kiosks, the fiber optic lighting, and the social atmosphere of playing interactive games on a physically interactive basis through an intranet. 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. 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 began generating revenue in small amounts during the second quarter of 2000 when we will begin charging patrons for play on the system. We delivered the first system to be sold to a third party during the fourth quarter of 2000. 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 8 market. We expect that the cost of a system to third parties will be in the range of $5300 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 30% 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 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 vice president of operations 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 July 31, 2001 we employed four 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. Facilities Jones & Cannon, our chief executive officer's law firm, has been providing the limited amount of office space we need, and clerical and other services we need for our operations under an oral agreement currently calling for payment of $1,500 per month. 9 Ferris Productions, Inc. 5631 South 24th Street Phoenix, Arizona 85040 Ferris designs, develops, and distributes technically-advanced products for the entertainment, simulation, promotion, and education markets. Its virtual reality ("VR") devices are computer-based and allow people to view and manipulate graphical representations of physical reality. Stimulating the senses of sight, sound, and touch simultaneously, a VR device envelopes the user in dynamic computer-generated imagery and allows the viewer to interact with what he or she sees using simple controls and body motions. VR products and systems typically employ head-mounted displays that combine high-resolution miniature image source monitors, wide field-of-view optics, and tracking sensors in a unit small enough and light enough to be worn on the head. They visually surround the wearer with dynamic three-dimensional imagery, allowing the user to change perspective on the artificial scenes by simply moving his or her head. VR devices are used today primarily in connection with electronic games. By surrounding the player with the sights, sounds, and smells he or she would experience in reality, play is made far more realistic than it would be if presented in a two-dimensional flat screen display only. VR devices are also finding increased use in training and education applications, and as marketing tools. In early 2000, Ferris successfully completed a VR promotional project with Buick that gave users a virtual reality test-drive in Buick's LeSabre car line. Training and education systems currently under development include a lethal engagement virtual reality training simulator for use in training law enforcement officers and devices to help patients overcome phobias such as the fear of flying. Ferris's VR devices are designed to produce a highly realistic experience at a significantly lower cost than traditional virtual reality technology. Historically, the software for virtual reality games and other applications was separately created for each application. Ferris's system makes use of Ferris's proprietary Universal Control BoardTM. This board, which is installed in an ordinary PC, makes it possible to quickly adapt PC games for the arcade market, permitting easy conversion of PC games to behave as coin-operated arcade games, and allowing the operator to change from one game to another without expensive hardware replacement. Ferris has also developed techniques to create a photo-realistic world by using filming techniques rather than the more expensive and time-consuming computer programming previously used. Ferris's virtual reality entertainment centers have been installed at 15 theme parks, including Busch Gardens, Paramount Parks, Premier Six Flags, and Circus Circus Casino. Summary of the Transaction The Merger If the merger is completed, Ferris will be merged into GameCom, with GameCom as the surviving corporation. Each outstanding Ferris share will be changed into 6.799 shares of GameCom, so that after the merger the former Ferris shareholders will own 56.9% of the combined company. This summary may not contain all of the information that is important to you. You should read carefully this entire document and the other documents we refer to for a more complete understanding of the merger. In particular, you should read the annexes to this document, including the merger agreement, and the certificate of amendment to GameCom's articles of incorporation. The merger agreement is attached to this document as Annex A. We encourage you to read the merger agreement carefully. For a more complete description of the merger agreement, see the section entitled "The Merger Agreement" beginning on page 17. The GameCom Meeting Date, time, place and purpose of the GameCom meeting GameCom, Inc. will hold a special meeting of its stockholders at its headquarters at 440 North Center, Arlington, Texas on September 14, 2001 at 4:30 p.m., CDT. At the meeting, GameCom stockholders of record at the close of business on August 10, 2001 will be asked: 10 o to approve our proposed merger with Ferris Productions, Inc.; o to adopt GameCom's amended and restated certificate of incorporation, which will increase the authorized number of shares of common stock to 100,000,000; o to approve GameCom's incentive stock option plan; and o to authorize GameCom's board of directors to amend GameCom's articles of incorporation, at any time within one year of the meeting, to provide a new corporate name. GameCom does not anticipate that any other matter will be presented for action at the meeting. If any other matters are properly brought before the meeting, the persons named in the proxies for the GameCom meeting will have discretion to vote on these matters in accordance with their respective judgments. Record date and outstanding shares The record date for the GameCom stockholders' meeting is August 10, 2001. Only holders of record of GameCom common stock at the close of business on the record date are entitled to notice of and to vote at the meeting. As of the close of business on the record date, there were 13,683,978 shares of GameCom common stock outstanding and entitled to vote, held of record by approximately 100 stockholders. Each GameCom stockholder is entitled to one vote for each share of GameCom common stock held as of the record date. On the record date, directors, executive officers and affiliates of GameCom as a group owned 4,553,524 shares of GameCom common stock. These shares constituted approximately 34.3% of all of the outstanding shares of GameCom common stock as of the record date. Vote and quorum required The holders of a majority of the shares of GameCom common stock entitled to vote at the GameCom stockholders' meeting, present in person or represented by proxy, will constitute a quorum for the purposes of the meeting. The vote of holders of two thirds of the shares of GameCom common stock outstanding as of August 10, 2001, the record date, is required to approve the merger. The vote of holders of a majority of the common stock present and voting at the meeting is required to approve the proposals to o increase GameCom's authorized common stock to 100 million common shares, o approve GameCom's incentive stock option, and o authorize the board of directors to amend the articles of incorporation to provide a new corporarte name. Abstentions will have the same effect as votes against the merger because the percentage required to approve the merger is based on our outstanding shares rather than shares represented at the meeting. Abstentions will not count as votes against the other proposals, because the percentages required to approve those proposals are based on the number of shares present and voting. If a broker, bank, custodian, nominee or other record holder of GameCom common stock indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular matter, which is called a broker non-vote, those shares will be counted for purposes of determining the presence or absence of a quorum for the GameCom stockholders' meeting, will have the same effect as votes against Proposal No. 1, and will not be considered present at the meeting with respect to Proposals 2 through 4. Expenses of proxy solicitation GameCom and Ferris will share the expenses of soliciting proxies to be voted at the GameCom stockholders' meeting. Following the original mailing of the proxies and other soliciting materials, GameCom and its agents also may solicit proxies by mail, telephone, telegraph, or in person. Following the original mailing of the proxies and other soliciting materials, GameCom will request brokers, custodians, nominees, and other record holders of GameCom common stock to forward copies of the proxy and other soliciting materials to persons for whom they 11 hold shares of GameCom common stock and to request authority for the exercise of proxies. In these cases, upon the request of the record holders, GameCom will reimburse these holders for their reasonable expenses. Voting of proxies The proxy relating to the GameCom stockholders' meeting that accompanies this document is solicited on behalf of the GameCom board of directors for use at the GameCom stockholders' meeting. Please complete, date, and sign this accompanying proxy and promptly return it in the enclosed envelope or otherwise mail it to GameCom. All properly signed proxies that GameCom receives prior to the vote at the GameCom stockholders' meeting and that are not revoked will be voted at the meeting according to the instructions indicated on the proxies. If no direction is indicated, then the proxies will be voted in favor of the merger and also in favor of the proposal to increase the number of authorized shares and the proposal to approve the incentive stock option plan. If the merger is approved, then proxies for which no instructions are provided will also be voted in favor of the proposal to authorize a change in the corporate name. If the merger is not approved, then the proposal to authorize a change in the corporate name will not be made. A GameCom stockholder may revoke his, her, or its proxy at any time before it is exercised at the meeting by taking any of the following actions: o delivering to the secretary of GameCom a written notice, bearing a date later than the date of the proxy, stating that the proxy is revoked; o signing and delivering to the secretary of GameCom a proxy relating to the same shares and bearing a later date prior to the vote at the meeting; or o attending the GameCom stockholders' meeting and voting in person, although attendance at the meeting will not, by itself, revoke a proxy. Please note, however, that if your shares are held of record by a broker, bank, or other nominee, and you vote at the GameCom stockholders' meeting, you must bring to the meeting a letter from the broker, bank, or other nominee confirming your beneficial ownership of the shares. Proposal No. 1 -- Approval of the Merger If the merger is completed, Ferris will be merged into GameCom, with GameCom as the surviving corporation. Each outstanding Ferris share will be changed into 6.799 shares of GameCom, so that after the merger the former Ferris stockholders will hold 56.9% of the combined company. In addition, each option, warrant, and purchase right to acquire Ferris common stock that is outstanding immediately before the merger will be assumed by GameCom to be converted into an option to acquire the number of shares of GameCom common stock that would have been issued in the merger if the option had been exercised just before the merger. As of August 10, 2001 options, warrants, and purchase rights to acquire approximately 350,000 shares of Ferris common stock were outstanding. The agreement also calls for GameCom to provide Ferris with a loan of $500,000 if the transaction has not closed by May 31, 2001. This date has been extended to August 15, 2001. Any shares issued or issuable to raise funds for that loan will not be counted in determining the number constituting a majority of the outstanding GameCom shares. The merger agreement is included as Annex A to this document. The Merger GameCom's reasons for the merger Factors Considered At a meeting held on May 23, 2001, the board of directors of GameCom concluded that the merger was in the best interests of GameCom and its stockholders, and determined to recommend that the GameCom stockholders approve the stockholder proposals relating to the merger. 12 In its evaluation of the merger, the GameCom board reviewed several factors, including, but not limited to, the following: o historical information concerning our respective businesses, financial performance and condition, operations, technology and management, including reports concerning results of operations; o GameCom management's view of the financial condition, results of operations and businesses of GameCom and Ferris, both before and after giving effect to the merger, and the GameCom board's determination of the merger's effect on stockholder value; o current financial market conditions and historical market prices, volatility and trading information; and o the consideration Ferris shareholders will receive in the merger in light of comparable merger transactions. Present business and prospects In deciding to recommend the merger, the board gave serious consideration to GameCom's present business and the future prospects, including o the presence of current and possible future competitors with far more resources than we have to develop Internet-enabled gaming technologies; o the fact that our 'Net GameLink(TM) product is directed to only a limited segment of the electronic gaming market; o the limited management depth of our company as a result of the limited amount of capital we have had to date; and o the absence of any application for our technology outside the gaming field. Potential benefits The decision of the board of directors of GameCom was based upon several potential benefits of the merger, including the potential to: o build on Ferris' installed base of interactive virtual reality gaming devices at major entertainment centers; o strengthen our management through the addition of senior level executives familiar with both the technology and business aspects of electronic entertainment systems; o improve our ability to raise capital through the public market as a result of our status as a fully reporting company and Ferris' established revenue stream; o combine GameCom's technology in the area of Internet-enabled gaming devices with Ferris's strong market position in the virtual reality entertainment market; and o expand our potential market from neighborhood and sports bars and recreation facilities to larger entertainment centers and newer areas of applications such as training and education. o combine GameCom's technology in the area of Internet-enabled gaming devices with Ferris' strong market position in the virtual reality entertainment market; and 13 o expand our potential market from neighborhood and sports bars and recreation facilities to larger entertainment centers and newer areas of applications such as training and education. Risks The GameCom board also identified and considered several potentially negative factors in its deliberations concerning the merger including the following: o more working capital will be needed to support an expected major increase in the scope of our operations; o there is a possibility that the demand for Ferris' products may be less than the parties expect; o the demand for Ferris' products may be reduced as a result of cutbacks in expansion by entertainment centers because of fear of an economic downturn; o larger and better-funded companies may be able to develop technology for virtual reality systems that would be superior to that of Ferris, or would have a lower cost; o there is a possibility that if Ferris' business plan is successful other companies with more resources and greater name recognition may enter the field; o we will have to deal with technical, operational, managerial, and personnel-related challenges in integrating the two companies; and o we could lose key employees as a result of the merger. The board concluded, however, that the potential benefits to GameCom and its stockholders of the merger outweighed the risks associated with the merger. Please refer to the risks described in "Other Factors to be Considered" on page 73, and the sections entitled "The Merger -- GameCom's reasons for the merger" on page 12 . The discussion of the information and factors considered by the GameCom board is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the merger, the GameCom board did not find it practicable to, and did not, quantify or otherwise assign relative weight to the specific factors considered in reaching its determination. Structure of the merger Ferris will be merged with and into GameCom. As a result of the merger, the separate corporate existence of Ferris will cease and GameCom will survive the merger as the continuing company. Conversion of Ferris common stock When the merger becomes effective, each outstanding share of Ferris common stock, other than shares held by dissenting Ferris shareholders who have complied with and established right to payment under Delaware law and have not withdrawn demand for payment, will be converted into the right to receive 6.799 shares of fully paid and nonassessable GameCom common stock. The number of shares of GameCom common stock issuable in the merger will be proportionately adjusted for any stock split, stock dividend or similar event with respect to Ferris common stock or GameCom common stock effected between the date of the merger agreement and the closing of the merger. GameCom will not issue any fractional shares of GameCom common stock in connection with the merger. Each Ferris shareholder who would otherwise be entitled to receive a fractional share of 0.5 or greater will receive a 14 whole share, and each Ferris shareholder who would otherwise be entitled to receive a fractional share of less than 0.5 will not receive an additional GameCom share. Exchange of Ferris stock certificates for stock certificates in the combined company When the merger is completed, GameCom's exchange agent will mail to Ferris shareholders a letter of transmittal and instructions for use in surrendering Ferris stock certificates in exchange for GameCom stock certificates. The GameCom stock certificates will evidence ownership in the combined company after the merger. Ferris shareholders are not entitled to receive any dividends or other distributions on GameCom common stock until the merger is completed and they have surrendered their Ferris stock certificates in exchange for GameCom stock certificates. Conditions to closing the merger The obligations of each of the companies to complete the merger are subject to the prior or simultaneous satisfaction or waiver of several conditions. The principal conditions that must be satisfied or waived before Ferris is required to complete the merger include the following, subject to exceptions and qualifications: o the representations and warranties of GameCom in the merger agreement must be true and complete in all material respects; o the merger agreement must be adopted and approved by both the Ferris stockholders and our stockholders; o neither party shall have have shown losses or deterioration in its cash position in excess of what might reasonably be expected in view of its history of operations to date; o we and Ferris must obtain all required government approvals and other required consents; o less than 5% of the Ferris Shares shall have exercised their appraisal rights under Delaware law; o GameCom's shareholders must have approved an increase in its authorized capital stock to 100,000,000; o each of the companies must comply in all material respects with our respective agreements in the merger agreement; Some of the conditions may be waived by GameCom and some may be waived by Ferris. For a more complete description of the conditions to closing the merger, see the section entitled "The Merger Agreement--Conditions of all parties to closing the merger," "Conditions to Ferris's Obligations" and "Conditions to GameCom's Obligations" on pages 20 and 21. No other negotiations Until the merger is completed or the merger agreement is terminated, both GameCom and Ferris have agreed not to solicit or encourage the submission of, or negotiate with respect to, an acquisition proposal from any third party unless required to do so by court order. The parties have agreed that if either receives an unsolicited acquisition proposal or inquiry regarding any such proposal from a third party, the party receiving the proposal or inquiry will promptly notify the other party and will not discuss the proposal or inquiry without the consent of the other. 15 For a more complete description of these limitations on each of our actions with respect to an acquisition proposal, please refer to the sections entitled "The Merger Agreement--No other negotiations," on page 19 and "--Termination of the merger agreement" on page 21 of this document and the corresponding sections of the merger agreement. Termination of the merger agreement The merger agreement may be terminated under specified circumstances at any time prior to closing the merger, as follows: o by our mutual consent; o by either of us, if the merger is not completed by August 1, 2001; o by either of us, upon a breach of any of the other party's obligations under the merger agreement if the breach is not cured within 10 days after notice of the breach; o by either of us if the the conditions to our obligations are not satisfied by July 15, 2001. Although the August 1 and July 15 deadlines have passed, both parties intend to proceed with the merger. For a more complete description of the manner in which the merger agreement may be terminated, see the section entitled "The Merger Agreement--Termination of the merger agreement" on page 21. If the merger agreement is terminated by either party for a reason other than the other party's breach of its obligations under the agreement, neither party will have any further obligations under the agreement. If the merger agreement is terminated because the other party has breached the agreement, then the non-breaching party may pursue all legal rights available to it. Accounting treatment of the merger Since the merger was initiated prior to June 30, 2001, we intend to account for the merger as a pooling of interests of GameCom and Ferris for financial reporting and accounting purposes, in accordance with generally accepted accounting principles. The pooling of interests method of accounting assumes that GameCom and Ferris have been merged since their inception, and the historical consolidated financial statements for periods prior to consummation of the merger are restated as though the companies have been combined since their inception. Unlike purchase accounting, pooling treatment does not result in the creation of goodwill on the balance sheet of the combined companies or charges for amortization of that goodwill on the combined companies' income statement. Material United States federal income tax consequences of the merger The following general discussion summarizes the material United States federal income tax consequences of the merger. This discussion is based on the Internal Revenue Code, the related regulations promulgated, and existing administrative interpretations and court decisions, all of which are subject to change, possibly with retroactive effect. Based on discussions with its independent public accountants, GameCom's management believes that the tax status of shares held by stockholders of GameCom will not be affected by the merger and that GameCom should not recognize gain or loss for United States federal income tax purposes as a result of the merger. GameCom has not sought a tax ruling from the IRS or obtained a legal opinion confirming the information below. These opinions will not bind the IRS and will not preclude the IRS from adopting a contrary position , and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court if the issues are litigated. Neither GameCom nor Ferris intends to obtain a ruling from the IRS as to the tax consequences of the merger. This discussion is only intended to provide you with a general summary, and it is not intended to be a complete analysis, advice, or description of all potential United States federal income tax consequences or any other consequences of the merger. In addition, this discussion does not address tax consequences which may vary with, or are contingent on, your individual circumstances. Moreover, this discussion does not address any non-income tax or any foreign, state, or local tax consequences of the merger. Accordingly, you are strongly urged to consult with your 16 tax advisor to determine the particular United States federal, state, local, or foreign income or other tax consequences to you of the merger. Restrictions on sales of shares of GameCom common stock issued in the merger All shares of GameCom common stock received by Ferris shareholders in the merger will be issued in reliance on exemptions from registration as a private offering. As a result, those shares will be "restricted securities" under the Securities Act of 1933. Ferris holders may not sell their shares of GameCom common stock acquired in the merger except pursuant to o an effective registration statement under the Securities Act covering the resale of those shares, or o any other applicable exemption under the Securities Act. Regulatory Approvals No federal or state regulatory requirements or approvals are needed in connection with the merger transaction other than filing of certificates of merger with the appropriate state officials of Texas and Delaware. Operations of the combined company after the merger Following the merger, the combined company will operate under the name "GameCom, Inc." The combined company's corporate headquarters will be in Arlington, Texas, and its operational headquarters will be located In Phoenix, Arizona. The common stock of the combined company will trade on the Electronic Bulletin Board under the symbol "GAMZ" The shareholders of Ferris will become stockholders of the combined company, and their rights as stockholders will be governed by GameCom's amended articles of incorporation, GameCom's amended bylaws, and the laws of the State of Texas. Appraisal and dissenters' rights Under Texas law, GameCom stockholders are entitled to appraisal or dissenters' rights in the merger. A shareholder wishing to exercise his, her, or its right to dissent is required to file with the corporation, prior to the meeting, a written objection to the merger, stating that the shareholder's right to dissent will be exercised if the merger is effective and giving the shareholder's address, to which notice of the effectiveness of the merger shall be delivered or mailed in that event. If the merger is effected and the shareholder did not vote in favor of the merger, GameCom is required to deliver or mail to the shareholder within ten days after the merger is effected written notice that the merger has been effected, and the shareholder may, within ten days from the delivery or mailing of the notice, make written demand for payment of the fair value of his, her, or its shares. The fair value of the shares is their value as of the day immediately preceding the meeting, excluding any appreciation or depreciation in anticipation of the merger. The demand must state the number of the shares owned by the shareholder and the fair value of the shares as estimated by the shareholder. Any shareholder who does not make demand within the ten day period will be precluded from exercising his, her, or its dissenter's rights. Within 20 days after receipt of a demand for payment made by a dissenting shareholder, GameCom is required to deliver or mail to the shareholder a written notice that it either accepts the amount claimed in the demand and agrees to pay that amount within 90 days after the date on which the merger was effected, or containing GameCom's estimate of the fair value of the shares, together with an offer to pay the amount of that estimate within 90 days after the date on which the merger was effected, upon receipt of notice within 60 days after that date from the shareholder that the shareholder agrees to accept that amount. If, within the period of 60 days after the merger, the shareholder and GameCom do not agree on a fair market value, then either GameCom or the shareholder may file a petition in any court of competent jurisdiction in the county in which GameCom's principal is located, asking for a finding and determination of the fair value of the shareholder's shares. With the petition, or if the petition is served by a shareholder, within ten days after the petition is served on 17 GameCom, GameCom must file in the office of the clerk of the court a list of the names and addresses of all shareholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached. The court will then notify all the other shareholders on the list and will schedule a hearing. Following the hearing, the court will determine which shareholders have complied with the requirements to exercise their dissenters' rights, and will appoint an appraiser who will report on the value of the shares. After receiving that report, the court will determine the value of the shares. Restrictions on selling GameCom common stock received in the merger All shares of GameCom common stock received by Ferris shareholders in the merger will be "restricted securities" under the Securities Act of 1933. For a more complete description of transfer restrictions applicable to Ferris affiliates, see the section entitled "The Merger--Restrictions on sales of shares of GameCom common stock issued in the merger" on page 17. The Merger Agreement This section of the document describes the merger agreement. While we believe that the description covers the material terms of the merger agreement, this summary may not contain all of the information that is important to you. The merger agreement is attached to this document as Annex A, and we urge you to carefully read this document in its entirety. Representations and warranties GameCom and Ferris each made substantially similar representations and warranties in the merger agreement regarding aspects of our businesses, financial condition, structure, and other facts pertinent to the merger, including representations and warranties by each company as to: o its corporate organization, good standing, and qualification to do business; o authority to enter into the merger agreement and related agreements; o its capitalization; o in the case of GameCom, its subsidiaries and ownership interests in other entities; o the accuracy and completeness of its charter, bylaws, and corporate minute book; o the effect of the merger on its outstanding obligations; o changes in its business since December 31, 2000; o its taxes; o compliance with laws; o required consents, waivers, and approvals; o loan agreements; o litigation to which it is a party; o in the case of GameCom, the accuracy of its reports filed with the SEC and its listing status on the Electronic Bulletin Board; o in the case of Ferris, the accuracy of its unaudited financial statements; 18 o its agreements, contracts, and commitments; o its title to the properties it owns and leases; o its officers, directors and employees; o its intellectual property, intellectual property that it uses and infringement of other intellectual property; o its products; o its employee benefit plans; o potential conflicts of interest; o information each company is to furnish for disclosure to stockholders of GameCom and Ferris; and o in the case of GameCom, issues of the merger shares in compliance with federal and state securities laws The representations and warranties in the merger agreement are complicated and are not easily summarized. We urge you to read the articles of the merger agreement entitled "Representations and warranties of GameCom" and "Representations and warranties of Ferris " carefully. No other negotiations Until the merger is completed or the merger agreement is terminated, GameCom and Ferris have each have agreed not to directly or indirectly: o solicit, initiate or encourage submission of proposals to merger with its or acquire its stock or assets, or o participate in any discussions or negotiations regarding any such proposal by any other person. If either Ferris or GameCom receives any acquisition proposal or any inquiry regarding any such proposal from a third party, the receiving party must promptly notify the other party of the proposal or inquiry, and may not, without the prior written consent of the other party, discuss such acquisition proposal or inquiry. Actions affecting tax status Neither of the parties is to take any action that would jeopardize qualification of the merger as a tax-free reorganization under the Internal Revenue Code. Operation of the business Each of GameCom and Ferris has agreed that pending completion of the merger it will conduct its operations only in the ordinary course of business consistent with sound financial, operational, and regulatory practice. The following actions are specifically prohibited without the prior written consent of the other party o amendment of charter documents or bylaws, o authorizing the issuance of additional options or shares other than those specifically identified in the agreement, o recapitalizations, stock splits, etc., 19 o taking on debt for borrowed money, guaranteeing the obligations or others, or making loans or investments in anyone other than a wholly-owned subsidiary, o amending any benefit plan, increasing employee or director compensation outside the ordinary course of business, paying bonuses, severance pay or other employee benefits other than under existing plans, or amending employment, consulting, etc. agreements with directors, officers, or employees, o entering into contracts outside the ordinary course of business, o liquidating or dissolving, acquiring material assets or securities, and disposing of material amounts of assets or securities, mergers, or changes in capitalization, o changing material accounting or tax procedures, o doing anything that would make the representations and warranties made in the agreement untrue, or o compromising, settling, or modifying claims or litigation Other actions Each of GameCom and Ferris has agreed o to maintain its assets consistent with past practice, o to try to keep available the services of its current employees and maintain its relations with suppliers, customers, etc., o to pay its own expenses in connection with the transaction except as otherwise provided, o to continue filing its tax returns and paying required taxes, o in the case of GameCom, to try to maintain its listing of its common stock on the Electronic Bulletin Board, and o to try to obtain any necessary consents or approvals necessary to avoid state anti-takeover laws. Directors of merged company The size of the board of directors of the merged company after the merger becomes effective will be increased from three to five, and Ferris is entitled to designate three of those directors. Conditions of all parties to closing the merger The obligations of each of the parties to complete the merger and the other transactions contemplated by the merger agreement are subject to the following conditions before closing the merger: o all required governmental approvals must have been obtained, and o the merger agreement must have been approved by the stockholders of both GameCom and Ferris, Conditions to Ferris's Obligations The obligations of Ferris to complete the merger and the other transactions contemplated by the merger agreement are subject to the following additional conditions before closing the merger: 20 o GameCom's representations and warranties must be true; o GameCom must have performed its other agreements in the merger agreement in all material respects; o GameCom must have obtained all required consents from third parties; o There shall not have been a material adverse change in GameCom's business; o GameCom must have signed the other transaction documents it is to sign under the merger agreement; o GameCom's board of directors must have approved the merger agreement and other transactions can have recommended approval to GameCom's stockholders; and o Ferris must have received an opinion from GameCom's attorneys as to GameCom's corporate status, qualification to do business, authority to sign the merger agreement, authorization of the merger agreement, absence of preemptive rights, options, warrants, etc., receipt of necessary consents, exemption of the issuance of the GameCom common stock from a registration under the Securities Act, compliance of the merger agreement with GameCom's corporate documents and applicable law, and no violation of other GameCom contracts. Conditions to GameCom's Obligations The obligations of GameCom to complete the merger and the other transactions contemplated by the merger agreement are subject to the following additional conditions before closing the merger: o Ferris's representations and warranties must be true; o Ferris must have performed its other agreements in the merger agreement in all material respects; o Ferris must have obtained all required consents from third parties; o There shall not have been a material adverse change in Ferris' business; o Ferris must have signed the other transaction documents it is to sign under the merger agreement; o Ferris board of directors must have approved the merger agreement and other transactions and have recommended approval to Ferris' stockholders; and o GameCom must have received an opinion from Ferris' attorneys as to Ferris' corporate status, qualification to do business, authority to sign the merger agreement, authorization of the merger agreement, absence of preemptive rights, options, warrants, etc., receipt of necessary consents, compliance of the merger agreement with Ferris's corporate documents and applicable law, and no violation of other Ferris contracts. Termination of the merger agreement The merger agreement may be terminated at any time before the merger is completed: o by mutual written consent of GameCom and Ferris; o by either party if the merger is not completed by August 1, 2001, unless the party seeking to terminate has caused the merger not to be completed by that date; 21 o by either party if a court issues and order preventing the merger; o by either party if the other party has breached the merger agreement or the other party's representations are not true and as a result the conditions to the merger will not be satisfied; or o by either party if the other party's stockholders do not approve the merger. Amendment of the merger agreement We may amend the merger agreement before closing the merger by execution of a written instrument signed by each of us. Change in Board of Directors Under the merger agreement, Ferris is to designate, before the merger is completed, the names of three of the members of the board of directors, which will be increased to five members upon the merger. Management for GameCom and Ferris informs us that at the present time their intent is that immediately after the merger, the combined company's board of directors would have the following members: 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 Bob Ferris has been the President of Ferris since he founded that company in 1993. Mr. Ferris attended the U.S. Air Force Academy with a major in Management, and holds a degree in Systems Engineering from the University of Arizona L. Kelly Jones, chairman 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 Lance Loesburg is the Vice President of Business Development of Ferris, the position he has held since 1997. From 1995 to 1997 he was North American Sales Director for Virtuality, another virtual reality company. Andy Wells is the principal of Strategic Securities, Inc., a Houston-based merchant banking firm which he founded in 1997. From June 2000 until March of 2001 Mr. Wells also served on an interim basis as chief financial officer of U.S. Operators Inc., a San Antonio based call center which was reorganizing under Chapter 11 of the bankruptcy code. Prior to 1997 Mr. Wells was employed by a regional NASD broker/dealer in Houston, Texas. He holds a B.S. degree from Stephen F. Austin University and NASD licenses 7 (general securities), 63, 65 (registered investment advisor), and 24 (securities principal). He has served as a director of Ferris for the last six years. GameCom Market Price Information GameCom common stock has been traded on the Electronic Buletin Board under the symbol GAMZ since. Ferris common stock is not publicly traded. 22 Per Share Market Price Data The following table sets forth, for the fiscal quarters indicated, the high and low sale prices per share of GameCom common stock as reported on the Electronic Bulletin Board: Year Ended December 31, 1999 High Low First Quarter 0.69 0.94 Second Quarter 1.03 0.26 Third Quarter 1.22 0.09 Fourth Quarter 0.70 0.07 Year Ended December 31, 2000 First Quarter 1.38 0.27 Second Quarter 1.13 0.31 Third Quarter 0.63 0.31 Fourth Quarter 0.47 0.15 Year Ending December 31, 2001 First Quarter 0.69 0.21 Second Quarter 0.51 0.17 Third Quarter (through August 10) The closing prices per share of GameCom common stock as reported on the Electronic Bulletin Board on April 17, 2001, the business day preceding public announcement that GameCom and Ferris had entered into the merger agreement was $0.37. On August 10, 2001, the last full trading day for which closing prices were available at the time of the printing of this document, the closing price of the GameCom common stock was $ . GameCom and Ferris have never paid cash dividends on their respective shares of capital stock. Under the merger agreement, each of GameCom and Ferris has agreed not to pay cash dividends before the closing of the merger without the written consent of the other. GameCom presently intends to retain future earnings, if any, for use in its business and has no present intention to pay cash dividends before or after the merger. 23 Financial Information INDEX TO FINANCIAL INFORMATION - -------------------------------------------------------------------------------- GameCom Management's Discussion and Analysis Fiscal Years Ended December 31, 2000 and 1999 and Three Months Ended March 31, 2001 and 2000.......................................................................25 GameCom Audited Financial Statements for Fiscal Years Ended December 31, 2000 and 1999...........................29 GameCom Unaudited Financial Statements for Three Month Periods Ended March 31, 2001 and 2000.....................41 Ferris Audited Financial Statements for Fiscal Years Ended December 31, 2000 and 1999 ...........................45 Ferris Unaudited Condensed Financial Statements for Three Months Ended March 31, 2001............................61 Unaudited Pro Forma Condensed Combined Financial Statements......................................................64
24 Gamecom Management's Discussion and Analysis of Fiscal Years Ended December 31, 2000 and 1999 and Three Months Ended March 31, 2001 and 2000 Year Ended December 31, 2000 compared to Year ended December 31 1999 The following discussion contains certain forward-looking statements that are subject to business and economic risks and uncertainties, and the Company's actual results could differ materially from those forward-looking statements. The following discussion regarding the financial statements of the Company should be read in conjunction with the financial statements and notes thereto. Overview. The Company was capitalized in 1996 to develop, own, and operate theme brewpub/microbrewery restaurants. In July of 1997 the Company began operating the former Hubcap Brewery & Kitchen in Dallas, Texas. In January, 1999, the Company terminated its brewpub/microbrewery restaurant operations. Future revenues and profits will depend upon various factors, including market acceptance of 'Net GameLink(TM) and, assuming the acquisition of Ferris as described below is completed, on the success of Ferris' product lines and on general economic conditions. The Company's present sole source of revenue is the future sale of 'Net GameLink(TM) systems and revenue from associated royalties. The Company has to date received only nominal revenue from its beta-test system installed at J. Gilligan's in Arlington. On January 10, 2001, the Company executed a letter of intent to acquire Virtual Technologies, Inc. d/b/a Global VR, in a stock-for-stock transaction under which Global VR's shareholders would acquire controlling interest in the Company. No definitive contract was executed, and the letter of intent was terminated on April 6, 2001. On April 18, 2001, the Company executed a letter of intent to acquire Ferris Productions, Inc., in a stock-for-stock transaction under which Ferris' shareholders would acquire controlling interest in the Company. The acquisition would provide the Company with a wider array of products within the Company's industry, an experienced management team, an existing revenue stream, and established distribution channels. A definitive contract between the Company and Ferris was executed on May 3, 2001. There can be no assurance that the acquisition will in fact be consummated, as the transaction is contingent upon approval of the transaction by the shareholders of both the Company and Ferris. A proxy statement will be prepared and filed with the Securities and Exchange Commission, and subsequently submitted to the companies' shareholders. It is expected that the proxy statement will be forwarded to the shareholders in July of 2001, but there is no assurance that this timetable will hold. There can be no assurances that the Company will successfully implement its expansion plans, including the 'Net GameLink(TM) entertainment concept. The Company faces all of the risks, expenses, and difficulties frequently encountered in connection with the expansion and development of a new business. These include limited working capital and the need to devote a substantial amount of management's time to raising capital rather than development of the business, difficulties in maintaining delivery schedules if and when volume increases, the need to develop support arrangements for systems at widely dispersed physical locations, the need to control operating and general and administrative expenses and the need to spend substantial amounts of resources on initial advertising to develop an awareness of the Company and its products. In addition, the Company's chief executive officer is a practicing attorney with no training or prior experience in managing or overseeing a public company. Results of Operations. Fiscal year ended December 31, 2000 compared to fiscal year ended December 31, 1999. The fiscal year ended December 31, 1999 reflects a redirection of the Company's efforts from its discontinued brewpub business to the development of its 'Net GameLink(TM) System. For the fiscal year ended December 31, 1999 the Company had essentially no revenues. For the fiscal year ended December 31, 2000 the Company received only nominal revenues as a result late in the year of beginning to charge royalties for the Company's testing system installed at J. Gilligan's. Administrative costs of $396,835 for the fiscal year ended December 31, 2000 compared to $409,999 for the fiscal year ended December 31, 1999 reflect primarily additional costs incurred during 1999 in connection with registration of the Company's securities under the Securities and Exchange Act of 1934. The increase in interest charges from $16,065 for the fiscal year ended December 31, 1999 to $29,399 for the fiscal year ended December 31, 2000 reflects an increase in the level of the Company's bank borrowings from $20,000 as of December 31, 1999 to $215,000 as of December 31, 2000. These bank borrowings were guaranteed by officers and 25 directors of the Company, who received common stock in payment for their guaranties. The value of such common stock ($55,200 for the year ended December 31, 1999 and $198,695 for the year ended December 31, 2000) is shown as finance charges for the applicable periods. The increase in depreciation and amortization from $5,356 in the year ended December 31, 1999 to $20,896 in the year ended December 31, 2000 is a result of increased investment in computer equipment. During the year ended December 31, 2000 the Company eliminated $455,149 in debt from its consolidated balance sheet (consisting primarily of trade payables) as a result of placing its First Brewery of Dallas, Inc. subsidiary into voluntary liquidation under Chapter 7 of the Bankruptcy Act. Connect Computer, the firm which has been largely responsible for development of the Company's kiosk and computer systems, 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 would be issued a significant equity position in the Company. On February 1, 2001, the Company satisfied this obligation by issuing 75,000 shares of its common stock to Connect Computer. At the time the operations of First Brewery of Dallas, Inc. were terminated, all of that subsidiary's assets were pledged to secure indebtedness to SecurityBank of Arlington, Texas. That indebtedness had been personally guaranteed by the Company's directors and by another individual. Upon termination of the brewpub/microbrewery operations the guarantors were required to repay that indebtedness to the bank, and upon such payment the bank assigned the Company's notes and the related security to the guarantors. The guarantors accepted the security in full satisfaction of the debt and subsequently disposed of the assets securing the indebtedness to third parties at a loss. The effect of these transactions is included in the $143,781 gain on sale of assets for the year ended December 31, 1999. Quarter ended March 31, 2001 compared to Quarter ended March 31, 2000. For the quarter ended March 31, 2001 the Company received only nominal revenues as a result late in the year of beginning to charge royalties for the Company's testing system installed at J. Gilligan's. It had no revenue for the quarter ended March 31, 2000. Administrative costs of $150,505 for the quarter ended March 31, 2001 compared to $65,113 for the quarter ended March 31, 2000 reflect primarily additional costs incurred during 2001 in connection with due diligence investigation of Global VR and other activities relating to that proposed acquisition, which did not occur, and fees paid in stock to consultants. The increase in interest charges from $4,795 for the quarter ended March 31, 2000 to $14,556 for the quarter ended March 31, 2001 reflects an increase in the level of the Company's bank borrowings. These bank borrowings were guaranteed by officers and directors of the Company, who received common stock in payment for their guaranties. The value of such common stock ($17,500 for the quarter ended March 31, 2000 and $60,000 for the quarter ended March 31, 2001) is shown as finance charges for the applicable periods. The decrease in depreciation and amortization from $7,027 in the quarter ended March 31, 2000 to $5,224 in the quarter ended March 31, 2001 is a result of adjustment of accounting estimates. Connect Computer Group, Inc., the firm which has been largely responsible for development of the Company's kiosk and computer systems ("Connect Computer"), 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 would be issued a significant equity position in the Company. On February 1, 2001, the Company satisfied this obligation by issuing 75,000 shares of its common stock to Connect Computer. Liquidity and Capital Resources. As of March 31, 2001 the Company's liquidity position was extremely precarious. The Company had current liabilities of $1,088,302, including $387,617 in trade payables, most of which were overdue, short-term notes payable of $635,500, all of which were either demand indebtedness or were payable at an earlier date and were in default, and related accrued interest on the notes. Current assets available to meet those liabilities were only $5,844. On June 5, 2000, the Company announced that it had entered into a subscription agreement for up to a $15,000,000 sale of common stock and warrants under a private equity line contract with Swartz Private Equity, L.L.C. ("Swartz"), an institutional private equity fund. This financing allows the Company to issue common stock and warrants at the Company's discretion as often as monthly as funds are needed in amounts based upon certain market conditions. The pricing of each common stock sale is based upon current market prices at the time of each draw, and the Company may set a floor price for the shares each month at the Company's discretion. The Company's SB-2 26 registration statement for the Swartz private equity line became effective with the Securities and Exchange Commission on August 10, 2000. The Company made its first draw on the Swartz equity line during the month of October, 2000. However, it has not made any draws under that line since January 2001, because the price and volume of trading in the Company's shares has been too low to make that source of financing attractive. To date the Company has met its capital requirements through capital contributions, loans from principal shareholders and officers, bank borrowings, and certain private placement offerings. For the fiscal year ended December 31, 2000, the net loss from operations was $230,172. After taking account of the non-cash items included in that loss, the Company's cash requirements were $85,291. To cover these cash requirements, the Company issued additional shares of its common stock to investors for approximately $31,000, increased its bank borrowings by $35,000, and increased its borrowing from shareholders by $25,000. Plan of Operations The opinions of the Company's independent auditor for each of the last two fiscal years expressed substantial doubt as to the Company's ability to continue as a going concern. Based on the unaudited results and the projected results furnished to the Company by Ferris, we anticipate that if the acquisition is completed, and if our due diligence confirms the information we have been furnished, we should achieve profitability within the next 12 months. It should be noted, however, that to achieve those results we will need to obtain additional financing for retirement of debt, working capital, and other purposes. If the proposed acquisition is not completed the outlook is much less favorable. In that case, until such time as the Company is able to draw upon the Swartz equity line in a significant manner or obtain additional financing, it plans to limit its operations by conducting marketing efforts primarily on the basis of person-to-person contact with those who have previously expressed an interest in its system and limiting expansion of its operations to delivery of systems as permitted by internally-generated cash flow. This may require that the Company accept orders for new systems only on the basis of a down payment sufficient to cover the costs of manufacture of the system, which may in turn make it difficult to market additional systems. Further, the expression of uncertainty as to the Company's ability to continue as a going concern might itself adversely affect the Company's 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. The Company began to receive limited revenue from its beta-test system at J. Gilligan's during the early portion of the third quarter of 2000. However, these revenues are not expected to be sufficient to carry out any substantial advertising and marketing. If the proposed acquisition is not completed the Company will be unable to carry out substantial advertising and marketing until the Swartz private equity line becomes available to the Company in significant amounts through increases in the price and/or volume of trading in its shares, and until the Company begins to receive significant revenue from the sale of its 'Net GameLink(TM) systems. The Company will need to have in place in the near future a qualified chief operating officer. Although the Ferris acquisition would bring the Company an experienced management team, there is no assurance that the Ferris acquisition will be consummated. The Company does not presently intend to hire other salaried key management personnel during the next 12 months, although additional employees may become necessary. All of the Company's non-executive employees are presently being compensated at market rates. However, the Company's senior management (CEO, president, vice president, and secretary) are serving without compensation, and the Company expects this will continue to be the case indefinitely until the Company's interest-bearing debt has been substantially reduced. If the Company is not able to raise the necessary funds to expand sales beyond those that may be generated by person-to-person contact, it will be forced to terminate its operations entirely. Liquidity and Capital Resources. As of December 31, 2000 the Company's liquidity position was extremely precarious. The Company had current liabilities of $1,049,145, including $361,617 in trade payables, most of which were overdue, short-term notes payable of $410,500, all of which were either demand indebtedness or were payable at an earlier date and were in default, and related accrued interest on the notes. Current assets available to meet those liabilities were only $6,135. On June 5, 2000, the Company announced that it had entered into a subscription agreement for up to a $15,000,000.00 sale of common stock and warrants under a private equity line contract with Swartz Private Equity, L.L.C. ("Swartz"), an institutional private equity fund. This financing allows the Company to issue common stock and warrants at the Company's discretion as often as monthly as funds are needed in amounts based upon certain 27 market conditions. The pricing of each common stock sale is based upon current market prices at the time of each draw, and the Company may set a floor price for the shares each month at the Company's discretion. The Company's SB-2 registration statement for the Swartz private equity line became effective with the Securities and Exchange Commission on August 10, 2000. The Company made its first draw on the Swartz equity line during the month of October, 2000. However, it has not made any draws under that line since January of 2001, because the price and volume of trading in the Company's shares has been too low to make that source of financing attractive. To date the Company has met its capital requirements through capital contributions, loans from principal shareholders and officers, bank borrowings, and certain private placement offerings. For the fiscal year ended December 31, 2000, the net loss from operations was $190,266. After taking account of the non-cash items included in that loss, the Company's cash requirements were $300,297 for operating activities and $18,979 for capital expenditures, or a total of $319,276. To cover most of these cash requirements, the Company issued additional shares of its common stock to investors for approximately $65,000, increased its bank borrowings by $215,000, and borrowed an additional $30,000 from stockholders. The remaining cash requirement was met by drawing down cash on hand. 28 INDEPENDENT AUDITOR'S REPORT 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, 2000 and 1999 and the related statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of GameCom, Inc. as of December 31, 2000, and 1999 and the results of its operations and cash flows in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. During the year ended December 31, 2000, the Company incurred a net loss of $199,266 and a loss of $361,880 for the year ended December 31, 1999. 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. Thomas O. Bailey and Associates, P.C. Dallas, Texas March 30, 2001 29 GAMECOM, INC. (Fomerly The Schooner Brewery Incorporated) Consolidated Balance Sheet December 31, 2000 and December 31, 1999 December 31 ----------- 2000 1999 ----------- ----------- ASSETS Current assets Cash $ 6,135 $ 15,564 Accounts receivable -- 180 ----------- ----------- Total current assets 6,135 15,744 Property and equipment Equipment, furniture and fixtures 113,464 94,485 Accumulated depreciation (28,828) (7,932) ----------- ----------- Net property and equipment 84,636 86,553 ----------- ----------- Other assets -- 8,989 ----------- ----------- Total assets $ 90,771 $ 111,286 ----------- =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade payables $ 361,617 $ 728,849 Accrued interest 62,028 49,839 Notes payable to shareholders 410,500 380,500 Short-term notes payable to bank 215,000 -- ----------- ----------- Total current liabilities 1,049,145 1,159,188 Redeemable common stock Common stock to redeem, 1,505,399 shares at par $.005 3,891 7,527 Shareholders' equity Capital stock 50,000,000 shares authorized par value $.005; 10,041,751 issued and outstanding, 61,951 51,583 Paid-in capital 1,503,521 1,230,459 Retained earnings (2,527,737) (2,337,471) ----------- ----------- Total shareholders' equity (962,265) (1,055,429) ----------- ----------- Total liabilities and shareholder equity $ 90,771 $ 111,286 =========== =========== The accompanying notes are an integral part of this financial statement. 30 GAMECOM, INC. (Formerly The Schooner Brewery Incorporated) Consolidated Statement of Operations For the Years Ended December 31, 2000 and 1999 December 31 ----------- 2000 1999 ------------ ------------ Revenues Restaurant sales -- 5,431 Game royalties 410 -- ------------ ------------ Total revenues 410 5,431 Cost of sales Salaries and labor -- 24,472 ------------ ------------ Total cost of sales -- 24,472 ------------ ------------ Gross profit 410 (19,041) General and administrative expense Administrative cost 396,835 409,999 Interest 29,399 16,065 Financing charges 198,695 55,200 Depreciation and amortization 20,896 5,356 Gain on sale of assets -- (143,781) ------------ ------------ 645,825 342,839 ------------ ------------ Loss before extraordinary item 645,825 $ (361,880) ------------ ------------ Extraordinary item: Gain from extinguishment of debt 455,149 -- ------------ ------------ Net gain/(loss) $ (190,266) $ (361,880) ============ ============ Per share amounts: Net loss per share $ (0.015) $ (0.033) ============ ============ Average outstanding shares 12,328,360 10,838,550 ============ ============ The accompanying notes are an integral part of this financial statement. 31 GAMECOM, INC. (Formerly The Schooner Brewery Incorporated) Consolidated Statement of Stockholders' Equity For the Periods From December 31, 1998 through December 31, 2000
Shares of Additional Total Common Common Paid-in Accumulated Stockholders' Stock Stock Capital Deficit Equity ------------ ------------ ------------ ------------ ------------ 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 $(21,337,471) $ (1,055,429) ============ ============ ============ ============ ============ Stock issued as incentive for loans 1,133,967 5,671 193,025 -- 198,696 Stock issued in compensation of services and interest 84,571 423 15,828 -- 16,251 Sales of stock 127,694 638 64,209 -- 64,847 Expiration of redeemable shares 727,108 3,636 -- -- 3,636 Loss for the year ended December 31, 2000 -- -- -- (190,266) (190,266) ------------ ------------ ------------ ------------ ------------ 12,390,091 $ 61,951 $ 1,503,521 $ (2,527,737) $ (962,265) ============ ============ ============ ============ ============
The accompanying notes are an integral part of this financial statement. 32 GAMECOM, INC. (Formerly The Schooner Brewery Incorporated) Consolidated Statements of Cash Flows For the Years Ended December 31, 2000 and 1999 December 31, 2000 1999 --------- --------- Cash flows from operating activities Net loss $(190,266) $(361,880) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 20,896 5,356 Gain on sale of assets -- (143,781) Services and fees paid with stock 16,251 23,750 Financing fees 198,696 55,200 Stock options issued as compensation -- -- (Increase) decrease in: Accounts receivable-trade 180 1,367 Prepaid and other assets 8,989 3,044 Increase (decrease) in: Accounts payable and accrued expense (355,043) 247,530 --------- --------- Net cash provided by operating activities (300,297) (169,414) Cash flows from investing activities Capital expenditures (18,979) (41,237) --------- --------- Net cash used by investing activities (18,979) (41,237) Cash flow from financing activities Increase in capital stock and paid-in capital 64,847 135,000 Short-term notes payable 245,000 85,547 --------- --------- Net cash provided by financing activities 309,847 220,547 Net increase in cash and cash equivalents (9,429) 9,896 --------- --------- Cash and cash equivalents beginning of period 15,564 5,666 --------- --------- Cash and cash equivalents end of period $ 6,135 $ 15,562 ========= ========= Interest paid during the period $ 7,899 $ 9,040 ========= ========= Income taxes paid during the year $ -- $ -- ========= ========= The accompanying notes are an integral part of this financial statement. 33 GameCom, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SIGNIFICANT ACCOUNTING POLICIES Principal Business Activity GameCom, Inc. (the "Company") conducts business in the interactive on-line internet gaming industry. The Company formerly operated, through its wholly owned subsidiary, a restaurant and brewpub. That business has been discontinued. Principals of Consolidation The accompanying consolidated financial statements include the accounts of the parent company, GameCom, Inc. 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. 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 maturaties 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 12,328,360 and 10,838,550 for December 31, 2000 and 1999 respectively. 34 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 which is three to five years. 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 of non-employees on a negotiated basis where the value of the services is recorded and stock issued based upon the agreed number of shares issued for the value of the services performed. The measurement date for determining such value is the date an agreement is reached for issuance of the shares. Common Stock Issued as Incentive for Loans From time to time the Company has obtained non-interest bearing loans or guaranties of bank loans from individuals. As incentive for these loans the Company issued some of its common stock and recorded as expense the price of the stock based upon the restricted provisions of the stock. These issuance were as follows: Market Value Date Amount Lent Shares Issued of Shares ---- ----------- ------------- --------- 1998 $173,000 613,000 $ 153,000 1999 $ 88,500 240,000 $ 55,200 2000 $215,000 1,133,967 $ 198,696 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 eliminated 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 increase the Company must rely on public and private funding to meet any of its cash flow requirements. Management has begun a new line of business. On June 5, 2000, the Company announced that it had entered into a subscription agreement for up to a $15,000,000.00 sale of common stock and warrants under a private equity line contract with Swartz Private Equity, L.L.C. ("Swartz"), an institutional private equity fund. This financing allows the Company to issue common stock and warrants at the Company's discretion as often as monthly as funds are needed in amounts based upon 35 certain market conditions. The pricing of each common stock sale is based upon current market prices at the time of each draw, and the Company may set a floor price for the shares each month at the Company's discretion. The Company's SB-2 registration statement for the Swartz private equity line was filed on July 12, 2000, and became effective with the Securities and Exchange Commission on August 10, 2000. The Company made its first draw on the Swartz equity line during the month of October, 2000. NOTE 3 NOTES PAYABLE Notes payable at December 31, 2000 consisted of the following: Note payable to bank due December 21, 2001 with interest at 9.5% $ 50,000 Note payable to bank due May 6, 2001 with interest at 9.5% 30,000 Note payable to bank due March 20, 2001 with interest at 10.5% 25,000 Note payable to bank due October 14, 2001 with interest at 9.0% 25,000 Note payable to bank due May 15, 2001 with interest at 10.5% 25,000 Note payable to bank due March 11, 2001 with interest at 9.5% 60,000 ---------- Due to banks $ 215,000 Note payable to stockholder due on demand with interest at 8% $ 20,000 Note payable to stockholder due on demand with interest at 8% 15,000 Notes payable to stockholders due June 10, 1998, interest at 12% 100,000 Notes payable to stockholders due from August 1 through December 2, 1998 with no interest 162,000 Notes payable to stockholders due in February and March 1999 Without interest 63,500 Note payable to stockholder with installments due through February 2000 50,000 --------- Due to stockholders $ 410,000
All notes due to stockholders were in default as of December 31, 2000. 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 $235,000 notes payable without interest as described above, $103,500 in principal amount provides for a per diem issuance of common stock as penalty for late payments. As of December 31, 2000, the per diem issuance would be in excess of 5,800,000 shares of the Company's common stock. The Company has received an opinion from counsel 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 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 4 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, 2000 and 1999 was 12,390,091 and 10,316,600 36 respectively. There were common shares redeemable at December 31, 2000 and 1999 in the total share amounts of 778,291in the amount of $3,891 and 1,505,399 shares and the total amount of $7,527 respectively. 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, 2000 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 April, 1997, collectively agreed with the Company's Board of Directors that a dilution of their collective equity interest was in the best interest of the Company. Therefore, the Company adopted a resolution on December 12, 1997 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. On February 3, 2000, the Company adopted a resolution releasing 727,108 shares from the redemption, leaving 778,291 to be redeemed. None of the shares have been redeemed but can be redeemed at the shareholders' option. The total number of shares and the redemption liability is reflected in the balance sheet under, "Redeemable Common Stock." NOTE 5 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 $365,000 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 $2,284,000. NOTE 6 LEASES The Company leased its restaurant space under a lease agreement, which expired October 1, 1999. During the year ended December 31, 2000, the Company surrendered $10,673 of deposits under the lease agreement. Currently the Company rents office space on a month-to-month basis at $1,500 per month from a firm associated with the chief executive officer. To date no payments have been made. NOTE 7 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 8 RELATED PARTY TRANSACTIONS On December 12, 1997, by unanimous consent, the board of directors approved borrowing up to $100,000 from certain stockholders. The promissory notes provide that the notes be secured by the `Net Game LinkTM system to be installed at the Company's restaurant. The holders of said notes shall, for each $10,000 of notes, in addition to the payment of principal and interest, be entitled to 7,500 shares of the Company's common stock at par value at maturity. Prior to maturity, the holders of the promissory notes shall have the right to convert their notes to equity in the amount of 12,500 shares of the Company's restricted common stock. Thereafter, by unanimous consent, the board of directors approved additional borrowings from certain shareholders, in the aggregate sum of $162,000. In lieu of interest, the Company issued to such shareholders restricted shares of the Company's common stock. In addition the Company rents office space from a firm associated with the chief executive officer, see Note 6 above. 37 NOTE 9 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 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) 111,000 shares at par value subject to the condition precedent that the Company's shares are trading at $3.00 per share, and (iii) the balance of 111,000 shares at par value subject to the condition precedent that the Company's shares are publicly trading at $4.50 per share. These incentive stock options were granted to Messrs. Poynter and Aleckner by the Company's board of directors (Messrs.Poynter and Aleckner abstaining on the grant of their stock option) on December 14, 1998. Outstanding options were 1,499,000 and 750,000 respectively at December 31 1998 and 1997. 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 because no grants were made in 1998. 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 share price at the measurement date, December 12, 1997 was $.125 based on the restricted nature of the stock. The Company recorded compensation expense in the amount of $6,250 in their revised 1997 financial statements. 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. 38
2000 1999 ---- ---- Options beginning of year 1,199,000 1,499,000 Number of options granted - - --------- --------- Options exercised during year - 300,000 Options forfeited during year - - --------- --------- Options outstanding end of year 1,199,000 1,199,000 ========= ========= Options exercisable at end of year - - ========= ========= 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:
Net loss: 2000 1999 1998 ---- ---- ---- As reported $ 190,266 $ 361,880 $ 1,203,643 Pro forma $ 190,266 $ 361,880 $ 1,203,643 Net loss per common share: As reported $ .015 $ .033 $ .143 Pro forma $ .015 $ .033 $ .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 10 LEGAL PROCEEDINGS The Company's legal counsel advises that there is no pending significant legal proceedings or action concerning the Company. NOTE 11 SUBSEQUENT EVENTS On January 10, 2001, the Company executed a letter of intent to acquire Virtual Technologies, Inc. d/b/a Global VR, in a stock-for-stock transaction under which Global VR's shareholders would acquire a controlling interest in the Company. No definitive agreement was executed, and the letter of intent was terminated on April 6, 2001. On April 18, 2001, the Company executed a letter of intent to acquire Ferris Productions, Inc., in a stock-for-stock transaction under which Ferris' shareholders would acquire controlling interest in the Company. A definitive contract between the Company and Ferris was executed on May 3, 2001. Both companies announced on May 23, 39 2001, that the due diligence phase of the contract was successfully completed; however, there can be no assurance that the acquisition will in fact be consummated, as the transaction is contingent upon approval of the transaction by the shareholders of both the Company and Ferris. It is expected that a proxy statement for approval of the merger will be forwarded to the shareholders in August of 2001, but there is no assurance that this timetable will hold. 40 GAMECOM, INC. Consolidated Balance Sheet March 31, 2001 (Unaudited) ASSETS Current assets Cash $ 5,844 Property and equipment Equipment, furniture and fixtures 113,464 Accumulated depreciation (34,052) ----------- Net property and equipment 79,412 ----------- Total assets $ 85,256 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade payables $ 387,617 Accrued interest 65,185 Notes payable to shareholders 360,500 Short-term notes payable to bank 275,000 ----------- Total current liabilities 1,088,302 Redeemable common stock Common stock to redeem, 778,291 shares at par $.005 3,891 Shareholders' equity Capital stock 50,000,000 shares authorized par value $.005; 11,772,997 and 10,316,600 issued and outstanding respectively 66,407 Paid-in capital 1,684,565 Retained earnings (2,757,909) ----------- Total shareholders' equity (1,006,937) ----------- Total liabilities and shareholder equity $ 85,256 =========== The accompanying notes are an integral part of this financial statement 41 GAMECOM, INC. Consolidated Statement of Operations For the Quarters Ended March 31, 2001 and 2000 (Unaudited) 2001 2000 ----------- ----------- Revenues Game royalties 113 -- General and administrative expense Administrative cost 150,505 65,113 Interest 14,556 4,795 Financing charges 60,000 17,500 Depreciation and amortization 5,224 7,027 ----------- ----------- 230,285 94,435 ----------- ----------- Net loss (230,172) (94,435 =========== =========== Per share amounts: Net loss per share $ (0.017) $ (0.008) =========== =========== Average outstanding shares 13,444,234 11,922,150 =========== =========== The accompanying notes are an integral part of this financial statement 42 GAMECOM, INC. Consolidated Statements of Cash Flows For the Quarters Ended March 31, 2001 and 2000 (Unaudited)
2001 2000 --------- --------- Cash flows from operating activities Net loss $(230,172) $ (94,435) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 5,224 7,027 Financing fees 60,000 17,500 Stock issued as compensation 50,500 -- (Increase) decrease in: Prepaid and other assets -- 8,989 Increase (decrease) in: Accounts payable and accrued expense (29,157) 49,293 --------- --------- Net cash provided by operating activities (85,291) (11,626) Cash flows from investing activities Capital expenditures -- (1,512) --------- --------- Net cash used by investing activities -- (1,512) Cash flow from financing activities Short-term notes payable 60,000 -- Increase in capital stock and paid-in capital 25,000 -- --------- --------- Net cash provided by financing activities 85,000 -- Net increase in cash and cash equivalents (291) (13,138) Cash and cash equivalents beginning of period 6,135 15,564 --------- --------- Cash and cash equivalents end of period $ 5,844 $ 2,426 ========= ========= Interest paid during the quarter $ 3,400 $ 431 ========= ========= Income taxes paid during the quarter $ -- $ -- ========= =========
The accompanying notes are an integral part of this financial statement 43 GAMECOM, INC. Notes to Financial Statements For the Quarters Ended March 31, 2001 and 2000 Note 1 Reference to Notes to Financial Statements dated December 31, 2000 The notes to the Financial Statements dated December 31, 2000 should be read in conjunction with these financial statements. These financial statements include all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. 44 FERRIS PRODUCTIONS, INC. ---------- FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT ACCOUNTANTS for the years ended December 31, 2000 and 1999 45 FERRIS PRODUCTIONS, INC. TABLE OF CONTENTS ---------- Page(s) Report of Independent Accountants.................................... 47 Financial Statements: Balance Sheet as of December 31, 2000 and 1999......................................................... 48 Statement of Operations for the years ended December 31, 2000 and 1999................................. 49 Statement of Cash Flows for the years ended December 31, 2000 and 1999................................. 50 Statement of Stockholders' Deficit for the years ended December 31, 2000 and 1999....................... 51 Notes to Financial Statements........................................ 52 46 Report of Independent Accountants To the Board of Directors and Stockholders of Ferris Productions, Inc. We have audited the accompanying balance sheet of Ferris Productions, Inc. (the "Company") as of December 31, 2000 and 1999, and the related statements of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ferris Productions, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and at December 31, 2000 is in a negative working capital position and a stockholders' deficit position. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Ham, Langston & Brezina, L.L.P. Houston, Texas April 30, 2001 47 FERRIS PRODUCTIONS, INC. BALANCE SHEET December 31, 2000 and 1999 ---------- ASSETS 2000 1999 ----------- ----------- Current assets: Cash and cash equivalents $ -- $ 390,576 Accounts receivable 159,922 -- Deferred expenses 38,887 25,000 Note receivable 33,471 125,000 ----------- ----------- Total current assets 232,280 540,576 Property and equipment, net 1,231,689 827,467 Note receivable-related party 102,782 -- Intangible assets, net 82,618 88,456 ----------- ----------- Total assets $ 1,649,369 $ 1,456,499 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current maturities of notes payable $ 389,133 $ -- Current portion of obligations under product financing arrangements 1,043,789 -- Accounts payable 375,440 21,079 Book overdraft 5,574 -- Accrued interest payable 27,912 19,806 Deferred revenue 88,000 220,400 Note payable-related party 122,531 36,531 ----------- ----------- Total current liabilities 2,052,379 297,816 Notes payable, net of current maturities 538,667 250,000 Obligations under product financing arrangements, net of current portion 2,330,667 3,019,422 ----------- ----------- Total liabilities 4,921,713 3,567,238 ----------- ----------- Commitments and contingencies Stockholders' deficit: Common stock, $.001 par value, 10,000,000 shares authorized, 2,658,000 shares issued and outstanding at December 31, 2000 and 1999 2,658 2,658 Additional paid-in capital 279,715 279,715 Accumulated deficit (3,554,717) (2,393,112) ----------- ----------- Total stockholders' deficit (3,272,344) (2,110,739) ----------- ----------- Total liabilities and stockholders' deficit $ 1,649,369 $ 1,456,499 =========== =========== See accompanying notes to financial statements. 48 FERRIS PRODUCTIONS, INC. STATEMENT OF OPERATIONS for the years ended December 31, 2000 and 1999 ---------- 2000 1999 ----------- ----------- Revenue: Theme parks and arcades $ 2,173,025 $ 165,441 Custom applications and other 1,185,691 71,573 ----------- ----------- Total revenue 3,358,716 237,014 Cost of sales and services 1,188,418 110,623 ----------- ----------- Gross margin 2,170,298 126,391 General and administrative expenses 1,875,320 814,923 Depreciation and amortization expense 535,805 136,694 ----------- ----------- Loss from operations (240,827) (825,226) ----------- ----------- Other income (expenses): Interest income 1,415 19,203 Interest expense (945,056) (509,361) Loss on impaired assets -- (672,060) Other income 22,863 15,327 ----------- ----------- Total other income (expenses) (920,778) (1,146,891) ----------- ----------- Net loss $(1,161,605) $(1,972,117) =========== =========== Weighted average shares outstanding 2,658,000 2,598,700 =========== =========== Basic and diluted net loss per common share $ (0.44) $ (0.76) =========== =========== See accompanying notes to financial statements. 49 FERRIS PRODUCTIONS, INC. STATEMENT OF CASH FLOWS for the years ended December 31, 2000 and 1999 ---------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net loss $(1,161,605) $(1,972,117) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 535,805 136,694 Amortization of debt issuance costs 210,854 128,122 Loss on impairment of assets -- 627,060 Common stock issued for commissions -- 30,299 Common stock issued for interest expense -- 5,636 Changes in operating assets and liabilities: Accounts receivable (159,922) 210 Deferred expenses (13,887) (25,000) Accounts payable 354,361 (2,162) Accrued interest payable 8,106 16,153 Deferred revenue (132,400) 220,400 ----------- ----------- Net cash used in operating activities (358,688) (834,705) ----------- ----------- Cash flows from investing activities: Capital expenditures (911,797) (1,500,632) Increase in intangible asset (22,392) (59,668) Issuance of note receivable -- (125,000) Issuance of note receivable-related party (102,782) -- Payment received on note receivable 91,529 -- ----------- ----------- Net cash used in investing activities (945,442) (1,685,300) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of notes payable 840,000 180,000 Proceeds from issuance of notes payable- related party 86,000 -- Proceeds from obligations under product financing arrangements 234,240 2,749,200 Payments on notes payable (162,200) (44,000) Payments on obligations under product financing arrangements (90,060) (104,280) Increase in book overdraft 5,574 -- ----------- ----------- Net cash provided by financing activities 913,554 2,780,920 ----------- ----------- Increase (decrease) in cash and cash equivalents (390,576) 260,915 Cash and cash equivalents, beginning of year 390,576 129,661 ----------- ----------- Cash and cash equivalents, end of year $ -- $ 390,576 =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest expense $ 726,096 $ 365,086 =========== =========== Cash paid for income taxes $ -- $ -- =========== =========== See accompanying notes to financial statements. 50 FERRIS PRODUCTIONS, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT for the years ended December 31, 2000 and 1999 ----------
Common Additional Stock Paid-In Accumulated Shares Amount Capital Deficit Total -------- -------- --------- --------- -------- Balance at December 31, 1998 2,302,200 $ 2,302 $244,136 $(420,995) $(174,557) Issuance of common stock in con- nection with the funding of convertible debentures 355,800 356 35,579 - 35,935 Net loss -- -- -- (1,972,117) (1,972,117) --------- ------- -------- ----------- ----------- Balance at December 31, 1999 2,658,000 2,658 279,715 (2,393,112) (2,110,739) Net loss -- -- -- (1,161,605) (1,161,605) --------- ------- -------- ----------- ----------- Balance at December 31, 2000 2,658,000 $ 2,658 $279,715 $(3,554,717) $(3,272,344) ========= ======= ======== =========== ===========
See accompanying notes to financial statements. 51 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS ---------- 1. Background and Summary of Significant Accounting Policies Background Ferris Productions, Inc. ("the Company"), a Delaware corporation, was founded in 1993 and is currently headquartered in Phoenix, Arizona, with a branch sales office in Dallas, Texas. The Company develops, manufactures and operates technically advanced personal computer and non-personal computer based products including virtual reality ("VR") entertainment products for the entertainment, simulation, promotion and education industries. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Revenue Recognition Revenue is recognized at the time services are performed or when products are shipped. Deferred Revenue and Expenses Deferred revenue represents advanced billings on custom application projects and is recognized as revenue in the year the work is performed. Deferred expenses represent expenses incurred related to custom application projects not recognized until the work commences. Concentrations of Credit Risk Financial instruments which subject the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable. The Company maintains its cash in well known banks selected based upon management's assessment of the banks' financial stability. Balances periodically exceed the $100,000 federal depository insurance limit; however, the Company has not experienced any losses on deposits. Accounts receivable generally arise from sales of equipment and services to various companies throughout the world and from revenue sharing arrangements with certain theme parks located throughout the United States. Collateral is generally not required for credit granted. During the year ended December 31, 2000 the Company had one customer representing 52% of its total theme park revenue and one customer representing 53% of total custom application and other revenue. Cash Equivalents For purposes of reporting cash flows, the Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. Continued 52 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS, Continued ---------- 1. Background and Summary of Significant Accounting Policies, continued Property and Equipment Property and equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Expenditures for major renewals and betterments that extend the original estimated economic useful lives of the applicable assets are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in operations. Intangible Assets Intangible assets consist of direct costs incurred in developing proprietary technology exclusively used in its entertainment products and costs incurred in obtaining a patent on such technology. The intangible assets are being amortized on a straight-line basis over a three year period. As of December 31, 2000 and 1999, accumulated amortization of these intangible assets is $38,330 and $10,100, respectively. During the years ended December 31, 2000 and 1999, the Company recorded amortization expense of $28,230 and $10,100, respectively. Debt Issuance Costs Debt issuance costs are deferred and recognized, using the interest method, over the term of the related debt. Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial amounts at year-end. The Company provides a valuation allowance to reduce deferred tax assets to their net realizable value. Loss Per Share Basic and diluted loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during each period. Common equivalent shares from common stock options and warrants are excluded from the computation as their effect would dilute the loss per share for all periods presented. Stock-Based Compensation The Company accounts for its stock compensation arrangements under the provisions of Accounting Principles Board ("APB") No. 25 "Accounting for Stock Issued to Employees". The Company provides disclosure in accordance with the disclosure-only provisions of Statement of Financial Accounting Standard ("SFAS") No. 123 "Accounting for Stock-Based Compensation". Continued 53 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS, Continued ---------- 1. Background and Summary of Significant Accounting Policies, continued Impairment of Long-Lived Assets In the event that facts and circumstances indicate that the carrying value of a long-lived asset, including associated intangibles, may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset or the asset's estimated fair value to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required. Fair Value of Financial Instruments The Company includes fair value information in the notes to financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made. Comprehensive Income The Company has adopted SFAS No. 130, "Reporting Comprehensive Income". Comprehensive income includes such items as unrealized gains or losses on certain investment securities and certain foreign currency translation adjustments. The Company's financial statements include none of the additional elements that affect comprehensive income. Accordingly, comprehensive income and net income are identical. Segment Information The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise". Under the new standard, the Company is required to use the management approach to reporting its segments. The management approach designates that the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's segments. The accounting policies of the segments are the same as those described elsewhere in Note 1. 2. Going Concern Considerations During the years ended December 31, 2000 and 1999, the Company has experienced negative financial results as follows: 2000 1999 -------- -------- Net loss $(1,161,605) $(1,972,117) Negative cash flows from operations (358,688) (834,705) Negative working capital (1,820,099) - Accumulated deficit (3,554,717) (2,393,112) Stockholders' deficit (3,272,344) (2,110,739) Continued 54 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS, Continued ---------- 2. Going Concern Considerations, continued Management has developed specific current and long-term plans to address its viability as a going concern as follows: o The Company has signed a letter of intent to be acquired by GameCom, Inc. In connection with this transaction, the combined companies are attempting to raise funds through debt and/or equity offerings. If successful, these additional funds would be used to pay down debt and for working capital purposes. o In the long-term, the Company believes that cash flows from continued growth in its operations will provide the resources for continued operations. There can be no assurance that the Company's debt reduction plans will be successful or that the Company will have the ability to implement its business plan and ultimately attain profitability. The Company's long-term viability as a going concern is dependent upon three key factors, as follows: o The Company's ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations in the near term. o The ability of the Company to control costs and expand revenues from existing or new businesses. o The ability of the Company to ultimately achieve adequate profitability and cash flows from operations to sustain its operations. 3. Accounts Receivable Accounts receivable consist primarily of amounts due from certain companies for the purchase of equipment and services. An allowance for doubtful accounts is provided, when appropriate, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating probable bad debts. Such factors include circumstances with respect to specific accounts receivable, growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable and current economic conditions. Accounts receivable at both December 31, 2000 and 1999 are stated net of an allowance for doubtful accounts of $-0-. 4. Property and Equipment Property and equipment consisted of the following at December 31, 2000 and 1999: 2000 1999 ---------- -------- Arcade equipment $1,703,456 $856,340 Furniture and equipment 169,144 104,461 ---------- -------- 1,872,600 960,801 Less: accumulated depreciation (640,911) (133,334) ---------- -------- Property and equipment, net $1,231,689 $827,467 ========== ======== Continued 55 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS, Continued ---------- 4. Property and Equipment, continued Depreciation expense for the years ended December 31, 2000 and 1999 was $507,575 and $126,594, respectively. 5. Notes Payable
Notes payable consist of the following at December 31, 2000 and 1999: 2000 1999 ---------- --------- Notes payable to a bank, bearing interest ranging from the prime rate (9.5% at December 31, 2000) to the prime rate plus 2% per year and due in average monthly payments of approximately $31,000, including interest, through November 2002. These notes are collateralized by certain equipment, licensing rights and by the personal guarantee of an officer/stockholder of the Company. $ 677,800 $ - Notes payable to third party entities and individuals bearing interest at a stated rate of 10% payable semi-annually with principal due three years after issuance of the note, which ranges from October 2001 to March 2002. These notes are not collateralized. In connection with the funding of these notes, the Company issued a total of 412,500 shares of its common stock as equity attachments to the note holders and to pay debt issuance costs. Accordingly, the actual weighted average interest rate on these notes, including the effect of the issuance of common stock and the payment of debt issuance costs, was approximately 16%. 250,000 250,000 Note payable to a stockholder, due on demand, bearing interest at 10% per year. This note is not collateralized. 122,531 36,531 ---------- --------- Total notes payable 1,050,331 286,531 Less: current portion (511,664) (36,531) ---------- --------- $ 538,667 $ 250,000 ========== =========
Continued 56 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS, Continued ---------- 5. Notes Payable, continued The notes payable to a bank contain various financial and non-financial covenants, which require the Company, among other things, to maintain certain levels of stockholders' equity and to comply with certain financial ratios. The Company is in violation of these covenants as of December 31, 2000. However, the Company has received a waiver through 2001 from the bank for these covenant violations. Future annual maturities of notes payable at December 31, 2000 is as follows: 2001 $ 511,664 2002 538,667 ---------- $1,050,331 ========== 6. Obligations Under Product Financing Arrangements In financing the production of its arcade equipment, the Company has entered into agreements whereby an entity or individual advances funds to the Company to produce specific arcade equipment. Under this arrangement, the Company has agreed to repay these advances at a specified price three years from the origination date as specified in the agreement. Although these obligations mature three years from the origination date, the entity or individual advancing the funds has the right to exercise a buy-out whereby the Company has 180 days to repay the obligation upon exercise of the buy-out. Interest is paid monthly at an annual rate of approximately 16%. In connection with these financing arrangements, the Company has incurred debt issuance costs of approximately 21% of the total obligation. These costs are being amortized over a three year period using the interest method resulting in an effective annual interest rate of approximately 29% on these obligations. Obligations under these product financing arrangements consist of the following at December 31, 2000 and 1999: 2000 1999 ---------- ---------- Contractual balance $3,866,000 $3,659,000 Less: unamortized debt issuance costs (491,544) (639,578) ---------- ---------- Total obligation $3,374,456 $3,019,422 ========== ========== Future annual maturities of these obligations as of December 31, 2000 are as follows: 2001 $1,043,789 2002 2,096,427 2003 234,240 ---------- $3,374,456 ========== Continued 57 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS, Continued ---------- 7. Income Taxes The Company has incurred losses since its inception and, therefore, has not been subject to federal income taxes. As of December 31, 2000, the Company had net operating loss ("NOL") carryforwards for income tax purposes of approximately $3,700,000 which expire in various tax years through 2021. Under the provisions of Section 382 of the Internal Revenue Code the ownership change in the Company that could result from the possible merger or acquisition of the Company could severely limit the Company's ability to utilize its NOL carryforward to reduce future taxable income and related tax liabilities. Additionally, because United States tax laws limit the time during which NOL carryforwards may be applied against future taxable income, the Company may be unable to take full advantage of its NOL for federal income tax purposes should the Company generate taxable income. The composition of deferred tax assets and liabilities and the related tax effects at December 31, 2000 and 1999 are as follows: 2000 1999 ----------- ----------- Deferred tax assets: Net operating losses $ 1,263,670 $ 828,563 Intangible assets 4,110 -- Valuation allowance (1,172,396) (770,437) ----------- ----------- Total deferred tax assets 95,384 58,126 ----------- ----------- Deferred tax liabilities: Property and equipment (95,384) (58,126) ----------- ----------- Total deferred tax liability (95,384) (58,126) ----------- ----------- Net deferred tax asset (liability) $ -- $ -- =========== =========== The difference between the income tax benefit in the accompanying statement of operations and the amount that would result if the U.S. Federal statutory rate of 34% were applied to pre-tax loss for the years ended December 31, 2000 and 1999 is as follows: 2000 1999 Amount % Amount % --------- ---- --------- ---- Benefit for income tax at federal statutory rate $(394,946) (34.0) $(670,520) (34.0) Other (7,013) (0.0) 1,909 0.0 Increase in valuation allowance 401,959 34.0 668,611 34.0 --------- ---- --------- ---- $ -- 0.0% $ -- 0.0% ========= ===== ========= ==== Continued 58 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS, Continued ---------- 8. Stock Options The Company periodically issues incentive stock options to key employees, officers, directors and outside consultants to provide additional incentives to promote the success of the Company's business and to enhance the ability to attract and retain the services of qualified persons. On January 1, 2000 the Company granted options to certain employees and non-employees to purchase 350,000 shares of the Company's common stock at $1 per share. The options are fully vested and exercisable at the date of grant and expire on January 1, 2003. The Company deemed the value of the options to be immaterial at the date of grant. 9. Commitments and Contingencies Lease Obligations On August 4, 2000 the Company entered into a long-term operating lease for its office and manufacturing facility, which is owned by a stockholder of the Company. The monthly lease cost to the Company is equal to all expenses related to the building, including, but not limited to, mortgage, taxes, fees, maintenance and improvements. The minimum monthly cost is approximately $9,000. Minimum lease payments due under leases with remaining lease terms of greater than one year are as follows: 2001 $107,410 2002 107,410 2003 107,410 2004 107,410 2005 and thereafter 2,325,160 --------- $2,754,800 ========== Litigation The Company is currently a party to certain litigation arising in the normal course of business. Management believes that such litigation will not have a material impact on the Company's financial position, results of operations or cash flows. 10. Business Segments During the year ended December 31, 2000 and 1999, the Company operated primarily in two strategic business units that offer different products and services: revenue sharing arrangements with theme parks and arcades and custom applications utilizing its virtual reality concept. Financial information regarding these business segments is as follows: Continued 59 FERRIS PRODUCTIONS, INC. NOTES TO FINANCIAL STATEMENTS, Continued ---------- 10. Business Segments, continued
Theme Parks Custom and Arcades Applications Other Total (Amounts in thousands) Year ended December 31, 2000: Revenues $2,173,025 $739,251 $446,440 $3,358,716 Income (loss) from op- erations (509,407) 268,580 - (240,827) Total assets 1,423,721 56,504 169,144 1,649,369 Interest expense 848,140 - 96,916 945,056 Depreciation expense 467,552 - 40,023 507,575 Capital expenditures 847,114 - 64,683 911,797 Year ended December 31, 1999: Revenues $165,441 $ - $ 71,573 $237,014 Income (loss) from oper- ations (825,226) - - (825,226) Total assets 1,327,038 25,000 104,461 1,456,499 Interest expense 472,191 - 37,170 509,361 Depreciation expense 114,859 - 11,735 126,594 Capital expenditures 1,431,645 - 68,987 1,500,632
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating earnings of the respective business units. 11. Related Party Transactions Included in the December 31, 2000 balance sheet is a note receivable from a stockholder of the Company. This note originated when the Company made a down payment of $102,782 on behalf of the stockholder who purchased the building which the Company currently leases (See Note 10). The note is non-interest bearing and is due on demand. Included in accrued interest payable in the December 31, 2000 and 1999 balance sheet is $15,412 and $7,306, respectively, of interest due to a stockholder of the Company. 60 FERRIS PRODUCTIONS, INC. ---------- UNAUDITED CONDENSED FINANCIAL INFORMATION March 31, 2001 61 FERRIS PRODUCTIONS, INC. UNAUDITED CONDENSED BALANCE SHEET March 31, 2001 ---------- ASSETS Current assets: Cash and cash equivalents $ 33,073 Accounts receivable, net 56,253 ---------- Total current assets 89,326 Property and equipment, net 1,093,039 Note receivable-related party 102,782 Intangible assets, net 75,566 ---------- Total assets $1,360,713 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current maturities of notes payable $389,133 Current portion of obligations under product financing arrangements 1,223,906 Accounts payable 285,661 Accrued interest payable 37,225 Notes payable to stockholders 122,531 ---------- Total current liabilities 2,058,456 Notes payable, net of current maturities 538,667 Obligations under product financing arrangements, net of current portion 2,528,100 ---------- Total liabilities 5,125,223 Stockholders' deficit: Common stock 2,658 Additional paid-in capital 279,715 Accumulated deficit (4,046,883) ---------- Total stockholders' deficit (3,764,510) ---------- Total liabilities and stockholders' deficit $1,360,713 ========== 62 FERRIS PRODUCTIONS, INC. UNAUDITED CONDENSED STATEMENT OF OPERATIONS for the three months ended March 31, 2001 and 2000 ---------- March 31, March 31, 2001 2000 ----------- ----------- Revenue: Theme parks and arcades $ 175,506 $ 146,018 Custom applications and other 356,089 477,849 ----------- ----------- Total revenue 531,595 623,867 Cost of sales and services 185,431 292,453 ----------- ----------- Gross margin 346,164 331,414 General and administrative expenses 433,963 390,360 Depreciation and amortization expense 138,833 126,467 ----------- ----------- Loss from operations (226,632) (185,413) Other income (expenses): Interest income 741 1,415 Interest expense (266,142) (221,000) Other income 150 -- ----------- ----------- Total other income (expenses) (265,251) (219,585) ----------- ----------- Net loss $ (491,883) $ (404,998) =========== =========== Weighted average shares outstanding 2,658,000 2,598,700 =========== =========== Basic and diluted net loss per common share $ (0.19) $ (0.16) =========== =========== 63 FERRIS PRODUCTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL INFORMATION ---------- 1. Reference to Notes to Financial Statements Dated December 31, 2000 The notes to the financial statements dated December 31, 2000 should be read in conjunction with these unaudited condensed financial statements. These financial statements include all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. 64 PRO FORMA FINANCIAL INFORMATION UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following unaudited pro forma condensed combined financial statements give effect to the merger, pursuant to which Ferris will be merged into GameCom, to be accounted for as a pooling of interests. The pooling of interests method of accounting assumes that GameCom and Ferris have been merged since their inception and the historical consolidated financial statements for periods prior to consummation of the merger are restated as though the companies have been combined since their inception. The unaudited pro forma combined balance sheet represents the combined financial position of GameCom and Ferris as of December 31, 2000 and March 31, 2001, assuming that the proposed merger had occurred on that date. The unaudited pro forma condensed combined statements of operations give effect to the proposed merger of GameCom and Ferris by combining the results of operations of GameCom for the years ended December 31, 2000 and 1999, and for the three-month periods ended March 31, 2001, and 2000 with the results of Ferris for those same periods. The unaudited pro forma condensed combined financial statements are based on the estimates and assumptions set forth in the notes to these financial statements, which are preliminary and have been made solely for purposes of developing this pro forma information. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable. The unaudited pro forma condensed combined financial statements are not necessarily an indication of the results that would have been achieved had such transactions been consummated as of the dates indicated or that may be achieved in the future. These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and related notes of GameCom and Ferris, appearing elsewhere in this proxy statement. 65 GAMECOM/FERRIS UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET December 31, 2000 ----------
ASSETS GameCom Ferris Pro-Forma Pro-Forma ------- ------ Adjustments Combined ----------- -------- Current assets: Cash and cash equivalents $ 6,135 $ -- $ -- $ 6,135 Accounts receivable -- 159,922 -- 159,922 Deferred expenses -- 38,887 -- 38,887 Note receivable -- 33,471 -- 33,471 ----------- ----------- ------------ ----------- Total current assets 6,135 232,280 -- 238,415 Property and equipment, net 84,636 1,231,689 -- 1,316,325 Note receivable-related party -- 102,782 -- 102,782 Intangible assets, net -- 82,618 -- 82,618 ----------- ----------- ------------ ----------- Total assets $ 90,771 $ 1,649,369 $ -- $ 1,740,140 =========== =========== ============ =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current maturities of notes payable $ 215,000 $ 389,133 $ -- $ 604,133 Current portion of obliga- tions under product finan- cing arrangements -- 1,043,789 -- 1,043,789 Accounts payable 361,617 375,440 -- 737,057 Book overdraft -- 5,574 -- 5,574 Accrued interest payable 62,028 27,912 -- 89,940 Deferred revenue -- 88,000 -- 88,000 Notes payable to stockholders 410,500 122,531 -- 533,031 ----------- ----------- ------------ ----------- Total current liabilities 1,049,145 2,052,379 -- 3,101,524 Notes payable, net of current maturities -- 538,667 -- 538,667 Obligations under product finan- cing arrangements, net of current portion -- 2,330,667 -- 2,330,667 ----------- ----------- ------------ ----------- Total liabilities 1,049,145 4,921,713 -- 5,970,858 Redeemable common stock 3,891 -- -- 3,891 Stockholders' deficit: Common stock 61,951 2,658 87,703 152,312 Additional paid-in capital 1,503,521 279,715 (87,703) 1,695,533 Accumulated deficit (2,527,737) (3,554,717) -- (6,082,454) ----------- ----------- ------------ ----------- Total stockholders' deficit (962,265) (3,272,344) -- (4,234,609) ----------- ----------- ------------ ----------- Total liabilities and stockholders' deficit $ 90,771 $ 1,649,369 $ -- $ 1,740,140 =========== =========== ============ ===========
66 GAMECOM/FERRIS UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS for the year ended December 31, 2000 ----------
Pro-Forma Pro-Forma GameCom Ferris Adjustments Combined ------------ ------------ ------------ ------------ Revenue: Theme parks and arcades $ -- $ 2,173,025 $ 2,173,025 Custom applications and other 410 1,185,691 1,186,101 ------------ ------------ ------------ Total revenue 410 3,358,716 3,359,126 Cost of sales and services -- 1,188,418 1,188,418 ------------ ------------ ------------ Gross margin 410 2,170,298 2,170,708 General and administrative expenses 396,835 1,875,320 2,272,155 Depreciation and amortization expense 20,896 535,805 556,701 ------------ ------------ ------------ Loss from operations (417,321) (240,827) (658,148) Other income (expenses): Interest income -- 1,415 1,415 Interest expense (228,094) (945,056) (1,173,150) Other income -- 22,863 22,863 ------------ ------------ ------------ Total other income (expenses) (228,094) (920,778) (1,148,872) ------------ ------------ ------------ Net loss from continuing operations $ (645,415) $ (1,161,605) $ -- $ (1,807,020) ============ ============ ============ ============ Weighted average shares outstanding 12,328,360 2,658,000 15,414,289 30,400,649 ============ ============ ============ ============ Basic and diluted net loss from continuing operations per common share $ (0.05) $ (0.44) $ -- $ (0.06) ============ ============ ============ ============
67 GAMECOM/FERRIS UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS for the year ended December 31, 1999 ----------
Pro-Forma Pro-Forma GameCom Ferris Adjustments Combined ------------ ------------ ------------ ------------ Revenue: Theme parks and arcades $ -- $ 165,441 $ 165,441 Custom applications and other 5,431 71,573 77,004 ------------ ------------ ------------ ------------ Total revenue 5,431 237,014 242,445 Cost of sales and services 24,472 110,623 135,095 ------------ ------------ ------------ ------------ Gross margin (19,041) 126,391 107,350 General and administrative expenses 409,999 814,923 1,224,922 Depreciation and amortization expense 5,356 136,694 142,050 ------------ ------------ ------------ ------------ Loss from operations (434,396) (825,226) (1,259,622) Other income (expenses): Interest income -- 19,203 19,203 Interest expense (71,265) (509,361) (580,626) Other income -- 15,327 15,327 ------------ ------------ ------------ ------------ Total other income (expenses) (71,265) (474,831) (546,096) ------------ ------------ ------------ ------------ Net loss from continuing operations $ (505,661) $ (1,300,057) $ -- $ (1,805,718) ============ ============ ============ ============ Weighted average shares outstanding 10,838,550 2,598,700 15,473,589 28,910,839 ============ ============ ============ ============ Basic and diluted net loss from continuing operations per common share $ (0.05) $ (0.50) $ -- $ (0.06) ============ ============ ============ ============
68 GAMECOM/FERRIS UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET March 31, 2001 ----------
Pro-Forma Pro-Forma ASSETS GameCom Ferris Adjustments Combined ----------- ----------- ----------- ----------- Current assets: Cash and cash equivalents $ 5,844 $ 33,073 $ -- $ 38,917 Accounts receivable, net -- 56,253 -- 56,253 Note receivable, net -- -- -- -- ----------- ----------- ----------- ----------- Total current assets 5,844 89,326 -- 95,170 Property and equipment, net 79,412 1,093,039 -- 1,172,451 Note receivable-related party -- 102,782 -- 102,782 Intangible assets, net -- 75,566 -- 75,566 ----------- ----------- ----------- ----------- Total assets $ 85,256 $ 1,360,713 $ -- $ 1,445,969 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current maturities of notes payable $ 275,000 $ 389,133 $ -- $ 664,133 Current portion of obliga- tions under product finan- cing arrangements -- 1,223,906 -- 1,223,906 Accounts payable 387,617 285,661 -- 673,278 Accrued interest payable 65,185 37,225 -- 102,410 Notes payable to stockholders 360,500 122,531 -- 483,031 ----------- ----------- ----------- ----------- Total current liabilities 1,088,302 2,058,456 -- 3,146,758 Notes payable, net of current maturities -- 538,667 -- 538,667 Obligations under product finan- cing arrangements, net of current portion -- 2,528,100 -- 2,528,100 ----------- ----------- ----------- ----------- Total liabilities 1,088,302 5,125,223 -- 6,213,525 Redeemable common stock 3,891 -- -- 3,891 Stockholders' deficit: Common stock 66,407 2,658 87,703 156,768 Additional paid-in capital 1,684,565 279,715 (87,703) 1,876,577 Accumulated deficit (2,757,909) (4,046,883) -- (6,804,792) ----------- ----------- ----------- ----------- Total stockholders' deficit (1,006,937) (3,764,510) -- (4,771,447) ----------- ----------- ----------- ----------- Total liabilities and stockholders' deficit $ 85,256 $ 1,360,713 $ -- $ 1,445,969 =========== =========== =========== ===========
69 GAMECOM/FERRIS UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS for the three months ended March 31, 2001 ----------
Pro-Forma Pro-Forma GameCom Ferris Adjustments Combined ------------ ------------ ------------ ------------ Revenue: Theme parks and arcades $ -- $ 175,506 $ -- $ 175,506 Custom applications and other 113 356,089 -- 356,202 ------------ ------------ ------------ ------------ Total revenue 113 531,595 -- 531,708 Cost of sales and services -- 185,431 -- 185,431 ------------ ------------ ------------ ------------ Gross margin 113 346,164 -- 346,277 General and administrative expenses 150,505 433,963 -- 584,468 Depreciation and amortization expense 5,224 138,833 -- 144,057 ------------ ------------ ------------ ------------ Loss from operations (155,616) (226,632) -- (382,248) Other income (expenses): Interest income -- 741 -- 741 Interest expense (74,556) (266,142) -- (340,698) Other income -- 150 -- 150 ------------ ------------ ------------ ------------ Total other income (expenses) (74,556) (265,251) -- (339,807) ------------ ------------ ------------ ------------ Net loss from continuing operations $ (230,172) $ (491,883) $ -- $ (722,055) ============ ============ ============ ============ Weighted average shares outstanding 13,444,234 2,658,000 15,414,289 31,516,523 ============ ============ ============ ============ Basic and diluted net loss per common share $ (0.02) $ (0.19) $ -- $ (0.02) ============ ============ ============ ============
70 GAMECOM/FERRIS UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS for the three months ended March 31, 2000 ----------
Pro-Forma Pro-Forma GameCom Ferris Adjustments Combined ------------ ------------ ------------ ------------ Revenue: Theme parks and arcades $ -- $ 146,018 $ $ 146,018 Custom applications and other -- 477,849 477,849 ------------ ------------ ------------ ------------ Total revenue -- 623,867 623,867 Cost of sales and services -- 292,453 292,453 ------------ ------------ ------------ ------------ Gross margin -- 331,414 331,414 General and administrative expenses 65,113 390,360 455,473 Depreciation and amortization expense 7,027 126,467 133,494 ------------ ------------ ------------ ------------ Loss from operations (72,140) (185,413) (257,553) Other income (expenses): Interest income -- 1,415 1,415 Interest expense (22,295) (221,000) (243,295) Other income -- -- -- ------------ ------------ ------------ ------------ Total other income (expenses) (22,295) (219,585) (241,880) ------------ ------------ ------------ ------------ Net loss from continuing operations $ (94,435) $ (404,998) $ -- $ (499,433) ============ ============ ============ ============ Weighted average shares outstanding 11,922,150 2,598,700 15,473,589 29,994,439 ============ ============ ============ ============ Basic and diluted net loss from continuing operations per common share $ (0.01) $ (0.16) $ -- $ (0.02) ============ ============ ============ ============
71 GAMECOM/FERRIS NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL INFORMATION 1. The proforma combined per share amounts are based on the combined weighted average of GameCom common shares and Ferris common shares for all periods presented based on Ferris shareholders receiving 18,072,289 shares of GameCom common shares for all of the Ferris common shares outstanding. 2. There were no material transactions between GameCom and Ferris during any of the periods presented. 3. Total transactions costs to be incurred by GameCom and Ferris in connection with the merger are estimated to be approximately $30,000. These costs, related to legal, printing, accounting, financial advisory services and other related expense, will be charged against income upon consummation of the merger. A restructuring charge to operations by the combined company may occur subsequent to the merger to reflect the combination of the two companies. The effects of these costs have not been reflected in this proforma combined financial information. 4. During the year ended December 31, 2000 GameCom recorded a non-recurring $455,149 gain from the extinguishment of debt as an extraordinary item. GameCom's historical statement of operations presented in these unaudited proforma condensed combined financial statements exclude this non-recurring gain. 5. During the year ended December 31, 1999 GameCom recorded a non-recurring $143,781 gain on the disposal of assets. GameCom's historical statement of operations presented in these unaudited proforma condensed combined financial statements exclude this non-recurring gain. 6. During the year ended December 31, 1999 Ferris recorded a non-recurring $672,060 loss on the write-down of specific assets to their estimated fair values. Ferris' historical statement of operations presented in these unaudited proforma condensed combined financial statements exclude this non-recurring loss. 72 Other Factors to be Considered If the merger-related proposals are approved at your meeting, they will result in shareholders of Ferris becoming stockholders of GameCom and the business of Ferris combining with the business of GameCom. In evaluating these proposals, please carefully consider the information presented throughout this document, and in particular the following factors. Some of those factors relate to the merger itself, and the balance relate to the business of the combined company after the merger. Risks Relating to the Proposed Merger The integration of our two companies may be difficult. Merging our two companies involves technological, operational, and personnel- related risks. The integration process will be complex, time-consuming, and expensive, and will disrupt the business of the combined company after the merger if not completed in a timely and efficient manner. If the merger is approved, the combined company will use common information and communication systems, facilities, operating procedures, financial controls, and human resources practices. We may lose key employees that we do not anticipate losing, and the attention of our management team may be diverted from other ongoing business concerns more than we anticipate. Failure to complete the merger could harm our stock price and future business and operations. Both GameCom and Ferris face a number of special risks if the merger is not completed, including the following: o costs related to the merger, such as legal and accounting fees and financial advisor fees, must be paid even if the merger is not completed. o Current and prospective GameCom employees may experience uncertainty about their future roles with the combined company, which may hurt each company's ability to attract and retain key management, marketing, technical, and administrative personnel. This may impede subsequent integration of the two companies, and if the merger is not completed it may harm GameCom in particular. o If the merger is terminated and GameCom's board of directors determines to seek another business combination, GameCom cannot assure you that it will be able to find a party willing to combine with it on equivalent or more attractive terms. Risks Related to the Business of the Combined Company After the Merger The demand for Ferris's products may be less than the parties expect, and may be affected to a greater degree than GameCom's by an economic downturn. Based on experience to date, Ferris believes there is a substantial demand for its virtual reality products. However, this conclusion is based on installations at a limited number of very popular destination entertainment centers, and the results may not necessarily be representative of other locations where its products may be installed. In addition, an economic downturn may have a greater impact on Ferris's installations, which are located in major destination tourist entertainment centers, as compared with GameCom's targeted locations. If Ferris's business plan is successful, other companies with more resources and greater name recognition may make competition so intense that the proposed business will not be profitable. Although Ferris has a patent pending covering some of its virtual reality technology, that patent, even if granted, will provide only limited protection. It will not prevent other companies from developing virtual reality products similar to that of Ferris using other methods. If Ferris is successful a number of other companies with far more money and greater name recognition may compete with it. This competition could both reduce the number of entertainment centers which select Ferris for virtual reality products and create downward pressure on the amount Ferris could charge for the product, such that Ferris would not have enough revenue to generate a profit. Our operating results may fluctuate significantly and may be difficult to predict. GameCom's operating results have negligible in the past, and the operating results of the combined company will likely fluctuate in the future due to a number of factors, many of which will be outside our control. These factors include: 73 o pricing competition; o seasonal fluctuations affecting the overall volume of visitors to entertainment centers where Ferris' products are located; o the announcement or introduction of new virtual reality products and games by us or our competitors; and o the amount and timing of costs relating to expansion of our operations. Due to these factors, factors discussed elsewhere in this document, or unforeseen factors in some future quarter, our operating results may not meet the expectations of securities analysts and investors, and if this happens, the trading price of the common stock of the combined company may decline. We cannot predict our future capital needs and we may not be able to secure additional financing. To fully implement Ferris' current business plan, we will likely need to raise additional funds within the next 12 months in order to fund the operations of the combined companies. We expect that a substantial part of these funds will come from the sale of additional shares under our equity line arrangement with Swartz. However, for this to happen there must be a substantial increase in the volume of trading of our shares, since the amount we can draw under that line is directly related to our share price and volume. If we are unable to draw a sufficient amount under our arrangement with Swartz, we will need to seek financing from other sources. Whether we raise funds through our line of credit or other sources, you may experience significant dilution of your ownership interest, and these securities may have rights senior to the rights of common stockholders. If additional financing is not available when required or is not available on acceptable terms, we may be unable to fund continuing operations, develop our products, or take advantage of business opportunities or respond to competitive pressures, any of which could harm our business. We expect our stock price to be volatile. The market price of the shares of the common stock of GameCom has been, and the market price of the shares of common stock of the combined company is likely to be, subject to wide fluctuations in response to several factors, such as: o actual or anticipated variations in our results of operations; o announcements of technological innovations; o new services or product introductions by us or our competitors; o changes in financial estimates by securities analysts; and o conditions and trends in the Internet and electronic commerce industries. The stock markets generally, and the Electronic Bulletin Board in particular, have experienced extreme price and volume fluctuations that have particularly affected the market prices of equity securities of many technology companies, and that often have been unrelated or disproportionate to the operating performance of those companies. These market fluctuations, as well as general economic, political, and market conditions such as recessions, interest rates or international currency fluctuations, may adversely affect the market price of the common stock of the combined company. There is a pending lawsuit that could delay or prevent the merger, or require us to pay damages. Just before beginning discussions with GameCom, Ferris was discussing a possible merger with Entertainment Technologies & Programs, Inc. ("ETPI"), another public company, and had executed a letter of intent in that regard. ETPI has brought a lawsuit against both GameCom and Ferris claiming that the letter of intent for the ETPI/Ferris transaction included a binding agreement not to negotiate with anyone else for a specified period of time. ETPI has requested the court to prevent the merger between GameCom and Ferris, and to require Ferris to continue negotiations for a merger with ETPI. The lawsuit also seeks damages against both companies. ETPI has not set its 74 request for a temporary injunction for hearing. Both GameCom's and Ferris' counsel are of the opinion that management for both companies have acted properly and in accord with all contractual obligations, and that these allegations are frivolous. Both GameCom and Ferris intend to vigorously address the lawsuit, and have sought appropriate sanctions against both ETPI and its counsel. However, we cannot give any assurance that ETPI will not be able to stop or delay the merger. Vote required to approve the merger The vote of holders of two thirds of the shares of GameCom common stock outstanding as of August 10, 2001, the record date, is required to approve the merger. Recommendation of Management on Proposal 2 GAMECOM'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER. Proposal No. 2-- Increase in Number of Shares Gamecom is Authorized to Issue GameCom's certificate of incorporation currently authorizes the issuance of 50,000,000 shares of common stock, par value $.005 per share. On July 31, 2001, GameCom's board of directors adopted GameCom's amended and restated certificate of incorporation, subject to stockholder approval. This new certificate of incorporation will increase the authorized number of shares of common stock to 100,000,000. The proposed certificate of amendment to GameCom's articles of incorporation is included as Annex B to this document. Current Commitments for Use of Shares As of August 10, 2001, GameCom had: o 13,683,978 shares of common stock outstanding; and o 1,500,000 shares reserved for future issuance under employee incentive stock options, of which no shares were subject to issuance upon the exercise of currently outstanding options. o 1,499,000 shares reserved for issuance upon exercise of non-statutory options; and o 34,089,747 shares reserved for issuance under our line of credit with Swartz, including common stock we may sell under the line of credit and warrants issued in connection with that line. Based upon these numbers, GameCom has no shares of common stock remaining available for other purposes and, in fact, could not sell all of the shares that might otherwise be sold under the arrangement with Swartz. Therefore, without amending its certificate of incorporation to authorize additional shares of common stock, GameCom would not have any shares to issue in the merger. GameCom's board of directors recommends a vote for the proposal to amend the articles of incorporation to increase the authorized shares. Purpose of changes to authorized stock. GameCom's board believes that it is in GameCom's best interest to increase the number of shares of common stock that it is authorized to issue in order to give GameCom the number of shares required to effect the merger with Ferris and obtain the financing from Swartz. GameCom's board also believes that the availability of additional authorized shares will provide GameCom with the flexibility to issue securities for other proper corporate purposes which may be identified in the future, such as to raise equity capital, to adopt additional employee benefit plans, or reserve additional shares for issuance under such plans, and to acquire other companies. No additional action or authorization by the stockholders of the combined 75 company would be necessary prior to the issuance of these additional shares, unless required by applicable law or the rules of any stock exchange or national securities association trading system on which the common stock of the combined company is then listed or quoted. Dilutive effect of potential new stock issuances. GameCom's stockholders generally do not have preemptive rights with respect to its common stock. Should the board of directors of the combined company elect to issue additional shares of common stock, existing stockholders would not have any preferential rights to purchase these shares. Therefore, additional issuances of common stock by the combined company could dilute the earnings per share, voting power, and share holdings of current stockholders. Anti-takeover effect of increase in authorized common stock. The proposed increase in the authorized number of shares of common stock of the combined company could, under some circumstances, have an anti-takeover effect, although this is not the intention of this proposal. For example, in the event of a hostile attempt to take over control of the combined company, it may be possible for the combined company to seek to impede the attempt by issuing shares of its common stock, which could dilute the voting power of the other outstanding shares and increase the potential cost to acquire control of the combined company. Therefore, the increase in authorized shares may have the effect of discouraging unsolicited takeover attempts. By potentially discouraging unsolicited takeover attempts, the increase may limit the opportunity for the stockholders of the combined company to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger or acquisition proposal. The increase may also have the effect of permitting the combined company's management, including its board of directors, to retain its position, and place it in a better position to resist changes that stockholders may wish to make if they are dissatisfied with the conduct of the business of the combined company. However, GameCom's board of directors is not aware of any attempt to take control of GameCom and has not presented this proposal with the intent that it be used as an anti-takeover device. Vote required to approve increase in authorized capital The vote of holders of a majority of the common stock present and voting at the meeting is required to approve the proposals to increase GameCom's authorized common stock to 100 million shares Recommendation of Management on Proposal 2 GAMECOM'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO ADOPT GAMECOM'S AMENDED ARTICLES OF INCORPORATION. Proposal No. 3 -- Approval of Amendments to the Gamecom, Inc. 2000 Stock Option Plan The Board of Directors has approved amendments to the 2000 Stock Option Plan which will increase the number of shares of common stock available for issuance under the stock option plan and to 6 million; The Board of Directors has directed that the plan, with these amendments be submitted to the shareholders for approval. 76 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.
Securities Other Annual Restricted Underlying Name and Principal Position Year Salary Bonus Compensation Stock Awards Options/SARs - --------------------------- ---- ------ ----- ------------ ------------ ------------ L. Kelly Jones, Chief Executive Officer and Chairman of the Board of Directors 2000 - - - - - 1999 - - - - - 1998 - - - - 833,000(1) John F. Aleckner, Jr., President and Director 2000 - - - - - 1999 - - - - - 1998 - - - - 333,000 (2) W. James Poynter, Vice-President and Director 2000 - - - - - 1999 - - - - - 1998 - - - - 333,000 (2) Kimberly Biggs, Secretary and Treasurer 2000 - - - - - 1999 - - - - - 1998 - - - - -
(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. 2000 Incentive Stock Option Plan Section 162(m) of the Internal Revenue Code limits the deductibility of compensation paid to specified executive officers to $1,000,000 per officer in any one year. Compensation which qualifies as "performance-based compensation" is not taken into account for the purposes of this limit. The board of directors has determined that options issued under the plan are with an exercise price at least equal to the fair market value of our common stock on the date of grant, if awarded by a compensation committee comprised of outside directors, should qualify as "performance-based compensation." In February, 2000, the board of directors adopted, and a majority of the stockholders approved, our 2000 Incentive Stock Option Plan, subject to approval of stockholders at the next annual meeting. Please note that this plan is intended to comply with IRS requirements for an incentive stock option plan. It is not related to options that have been granted to Mr. Jones and two other officers, and that are described in the footnotes to the financial statements and elsewhere as being "incentive in nature." 77 Description of plan The following description of the stock option plans is qualified in its entirety by reference to the full text of the Amended 2000 Stock Option Plan. A copy of the plan, as it would be amended by this proposal, is attached as Appendix "A" to this proxy statement. In the discussion that follows, options that are issued under the plan but not intended to comply with IRS requirements for incentive stock options are called "non-statutory options." Purpose. The purpose of the plan is to allow us to attract, retain and motivate key employees who are important to the success and growth of our business, and to create a long-term mutuality of interest between our stockholders 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 Board of Directors administers the plan, either directly or by a committee consisting of two or more outside directors. Option price and exercisability. 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 100% of the fair market value of the common stock at the time the option is granted, or, if the person to whom the option is granted is the owner of 10% or more of our common stock, 110% of that fair market value. The committee is to specify when and on what terms the options granted to key employees are to become exercisable. However, no option may be exercisable after more than 10 years from the date it was granted or five years from the date it was granted if it was granted to a holder of 10% or more of our common stock. Maximum dollar amounts. For 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 the applicable section of the Internal Revenue Code. Special provisions on exercisability. If there is a change of control of the company, all outstanding options become immediately exercisable in full. If an employee dies, or if he or she retires at or after age 65 or before age 65 with the consent of the committee, the option holder may exercise the options for a period of one year from the date he or she dies or retires. If the employee's employment terminates for reasons other than death or retirement, the options remain exercisable for three months after employment terminated unless termination was for cause. If the termination was for cause, all outstanding options are immediately canceled. Number of options available. 1,500,000 shares of Common Stock were initially authorized for issuance under the plan. Following approval of the merger agreement with Ferris, the board voted to increase this number to 6,000,000. However, no eligible individuals may be granted options for more than 500,000 shares in any calendar year. The option price and number of shares covered by an option will be adjusted proportionately in the event of a stock split, stock dividend, etc., and the committee is authorized to make other adjustments to take into consideration any other event which it determines to be appropriate to avoid distortion of the operation of the plan. 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 the Company is not the surviving entity in a merger and consolidation, the committee may in its discretion terminate all outstanding options, and in that event option holders will have 20 days from the time they received notice of termination to exercise all their outstanding options. Term of plan and use of proceeds. The plan terminates 10 years from its effective date unless terminated earlier by the board of directors or the shareholders. Proceeds of the sale of shares subject to options under the plan are to be added to our general funds and used for our general corporate purposes. The Company has not granted any options under the Plan. Reason for increase. In the opinion of the board of directors, it is appropriate to amend the to stock option plan to increase in the number of shares in available for issuance because the merger with Ferris will result in a significant increase in the number of employees the combined company has, and more options will be needed to ensure that we will be able to attract and retain skilled employees, consultants and directors. Federal Tax Consequences. The grant of incentive options to an employee does not result in any income tax consequences. The exercise of an incentive option generally does not result in any income tax consequences to an 78 employee if (i) the incentive options is exercised by the employee during his employment with GameCom or a subsidiary of, or within a specified period after termination of employment, and (ii) the employee does not dispose of shares acquired by exercising an incentive option within two years from the date of grant or one year after exercise, whichever is later. This time period is referred to as the holding period. However, the excess of the fair market value of the shares in of common stock as of the date of exercise over the option exercise price is includable in an employee's alternative minimum taxable income in the year of exercise. An employee who disposes of his incentive option shares before the end of the holding period described in the preceding paragraph, generally will recognize ordinary income in the year of sale in an amount equal to the excess, if any, of (a) the lesser of (i) the fair market value of the shares on the date of exercise or (ii) the amount realized on the sale, over (b) the incentive option price. Any additional amount realized on an early disposition should be treated as capital gain to the employee, short or long term, depending on the employee's holding period for the shares. GameCom will not be entitled to a deduction as a result of the grant of an incentive option, the exercise of an the incentive option, or the sale of he incentive option shares after the holding period. If an employee disposes of incentive option shares in an early disposition, GameCom would be entitled to deduct the amount of ordinary income recognized by the employee. The grant of non-statutory options will not result in the recognition of any taxable income by the optionee. An option name will recognize ordinary income on the date of exercise of a non-statutory option equal to the excess, if any, of (i) the fair market value of the shares acquired as of the exercise date, over (ii) the exercise price. The income reportable on exercise of a non-statutory option is subject to federal income and employment tax withholding. Generally, GameCom will be entitled to a deduction for its taxable year within which the optionee recognizes compensation income in a corresponding amount. Vote required to increase increase in shares authorized under the plan The vote of holders of a majority of the common stock present and voting at the meeting is required to approve GameCom's incentive stock option plan. Recommendation of Management on Proposal No. 3 The Board of Directors Recommends That You Vote For The Amendments to the 2000 Stock Option Plan Proposal No. 4--Authorizing the Board of Directors to Amend the Articles of Incorporation, at Any Time Within One Year from the Date of the Meeting, to Provide a New Corporate Name. The boards of directors of both GameCom and Ferris are of the opinion that a new corporate name might be advantageous in order to more fully represent the product capabilities and marketing strategy for the combined company. However, both boards recommend obtaining professional marketing assistance to determine whether a corporate name other than "GameCom" is advantageous, and if so, what the new corporate name should be. This proposal would grant the shareholders' prior consent for the board of directors, at any time prior to the anniversary of the meeting, to amend GameCom's articles of amendment to provide a new corporate name. Vote required to authorize change of name The vote of holders of a majority of the common stock present and voting at the meeting is required to authorize GameCom's board if directors to amend the articles of incorporation to change the Company's name. Recommendation of Management on Proposal No. 4 THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE AUTHORIZATION TO ALLOW THE BOARD OF DIRECTORS TO CHANGE THE COMPANY'S CORPORATE NAME. 79 Stockholder Proposals Under Rule 14a-8 of the Exchange Act, a GameCom stockholder may present one proposal for inclusion in GameCom's proxy statement and for consideration at a special meeting of the GameCom stockholders if the stockholder is eligible under Rule 14a-8 and if that stockholder complies with the procedural requirements of Rule 14a-8. Generally, to be eligible, a stockholder must have held at least $2,000 in market value of GameCom common stock for at least one year before the date the stockholder submits the proposal and must establish proof of ownership of these securities. The proposal must clearly state the proposed course of action the stockholder believes GameCom should adopt, but may not exceed 500 words in length. The proposal must be submitted to GameCom a reasonable time before GameCom begins to print and mail its proxy materials. The preceding paragraphs merely summarize portions of Rule 14a-8. If you are considering submitting a stockholder proposal at the GameCom stockholders' meeting, you should refer to Rule 14a-8. Forms 10-K and 10-Q Filed with the Securities and Exchange Commission Copies of our annual report on Form 10-KSB for the year ended December 31, 2000, and our quarterly report on Form 10-Q for the quarter ended March 31, 2001, as filed with the Securities and Exchange Commission and any amendments thereto, are available to stockholders free of charge by writing to: GAMECOM, INC. 440 North Center Arlington, Texas 76011 Attn: Kimberly Biggs, secretary Statements Regarding Forward-Looking Information This document and the documents incorporated in this document by reference contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business, and on the expected impact of the merger on GameCom's financial performance. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Forward-looking statements are based on our current expectations and involve a number of uncertainties, including those described in the "Other Factors to be Considered" section above, elsewhere in this document and in documents incorporated into this document by reference. Actual results could differ materially from what is expected. 80 GAMECOM, INC. PROXY This proxy solicited by the board of directors for the special meeting on September 14, 2001 The undersigned hereby appoints L. Kelly Jones and John F. Aleckner, Jr., and each of them, with full power of substitution, as the attorneys and proxies of the undersigned to attend the special meeting of stockholders of GameCom, Inc. to be held on September 14, 2001 at 4:30 P.M. CDT, and at any adjournment or adjournments thereof, hereby revoking any proxies heretofore given, to vote all shares of stock of GameCom, Inc. held or owned by the undersigned as indicated on the proposals as more fully set forth in the proxy statement, and in their discretion upon such other matters as may come before the meeting. The board of directors recommends a vote FOR all four proposals. 1. Proposal to approve the issuance of shares of GameCom, Inc.'s common stock in connection with our proposed merger with Ferris Productions, Inc. FOR |_| AGAINST |_| ABSTAIN |_| 2. Proposal to adopt GameCom's amended articles of incorporation, which will increase the authorized number of shares of common stock to 100,000,000. FOR |_| AGAINST |_| ABSTAIN |_| 3. Proposal to approve GameCom's incentive stock option plan. FOR |_| AGAINST |_| ABSTAIN |_| 4. Proposal to authorize the combined company's board of directors to amend GameCom's articles of incorporation within one year from the date of the special meeting to adopt a new corporate name. FOR |_| AGAINST |_| ABSTAIN |_| The board of directors recommends a vote FOR all four proposals The shares represented by this proxy will be voted as directed or, if no direction is indicated, will be voted FOR all four proposals. As to any other matter, said proxies shall vote in accordance with their best judgment. The undersigned hereby acknowledges receipt of the Notice of and Proxy Statement for the aforesaid special meeting. Date and sign exactly as name appears hereon. Each joint tenant must sign. When signed as attorney, executor, trustee, etc. give full title. If signer is corporation, sign in full corporate name by authorized officer. - ------------------------------------- (Date) - ------------------------------------- (Signature of Stockholder) - ------------------------------------- (Signature of Stockholder) 81 EX-99.2 3 ex99-2.txt ADDITIONAL EXHIBITS AGREEMENT OF MERGER AGREEMENT OF MERGER dated as of May 3, 2001 by and between GameCom, Inc., a Texas corporation ("GAMZ"), and Ferris Productions, Inc., a Delaware corporation ("FERRIS"). R E C I T A L S: A. The Boards of Directors of GAMZ and FERRIS deem it advisable and in the best interests of GAMZ and FERRIS, and their respective stockholders to consummate, and have approved, including for purposes of Section 5.03 of the Texas Law and of Section 251 of the Delaware Law, the business combination transactions provided for herein, in which FERRIS will merge with and into GAMZ with GAMZ continuing as the surviving corporation ("Merger") and all of the issued and outstanding FERRIS Shares (as hereinafter defined) and all vested FERRIS Convertible Securities (as hereinafter defined) will be converted into shares of common stock, par value $0.005 per share, of GAMZ, all as more fully set forth below. B. For Federal income tax purposes, it is intended that the Merger shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code") and the parties intend to adopt this Agreement as a "plan of reorganization" under Section 368(a) of the Code and the Treasury Regulations thereunder. C. GAMZ and FERRIS desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions to the Merger. D. The Boards of Directors of GAMZ and FERRIS have approved and adopted this Agreement. E. Capitalized terms that are not proper nouns are defined in Section 13. Accordingly, the parties agree as follows: 1. The Merger. 1.1. The Merger and Its Effect. Subject to the terms and conditions of this Agreement, at the Effective Time, FERRIS shall be merged with and into GAMZ, which shall be the surviving corporation (GAMZ, as the party to the Merger surviving the Merger, is sometimes hereinafter referred to as the "Surviving Corporation"), in accordance with this Agreement and which as of the Effective Date shall be governed by Texas Law. Upon the effectiveness of the Merger: (a) the separate corporate existence of FERRIS shall cease; (b) the Surviving Corporation shall possess all of the rights, privileges, powers, immunities, purposes and franchises, both public and private of FERRIS; (c) all real and personal property, tangible and intangible, of every kind and description belonging to FERRIS shall be vested in the Surviving Corporation without further act or deed, and the title to any real estate or any interest therein vested in FERRIS shall not revert or in any way be impaired by reason of the Merger; (d) the Surviving Corporation shall be liable for all the obligations and liabilities of FERRIS and any claim existing or action or proceeding pending by or against FERRIS may be enforced against GAMZ; and (e) neither the rights of creditors nor any Liens upon the property of FERRIS shall be impaired by the Merger. 1.2. Effective Time of the Merger. Upon the satisfaction or waiver of the conditions set forth in Sections 8 and 9 and the Closing of the Merger in accordance with Section 3, the parties shall cause Articles of Merger and a Certificate of Merger meeting the requirements of Section 5.04 of the Texas Law and Section 251 of the Delaware Law to be properly executed and filed in accordance with the terms of this Agreement and the applicable provisions of the Texas Law and Delaware Law. The Merger shall become effective at the time of the filing of the last to be filed of the Articles of Merger and Certificate of Merger as provided above, or at such later time as the parties have theretofore agreed upon and designated in such filings as the effective time of the Merger (the "Effective Time"). 1.3. Articles of Incorporation and Bylaws of Surviving Corporation. From and after the Effective Time, the Articles of Incorporation and Bylaws of GAMZ as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation and Bylaws of the Surviving Corporation until further amended. 1.4. Directors of the Surviving Corporation. At the Effective Time, the individuals listed on Schedule 1.4 shall serve as the sole directors of the Surviving Corporation. 1.5. Officers of the Surviving Corporation. At the Effective Time, the individuals listed on Schedule 1.5 shall serve as the sole officers of the Surviving Corporation. 1.6. Fiscal Year. The fiscal year of the Surviving Corporation shall end on the 31st day of December. 2. Conversion of Shares on the Merger; Effective Date. 2.1. Manner and Basis of Conversion. In the Merger, each outstanding FERRIS Share shall be changed into a number of shares of GAMZ determined by dividing $10 million by the "Average Price" as defined below, and dividing the quotient by the number of Ferris Shares outstanding as of the Effective Date. Not later than May 23, 2001, the parties shall issue a public announcement indicating that both companies have satisfied their respective due diligence inquiries, and stating whether as of that date both companies intend to close the transaction. The Average Price means the average closing price for GAMZ shares on the sixth through fifteenth trading days immediately following the parties' public announcement, but under no circumstances shall the Average Price be lower than $.25, or higher than that number which assures that Ferris shareholders will receive a majority of the GAMZ common shares outstanding immediately following the Merger, provided, however, that if GAMZ has provided the loan referred to in Section 7.2.5, then in computing the number constituting a majority of the outstanding GAMZ common shares there shall be excluded any GAMZ common shares issued, or issuable upon conversion or exercise of securities issued, to raise the amount required for that loan. As examples, if the Average Price is .20, the Ferris shareholders would not receive in the aggregate 50,000,000 shares of GAMZ stock, but rather would receive 40,000,000 shares. If the Average Price is .50, the Ferris shareholders would receive 20,000,000 shares of GAMZ stock. If the Average Price is .75, the Ferris shareholders would receive 13,333,333 shares of GAMZ stock. If the Average Price is .90, the Ferris shareholders would not receive 11,111,111 shares of GAMZ stock, but rather would receive 13,281,341 shares of GAMZ stock, which is one more share than GAMZ's current number of issued shares. [this example assumes that all GAMZ' redeemable shares have in fact been redeemed.] 2 2.2. Convertible Securities. As of the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, the Convertible Securities of FERRIS which are set forth on Schedule 4.5 and remain outstanding at the Effective Time shall, by virtue of the Merger, be changed into the right to acquire such number of GAMZ Shares as such holder would have received in accordance with Section 2.1 had such Convertible Securities of FERRIS been exercised or converted in full for FERRIS Shares immediately prior to the Effective Time. At the Effective Time, the per share exercise price or conversion price, as the case may be, of each of such Convertible Securities of FERRIS shall be calculated by dividing the aggregate exercise or conversion price for the FERRIS Shares otherwise issuable pursuant to such Convertible Securities by the number of full GAMZ Shares deemed issuable pursuant to such FERRIS Convertible Securities. Terms and conditions of such Convertible Securities, other than the exercise price or conversion price and number of shares issuable upon conversion or exercise (and terms and conditions determined by reference to such matters), shall remain unchanged. 2.3. No Fractional Shares. No fractional GAMZ Shares shall be issued; but rather, each fractional GAMZ Share that would otherwise be issuable by virtue of the merger will be rounded up to a whole GAMZ Share. All of the GAMZ Shares issuable pursuant to Section 2 and the GAMZ Shares issuable as a result of rounding up GAMZ Shares are hereinafter referred to as the "GAMZ Merger Shares." 2.4. Procedure for Conversion of FERRIS Share Certificates. Each holder of record of a stock certificate subject to conversion which prior to the Effective Time represented FERRIS Shares will be entitled to receive from GAMZ, upon proper surrender of such stock certificate(s) to GAMZ or its transfer agent, the GAMZ Merger Shares in accordance with Section 2.1. 2.5. No Further Transactions. The stock transfer books of FERRIS shall be closed as of the Effective Date and no further registrations of transfers shall be made thereafter on the records of FERRIS. 2.6. Rights of Holders of FERRIS Shares. Each GAMZ Merger Share delivered in accordance with the terms of Section 2.1 above, shall be deemed to have been issued on the Effective Date. No dividends which shall accrue on any such newly-issued GAMZ Merger Shares shall be paid until the certificates representing the FERRIS Shares which are being converted into GAMZ Shares shall have been surrendered as required by Section 2.4 above. 3. Closing. The Merger shall be consummated at a closing (the "Closing") at the offices of GAMZ, 440 North Center, Arlington, Texas 76011, or at such other place as may be agreed by the parties. The Closing shall take place on the tenth day following the meeting of the stockholders of GAMZ and FERRIS specified in Section 7.1.5 hereof, whichever is later, or such other later date as may be agreed by the parties. At the Closing, the Articles of Merger and the Certificate of Merger provided for by Section 1.2 shall be filed in the office of the Secretary of State of Texas and in the office of the Secretary of State of Delaware as specified in said Section. 4. Representations and Warranties of FERRIS. FERRIS, which for purposes of this Section 4 shall be deemed to include all Subsidiaries of FERRIS unless the context indicates otherwise, represents and warrants to GAMZ that, except as disclosed on any Schedule: 4.1. Existence; Good Standing; Corporate Authority. FERRIS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and lawful authority to own, lease and operate its assets, properties and business and to carry on its business in all material respects as now conducted. 3 4.2. Qualification. FERRIS is duly qualified as a foreign corporation to transact business in the jurisdictions set forth in Schedule 4.2, which are the only jurisdictions where the nature of its business or the ownership of its assets makes such qualification necessary, except as set forth on Schedule 4.3 or where the failure to so qualify would not have a Material Adverse Effect on FERRIS. 4.3. Authority. FERRIS has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, every other document or agreement to be executed by FERRIS under this Agreement (each a "FERRIS Transaction Document") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement by FERRIS and the performance by FERRIS of its obligations hereunder, the execution and delivery of each of the FERRIS Transactions Documents by FERRIS and the performance of its obligations thereunder and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of FERRIS and all other necessary corporate action on the part of FERRIS, other than the adoption and approval of this Agreement by the stockholders of FERRIS, and no other corporate proceedings on the part of FERRIS are necessary to authorize this Agreement, the FERRIS Transaction Documents and the transactions contemplated hereby and thereby (assuming due authorization, execution and delivery by the other party or parties thereto). The Board of Directors of FERRIS has approved the agreement of merger contained in this Agreement and the Merger. This Agreement has been duly and validly executed and delivered by FERRIS and constitutes a legal, valid and binding obligation of FERRIS, enforceable against it in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or by general principles of equity. Each FERRIS Transaction Document has been, or, as of the Effective Time, will have been, duly and validly authorized, executed and delivered by FERRIS, and constitutes or will constitute as of such date a legally valid and binding obligation of FERRIS, enforceable against it in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or by general principles of equity. 4.4. Capitalization. On the date hereof, FERRIS's authorized Capital Stock consists of 10 million FERRIS Shares, of which 2,658,000 FERRIS Shares were issued and outstanding as of the date hereof. No other class of Capital Stock of FERRIS is authorized or outstanding. All of the issued and outstanding FERRIS Shares (i) are owned by the persons listed on Schedule 4.4 and (ii) are duly authorized and are legally and validly issued, fully paid and nonassessable. 4.5. FERRIS Convertible Securities. As of the date hereof, except as set forth in Schedule 4.5, (a) there are no outstanding Convertible Securities to acquire any Capital Stock of FERRIS; (b) there are no shares of Capital Stock of FERRIS reserved or set aside as treasury shares for any purpose and no stockholder of FERRIS has preemptive rights; and (c) there are no voting trusts or other agreements or understandings with respect to the voting of shares of any class of Capital Stock of FERRIS, except as contemplated by this Agreement. 4 4.6. Subsidiaries. Except as set forth in Schedule 4.6, FERRIS has no Subsidiaries and neither FERRIS nor any of its Subsidiaries is a party to any partnership or joint venture agreement or arrangement or owns any equity interest in any other corporation, partnership or other entity. Except as set forth in Schedule 4.6, each subsidiary of FERRIS is a corporation duly organized, validly existing and in good standing under the laws of the state or other jurisdiction of incorporation set forth on Schedule 4.6 and is duly qualified to do business as a foreign corporation, and in good standing in the jurisdictions (listed in Schedule 4.6) in which it owns property of the nature, or transacts business of the type, that would make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. Each Subsidiary of FERRIS has the power and lawful authority to own, lease and operate its assets, properties and business and to carry on its business in all material respects as now conducted. FERRIS owns of record, free and clear of all Liens one hundred percent (100%) of the issued and outstanding Capital Stock of its Subsidiaries. 4.7. Certificate of Incorporation and Bylaws. FERRIS has made available to GAMZ true, correct and complete copies of the Certificate of Incorporation and Bylaws of FERRIS, and all amendments thereto as of the date hereof. 4.8. No Conflicts. Except as disclosed in Schedule 4.8, neither the execution and delivery of this Agreement and the FERRIS Transaction Documents, nor the performance by FERRIS of its obligations hereunder and thereunder, nor the consummation of the transactions contemplated hereby or thereby, will: (i) conflict with FERRIS's Certificate of Incorporation or bylaws; (ii) violate any material statute, law, ordinance, rule or regulation applicable to FERRIS or any of its Subsidiaries or any of their properties or assets; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of FERRIS or any of its Subsidiaries, or result in the creation or imposition of any Lien upon any properties, assets or business of FERRIS or any of its Subsidiaries under, any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument or other agreement or commitment or any order, judgment or decree to which FERRIS or any of its Subsidiaries is a party or by which FERRIS or any of its Subsidiaries or any of their respective assets or properties is bound or encumbered, or give any Person the right to require FERRIS or any of its Subsidiaries to purchase or repurchase any notes, bonds or instruments of any kind except, in each case, for such violations, conflicts, defaults or other occurrences which would not have, and would not reasonably be expected to have, a Material Adverse Effect. 4.8.1. Except (i) for the filing of the articles of merger and certificate of merger pursuant to Texas Law and Delaware Law, (ii) for the FERRIS stockholder approval (as set forth below) or (iii) with respect to matters set forth in Schedule 4.8 of the Disclosure Schedule, no consent, approval or authorization of, permit from, or declaration, filing or registration with, any governmental or regulatory authority, or any other Person is required to be made or obtained by FERRIS or its Subsidiaries in connection with the execution, delivery and performance of this Agreement, the FERRIS Transaction Documents and the consummation of the transactions contemplated hereby and thereby except where the failure to obtain such consent, approval, authorization, permit or declaration or to make such filing or registration would not have a Material Adverse Effect. 5 4.9. No Material Adverse Change. Except as set forth in Schedule 4.9, since the FERRIS Balance Sheet Date, FERRIS has conducted its business in all material respects only in the ordinary and usual course and except for FERRIS continuing to incur losses and depletion of its cash assets, there has been no material adverse change in the assets, liabilities, properties, business or condition, financial or otherwise, of FERRIS, and no event or condition exists or has occurred which would, so far as reasonably can be foreseen at this time, have a Material Adverse Effect, nor has there been any damage, destruction or loss materially affecting the assets, properties, business or condition of FERRIS, whether or not covered by insurance. 4.10. Tax Matters. Except as set forth in Schedule 4.10, the total amounts accrued on the books and records of FERRIS on both the FERRIS Balance Sheet Date and the Effective Date represent and will represent adequate provisions, in accordance with GAAP, for the payment of all federal, state, county, local, foreign and other income tax, excise tax, sales tax, use tax, gross receipts tax, franchise tax, property tax, employment and payroll related tax, and all other taxes and import duties, including any penalties or interest thereon, whether or not measured in whole or in part by income, whether disputed or not, which are hereafter found to be, or to have been, due with respect to the conduct of the business of FERRIS during all periods covered by the FERRIS Audited Financial Statement and during the period subsequent thereto and up to and through the date of the Closing, respectively. Except as disclosed in Schedule 4.10 or as would not have a Material Adverse Effect, FERRIS has timely filed, on or before the relevant due dates therefor (including any extensions of time to file), all income tax, excise tax, sales tax, use tax, gross receipts tax, franchise tax, employment and payroll related tax, property tax and all other tax returns and reports which FERRIS is required by law to file, all of which were properly prepared on a reasonable basis. Except as disclosed in Schedule 4.10, FERRIS has paid or provided for all taxes shown to be due on such returns and any amendments thereto. Except as disclosed in Schedule 4.10, there are no unpaid deficiencies or other assessments of tax, interest or penalties owed by FERRIS. 4.11. Compliance with Laws. (a) Except as is set forth in Schedule 4.11, FERRIS is in compliance with, and has not received notice from any Governmental Authority alleging a violation by it of, any federal, state, county, local or foreign, statute, law, ordinance, regulation or order (i) applicable to it or its business, or (ii) which otherwise is applicable to it involving the manufacture, production, storage, possession, sale, delivery or distribution of any of its products or services; (b) FERRIS has not received any directives or orders from any Governmental Authority related to or affecting any of its products or facilities; (c) FERRIS has all licenses, permits, orders, authorizations, notifications and approvals of any Governmental Authority material to the conduct of its business as presently conducted (collectively, the "FERRIS Permits"); and (d) all material FERRIS Permits, the loss of which could have a Material Adverse Effect, are listed in Schedule 4.11 and are in full force and effect, no violations are or have been recorded in respect of any FERRIS Permit which currently have or could have a Material Adverse Effect, and no proceeding is pending, or, to the best knowledge of FERRIS, threatened, to revoke or limit any FERRIS Permit, the loss of which could have a Material Adverse Effect. 4.12. No Consents. Except for the approval of the Merger by the stockholders of FERRIS, and as disclosed in Schedule 4.12, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery or performance of this Agreement by FERRIS, the consummation by FERRIS of any of the transactions contemplated hereby or the receipt of the GAMZ Merger Shares by the holders of the FERRIS Shares pursuant to this Agreement. 6 4.13. No Defaults Under Loan Agreements. Except as set forth in Schedule 4.13, FERRIS is not in default under any Contractual Obligation relating to borrowed money to which it is a party or by which it or its material assets or properties is bound, nor does any condition exist which with notice or lapse of time or both would constitute such default, and each such contract or other agreement relating to borrowed money is in full force and effect. Except as set forth in Schedule 4.13, there is no agreement, contract or instrument to which FERRIS is a party and which evidences, individually or, in the case of related transactions, collectively, indebtedness of FERRIS for money borrowed. 4.14. Litigation. Except as set forth in Schedule 4.14, FERRIS is not a party to, nor, to its knowledge, threatened with, any litigation or judicial, administrative or arbitration proceeding or investigation. Except as set forth in Schedule 4.14, there is no dispute with any Person under contract with FERRIS which has a Material Adverse Effect on FERRIS, or is reasonably likely to have a Material Adverse Effect on FERRIS, and there is no present or to FERRIS's knowledge, threatened walkout, strike or any other similar occurrence. 4.15. Unaudited Financial Statements. FERRIS has heretofore provided GAMZ with preliminary drafts, prepared in consultation with FERRIS's auditors but not yet audited, of the unaudited balance sheets of FERRIS as at December 31, 2000, together with the related unaudited statements of income, for the year then ended (the "FERRIS Unaudited Financial Statement"). The FERRIS Unaudited Financial Statement was prepared in accordance with GAAP consistently applied throughout the periods indicated and fairly presents the financial position, results of operations, and changes in stockholders' equity of FERRIS as at December 31, 2000 and for the respective periods stated therein. 4.16. Agreements. Schedule 4.16 lists or refers to all of the following types of contracts and other agreements (whether oral or written) that are not otherwise disclosed herein and that provide for payments by or to FERRIS in excess of $10,000 (a) to which FERRIS is a party or (b) by or to which FERRIS or its assets or properties are bound or subject: (i) contracts and other agreements with any current or former officer, director, employee, consultant or stockholder, including, without limitation, all non-competition agreements with employees; (ii) contracts and other agreements for the sale of products or services; (iii) contracts and other agreements for the purchase or acquisition of products, materials, supplies, equipment, merchandise, or services; (iv) joint venture agreements relating to its assets, properties or business or by or to which it or its assets or properties are bound or subject; (v) warehousing, distributorship, representative, management, marketing, sales agency or advertising agreements; and (vi) any other material contract or other agreement not made in the ordinary course of business (other than those reflected in any other Schedule). All of the contracts and other agreements set forth in Schedule 4.16 are (except as set forth in said Schedule) in full force and effect in accordance with their respective terms, and FERRIS is not in default, nor does any condition exist which with notice or lapse of time or both would constitute a default by FERRIS, in any material respect, under any of them, nor, to the knowledge of FERRIS, is any other party to any such contract or other agreement in default in any material respect thereunder on the date hereof. On the date hereof, FERRIS is not a party to or bound by any contracts or other agreements (other than those identified on a Schedule to this Agreement) which it believes either individually or in the aggregate have or could have a Material Adverse Effect on FERRIS. 7 4.17. Real Estate. Except as set forth in Schedule 4.17, FERRIS does not own or lease any real property. Schedule 4.17 sets forth a list of: (i) all leases, subleases or other agreements under which FERRIS is lessor or lessee of any real property. Schedule 4.17 includes, without limitation, the location of the property, the names of the lessor and lessee, and any affiliation or other association between FERRIS and the lessor and lessee. Such leases, subleases and other agreements are in full force and effect and, with respect to FERRIS's performance thereunder, no default, or event which, with notice or lapse of time or both, would constitute a default, in any material respect by FERRIS, has occurred thereunder. The real estate owned or leased by FERRIS is not subject in any material respect to unlawful contamination from any substance or material presently identified as toxic or hazardous by any Environmental Laws and FERRIS has not caused or suffered to occur a material spillage or other discharge of any Hazardous Materials within the meaning of any Environmental Law or otherwise conducted operations which could reasonably lead to the imposition of any Lien upon any real property owned or leased by FERRIS or any material fine upon FERRIS pursuant to any Environmental Law. 4.18. Officers, Directors and Employees. Schedule 4.18 sets forth as of the date hereof the name and total annual compensation of each officer and director of FERRIS, and each employee and consultant of FERRIS who is compensated at a rate in excess of $60,000 per annum. Except for employment agreements described in Schedule 4.16, FERRIS is not a party to any Contractual Obligation which could obligate FERRIS to pay severance or other similar compensation to an officer, director, employee or other Person solely as a result of the Merger or other transactions contemplated hereunder. 4.19. Intellectual property. 4.19.1. Agreements--Schedule 4.19.1 contains a complete and accurate list and summary description, including any royalties paid or received by FERRIS, of all contracts relating to the Intellectual Property Assets to which FERRIS is a party or by which FERRIS is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $5,000 under which FERRIS is the licensee. There are no outstanding and, to FERRIS's knowledge, no threatened, disputes or disagreements with respect to any such agreement. 4.19.2. Ownership of Intellectual Property Assets. Except as set forth on Schedule 4.19.2: 4.19.2.1. FERRIS is the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use without payment to a third party all of the Intellectual Property Assets; and 4.19.2.2. all former and current employees of FERRIS have executed written contracts with FERRIS that assign to FERRIS all rights to any inventions, improvements, discoveries, or information relating to the business of FERRIS. No employee of FERRIS has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than FERRIS. 4.19.3. Patents 4.19.3.1. Schedule 4.19.3 contains a complete and accurate list and summary description of all Patents. 8 4.19.3.2. Except as set forth in Schedule 4.19.3, all of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of Closing. 4.19.3.3. Except as set forth in Schedule 4.19.3, no Patent has been or is now involved in any interference, reissue, reexamination, or opposition proceeding, and there is not to FERRIS's knowledge any potentially interfering patent or patent application of any third party. 4.19.3.4. Except as set forth in Schedule 4.19.3, no Patent is infringed or, to FERRIS's knowledge, has been challenged or threatened in any way. Except as set forth in Schedule 4.19.3, none of the products manufactured and sold, nor any process or know-how used, by FERRIS infringes or is alleged to infringe any patent or other proprietary right of any other Person. 4.19.3.5. Except as set forth in Schedule 4.19.3, all products made, used, or sold under the Patents have been marked with the proper patent notice. 4.19.4. Trademarks 4.19.4.1. Schedule 4.19.4 contains a complete and accurate list and summary description of all Marks registered with the United States Patent and Trademark Office. 4.19.4.2. Except as set forth in Schedule 4.19.4, all Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing. 4.19.4.3. Except as set forth in Schedule 4.19.3, no Mark has been or is now involved in any opposition, invalidation, or cancellation and, no such action is known by FERRIS to be threatened with respect to any of the Marks. 4.19.4.4. Except as set forth in Schedule 4.19.3, FERRIS does not know of any potentially interfering trademark or trademark application of any third party. 4.19.4.5. Except as set forth in Schedule 4.19.3, no Mark is infringed or, to FERRIS's knowledge, has been challenged or threatened in any way. None of the Marks used by FERRIS infringes or is alleged to infringe any trade name, trademark, or service mark of any third party. 4.19.4.6. Except as set forth in Schedule 4.19.3, all products and materials containing a Mark bear the proper federal registration notice where permitted by law. 4.19.5. Copyrights 4.19.5.1. Schedule 4.19.5 contains a complete and accurate list and summary description of all copyright registrations held by FERRIS. 4.19.5.2. Except as set forth in Schedule 4.19.5, all the Copyrights which have been registered and are currently in compliance with formal legal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of Closing. 9 4.19.5.3. Except as set forth in Schedule 4.19.5, no Copyright is infringed or, to FERRIS's knowledge, has been challenged or threatened in any way. None of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party. 4.19.6. Trade Secrets 4.19.6.1. Except as set forth in Schedule 4.19.6, with respect to each Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual. 4.19.6.2. Except as set forth in Schedule 4.19.6, FERRIS has taken all reasonable precautions to protect the secrecy, confidentiality and value of its Trade Secrets. FERRIS has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and have not to FERRIS's knowledge been used, divulged, or appropriated either for the benefit of any Person (other than FERRIS) or to FERRIS's detriment. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way. 4.20. Products. FERRIS has furnished GAMZ with representative information describing FERRIS products and services. 4.21. Liens. FERRIS owns outright and has good and marketable title to all of its tangible property, including, without limitation, all of the tangible property reflected on the FERRIS Balance Sheet, in each case free and clear of any Lien, except as set forth on Schedule 4.21 and except for: (i) immaterial tangible property, (ii) assets and properties disposed of, or subject to purchase or sales orders, in the ordinary course of business since the FERRIS Balance Sheet Date, (iii) Liens securing taxes, assessments, governmental charges or levies, or the claims of materialmen, carriers, landlords and like persons, which are not yet due and payable, (iv) minor Liens of a character which do not substantially impair the assets or properties of FERRIS or materially detract from its business and (v) as will be reflected in the FERRIS Unaudited Financial Statements. 4.22. Liabilities. As at the date of this Agreement, FERRIS did not have any material direct or indirect indebtedness or uninsured liability accrued, absolute, or contingent (and likely of occurring) or otherwise, including, without limitation, liabilities on account of taxes, other governmental charges or lawsuits brought, whether or not of a kind required by GAAP to be set forth, accrued, reserved for or reflected in a financial statement ("FERRIS Liabilities"), which have not been adequately accrued, reserved for or reflected in the FERRIS Unaudited Financial Statements, except FERRIS Liabilities (i) incurred since the FERRIS Balance Sheet Date in the ordinary course of business, (ii) incurred in connection with this Agreement, (iii) of the type expressly referred to elsewhere in this Agreement or (iv) has disclosed in Schedule 4.22. 10 4.23. Employee Benefit Plans. Schedule 4.23 sets forth a true and complete list of all written and oral pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, incentive compensation, bonus, vacation, severance, sickness or disability, hospitalization, individual and group health and accident insurance, individual and group life insurance and other material employee benefit plans, programs, commitments or funding arrangements maintained by FERRIS, to which FERRIS is a party, or under which FERRIS has any obligations, present or future (other than obligations to pay current wages, salaries or sales commissions terminable on notice of 30 days or less) in respect of, or which otherwise cover or benefit, any of the current or former officers, employees or sales representatives (whether or not employees) of FERRIS, or their beneficiaries (hereinafter individually referred to as "FERRIS Employee Benefit Plan" and collectively referred to as "FERRIS Employee Benefit Plans"). FERRIS has delivered or made available to GAMZ true and complete copies of all documents, as they may have been amended to the date hereof, embodying the terms of the FERRIS Employee Benefit Plans. Except for the FERRIS Employee Benefit Plans identified in Schedule 4.23, there is no "employee pension benefit plan", "employee welfare benefit plan" or "employee benefit plan" within the meaning of Sections 3(1), 3(2) and 3(3) of ERISA. No FERRIS Employee Benefit Plan to which FERRIS or any ERISA Affiliate has maintained or contributed to is subject to Title IV of ERISA or Section 412 of the Code. FERRIS does not maintain and has not maintained a plan which meets the safe harbor requirements of Section 414(n)(5) of the Code and FERRIS has not made any representations (including oral representations) with respect to the existence of such a plan to any customers, clients, employees or any other person. FERRIS does not maintain and has not maintained any "voluntary employees' beneficiary association" within the meaning of Section 501(c)(9) of the Code. Except as set forth in Schedule 4.23, each FERRIS Employee Benefit Plan described in Schedule 4.23 is in full force and effect in accordance with its terms and there are no material actions, suits or claims pending (other than routine claims for benefits) or, to FERRIS's knowledge, threatened, against any FERRIS Employee Benefit Plan or any fiduciary thereof and FERRIS has performed all material obligations required to be performed by it under, and is not in default under or in violation of, any FERRIS Employee Benefit Plan, in any material respect, and FERRIS is in compliance in all material respects with the requirements prescribed by all statutes, laws, ordinances, orders or governmental rules or regulations applicable to the FERRIS Employee Benefit Plans, including, without limitation, ERISA and the Code. Neither FERRIS nor any other "party-in-interest," as defined in Section 3(14) of ERISA, has engaged in any "prohibited transaction," as defined in Section 406 of ERISA, which could subject any FERRIS Employee Benefit Plan, FERRIS or GAMZ or any officer, director, partner or employee of FERRIS or GAMZ or any fiduciary of any FERRIS Employee Benefit Plan to a material penalty or excise tax imposed under Section 502(i) of ERISA and Section 4975 of the Code. 4.24. Potential Conflicts of Interest. Except as disclosed in Schedule 4.24, no officer or director of FERRIS: (i) owns, directly or indirectly, any interest in (excepting not more than 5% stock holdings for investment purposes in securities of publicly held and traded companies) or is an officer, director, employee or consultant of any entity which is a competitor, lessor, lessee, customer or supplier of FERRIS; (ii) has any interest, direct or indirect, in any material property or assets of FERRIS (except in his capacity as a stockholder of FERRIS); (iii) owns directly or indirectly, in whole or in part, any material copyright, trademark, trade name, service mark, franchise, patent, invention, permit, license, secret or confidential information of the nature requiring a license for use by FERRIS which FERRIS is using or the use of which is necessary for the business of FERRIS; or (iv) has any material cause of action or other claim whatsoever against, or owes any material amount to, FERRIS, except for claims in the ordinary course of business (such as for accrued vacation pay, accrued benefits under FERRIS Employee Benefit Plans, expense advances and similar matters). 11 4.25. Full Disclosure. None of the information supplied or to be supplied by FERRIS for inclusion in the documents to be prepared in connection with the transactions contemplated by this Agreement including, without limitation, (i) documents to be filed with the SEC, (ii) filings pursuant to any state securities and blue sky laws, and (iii) filings made in connection with obtaining the approvals of Governmental Authorities, contain or will contain, at the time such documents are filed with any federal or state regulatory authority and/or at the time they are distributed to the stockholders of GAMZ, any untrue statements of a material fact or omit to state any material fact necessary in order to make the statements therein not misleading. 4.26. Information in Proxy Statement. Information supplied by FERRIS or any of its Subsidiaries for inclusion or incorporation by reference in the Proxy Statement, at the date mailed to GAMZ stockholders and at the time of the GAMZ stockholders meeting contemplated hereby, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. 5. Representations and Warranties of GAMZ. GAMZ, which for purposes of this Section 5 shall be deemed to include all Subsidiaries of GAMZ unless the context indicates otherwise, represents and warrants to FERRIS that, except as disclosed on any Schedule: 5.1. Existence; Good Standing; Corporate Authority. GAMZ is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the corporate power and lawful authority to own, lease and operate its assets, properties and business and to carry on its business in all material respects as now conducted. 5.2. Qualification. GAMZ is duly qualified as a foreign corporation to transact business in the jurisdictions set forth in Schedule 5.2, which are the only jurisdictions where the nature of its business or the ownership of its assets makes such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect on GAMZ. 5.3. Authority. GAMZ has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, every other document or agreement to be executed by GAMZ under this Agreement (each a "GAMZ Transaction Document") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement by GAMZ and the performance by GAMZ of its obligations hereunder, the execution and delivery of each of the GAMZ Transaction Documents by GAMZ and the performance of its obligations thereunder and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the Board of Directors of GAMZ and all other necessary corporate action on the part of GAMZ, other than the adoption and approval of this Agreement by the stockholders of GAMZ, and no other corporate proceedings on the part of GAMZ are necessary to authorize this Agreement, the GAMZ Transaction Documents and the transactions contemplated hereby and thereby (assuming due authorization, execution and delivery by the other party or parties thereto). The Board of Directors of GAMZ has approved the agreement of merger contained in this Agreement and the Merger. This Agreement has been duly and validly executed and delivered by GAMZ and constitutes a legal, valid and binding obligation of GAMZ, enforceable against it in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or by general principles of equity. Each GAMZ Transaction Document has been, or, as of the Effective Time, will have been, duly and validly authorized, executed and delivered by GAMZ, and constitutes or will constitute as of such time a legally valid and binding obligation of GAMZ, enforceable against it in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally or by general principles of equity. 12 5.4. Capitalization. On the date hereof, GAMZ's authorized Capital Stock consists of 50,000,000 GAMZ Shares of which 13,281,341 shares are issued and outstanding (after giving effect to redemptions of shares which have been approved by GAMZ's Board of Directors and are reflected in GAMZ's financial statements but not completed) as of the date hereof. No other class of Capital Stock of GAMZ is authorized or outstanding. All of the issued and outstanding GAMZ Shares are duly authorized and are legally and validly issued, fully paid and nonassessable. Upon consummation of the transactions contemplated by this Agreement and the issuance and delivery of certificates representing the GAMZ Merger Shares as provided in this Agreement, such GAMZ Merger Shares will be validly issued, fully paid, non-assessable shares free and clear of all Liens. 5.5. GAMZ Convertible Securities. As of the date hereof, except as set forth in Schedule 5.5, (a) there are no outstanding Convertible Securities to acquire any securities of GAMZ or its Subsidiaries from GAMZ or its Subsidiaries except as contemplated by this Agreement in connection with the Merger; (b) no stockholder of GAMZ has preemptive rights; and (c) there are no voting trusts or other agreements or understandings with respect to the voting of shares of any class of Capital Stock of GAMZ, except as contemplated by this Agreement. 5.6. Subsidiaries. Except as set forth in Schedule 5.6, GAMZ has no Subsidiaries and neither GAMZ nor any of its Subsidiaries is a party to any partnership or joint venture agreement or arrangement or owns any equity interest in any other corporation, partnership or other entity. Each Subsidiary of GAMZ is a corporation duly organized, validly existing and in good standing under the laws of the state or other jurisdiction of incorporation set forth on Schedule 5.6 and is duly qualified to do business as a foreign corporation, and in good standing in the jurisdictions (listed in Schedule 5.6) in which it owns property of the nature, or transacts business of the type that would make such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. Each Subsidiary of GAMZ has the power and lawful authority to own, lease and operate its assets, properties and business and to carry on its business in all material respects as now conducted. GAMZ owns of record, free and clear of all Liens, one hundred percent (100%) of the issued and outstanding Capital Stock of its Subsidiaries. 5.7. Articles of Incorporation and Bylaws. GAMZ has made available to FERRIS true, correct and complete copies of the Articles of Incorporation and Bylaws of GAMZ, and all amendments thereto as of the date hereof. 13 5.8. No Conflicts. 5.8.1. Except as set forth in Schedule 5.8, neither the execution and delivery of this Agreement and the GAMZ Transaction Documents, nor the performance by GAMZ of its obligations hereunder and thereunder, nor the consummation of the transactions contemplated hereby or thereby, will: (i) conflict with GAMZ's articles of incorporation or bylaws; (ii) violate any material statute, law, ordinance, rule or regulation applicable to GAMZ or any of its Subsidiaries or any of their properties or assets; or (iii) violate, breach, be in conflict with or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or permit the termination of any provision of, or result in the termination of, the acceleration of the maturity of, or the acceleration of the performance of any obligation of GAMZ or any of its Subsidiaries, or result in the creation or imposition of any Lien upon any properties, assets or business of GAMZ or any of its Subsidiaries under, any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit, authorization, license, contract, instrument or other agreement or commitment or any order, judgment or decree to which GAMZ or any of its Subsidiaries is a party or by which GAMZ or any of its Subsidiaries or any of their respective assets or properties is bound or encumbered, or give any Person the right to require GAMZ or any of its Subsidiaries to purchase or repurchase any notes, bonds or instruments of any kind except, in each case, for such violations, conflicts, defaults or other occurrences which would not have, and would not reasonably be expected to have, a Material Adverse Effect. 5.8.2. Except (i) for applicable requirements, if any, of the Exchange Act and the rules and regulations thereunder, the Securities Act and the rules and regulations thereunder, and state securities or "blue sky" laws, (ii) for the filing of articles or certificates of merger pursuant to the Texas Business Corporation Law, (iii) for the GAMZ stockholder approvals or (iv) with respect to matters set forth in Schedules 5.8 of the Disclosure Schedule, no consent, approval or authorization of, permit from, or declaration, filing or registration with, any governmental or regulatory authority, or any other Person is required to be made or obtained by GAMZ or its Subsidiaries in connection with the execution, delivery and performance of this Agreement, the GAMZ Transaction Documents and the consummation of the transactions contemplated hereby and thereby except where the failure to obtain such consent, approval, authorization, permit or declaration or to make such filing or registration would not have a Material Adverse Effect. 5.9. No Material Adverse Change. Since the GAMZ Balance Sheet Date, GAMZ has conducted its business in all material respects only in the ordinary and usual course and except for GAMZ continuing to incur losses and depletion of its cash assets there has been no material adverse change in the assets, liabilities, properties, business or condition, financial or otherwise, of GAMZ, and no event or condition exists or has occurred which would, so far as reasonably can be foreseen at this time, have a Material Adverse Effect, nor has there been any damage, destruction or loss materially affecting the assets, properties, business or condition of GAMZ, whether or not covered by insurance. 5.10. Tax Matters. Except as set forth in Schedule 5.10, the total amounts accrued on the books and records of GAMZ on both the GAMZ Balance Sheet Date and the Effective Date represent and will represent adequate provisions, in accordance with GAAP, for the payment of all federal, state, county, local, foreign and other income tax, excise tax, sales tax, use tax, gross receipts tax, franchise tax, property tax, employment and payroll related tax, and all other taxes and import duties, including any penalties or interest thereon, whether or not measured in whole or in part by income, whether disputed or not, which are hereafter found to be, or to have been, due with respect to the conduct of the business of GAMZ during all periods covered by the GAMZ Audited Financial Statement and during the period subsequent thereto and up to and through the date of the Closing, respectively. Except as disclosed in Schedule 5.10 or as would not have a Material Adverse Effect, GAMZ has timely filed, on or before the relevant due dates therefor (including any extensions of time to file), all income tax, excise tax, sales tax, use tax, gross receipts tax, franchise tax, employment and payroll related tax, property tax and all other tax returns and reports which GAMZ is required by law to file, all of which were properly prepared on a reasonable basis. Except as disclosed in Schedule 5.10, GAMZ has paid or provided for all taxes shown to be due on such returns and any amendments thereto. Except as disclosed in Schedule 5.10, there are no unpaid deficiencies or other assessments of tax, interest or penalties owed by GAMZ. 14 5.11. Compliance with Laws. (a) GAMZ is in compliance with, and has not received notice from any Governmental Authority alleging a violation by it of, any federal, state, county, local or foreign, statute, law, ordinance, regulation or order (i) applicable to it or its business, or (ii) which otherwise is applicable to it involving the manufacture, production, storage, possession, sale, delivery or distribution of any of its products or services; (b) GAMZ has not received any directives or orders from any Governmental Authority related to or affecting any of its products or facilities; (c) GAMZ has all licenses, permits, orders, authorizations, notifications and approvals of any Governmental Authority material to the conduct of its business as presently conducted (collectively, the "GAMZ Permits"); and (d) all material GAMZ Permits, the loss of which could have a Material Adverse Effect, are listed in Schedule 5.11 and are in full force and effect, no violations are or have been recorded in respect of any GAMZ Permit which currently have or could have a Material Adverse Effect, and no proceeding is pending, or, to the best knowledge of GAMZ, threatened, to revoke or limit any GAMZ Permit, the loss of which could have a Material Adverse Effect. 5.12. No Consents. Except for applicable requirements of the Texas Business Corporation Act, the Securities Act, the Exchange Act, and state securities or blue sky laws for which GAMZ is responsible, and except for the approval of the stockholders of GAMZ, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or any other Person is required in connection with the execution, delivery or performance of this Agreement by GAMZ or the consummation by GAMZ of any of the transactions contemplated hereby. 5.13. No Defaults Under Loan Agreements. Except as indicated in its filings under the Securities Exchange Act of 1934, GAMZ is not in default under any Contractual Obligation relating to borrowed money to which it is a party or by which it or its material assets or properties is bound, nor does any condition exist which with notice or lapse of time or both would constitute such default, and each such contract or other agreement relating to borrowed money is in full force and effect. Except as set forth in Schedule 5.13, there is no agreement, contract or instrument to which GAMZ is a party and which evidences, individually or, in the case of related transactions, collectively, indebtedness of GAMZ for money borrowed. 5.14. Litigation. Except as set forth in Schedule 5.14, neither GAMZ nor any of its Subsidiaries is a party to, or, to its knowledge, threatened with, any material litigation or judicial, administrative or arbitration proceeding or investigation. Except as set forth in Schedule 5.14, there is no dispute with any Person under contract with GAMZ which has a Material Adverse Effect on GAMZ, or is reasonably likely to have a Material Adverse Effect on GAMZ, and there is no present or to GAMZ's knowledge, threatened walkout, strike or any other similar occurrence. 15 5.15. Public Reporting Company. The GAMZ Shares are registered under Section 12(g) of the Exchange Act, are quoted on the OTC Bulletin Board, and are currently subject to the periodic reporting requirements of Section 13 or Section 15(d) of the Exchange Act. GAMZ has filed all reports required to be filed by it pursuant to the Exchange Act and the regulations promulgated thereunder through the date hereof. GAMZ has heretofore delivered to FERRIS a copy of its Annual Reports on Form 10-KSB pursuant to Sections 13 or 15(d) of the Exchange Act for the fiscal year ended December 31, 2000, and all other registration statements and reports required to be or otherwise filed by it since December 31, 2000 with the SEC pursuant to the Securities Act or the Exchange Act (collectively, the "GAMZ Reports"). None of the GAMZ Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading (in each case as of the date hereof). Included or incorporated by reference in the GAMZ Reports are, without limitation, the consolidated balance sheets of GAMZ as at December 31, 2000 and December 31, 1999 and the related statements of income, cash flows, and changes in stockholders' equity, and the notes thereto, for each of the two fiscal years then ended, audited by Thomas O. Bailey & Associates, P.C., Certified Public Accountant, whose report thereon is included therewith (the "GAMZ Audited Financial Statements"). The GAMZ Audited Financial Statements were prepared in accordance with GAAP consistently applied throughout the periods indicated and fairly present the consolidated financial position, results of operations, cash flows, and changes in stockholders' equity of GAMZ and its consolidated Subsidiaries as at the respective dates and for the respective periods stated therein in each case in accordance with GAAP consistently applied. 5.16. Agreements. Schedule 5.16 lists or refers to all of the following types of contracts and other agreements (whether oral or written) that are not otherwise disclosed herein and that provide for payments by or to GAMZ in excess of $5,000 (a) to which GAMZ is a party, or (b) by or to which GAMZ or its assets or properties are bound or subject: (i) contracts and other agreements with any current or former officer, director, employee, consultant or stockholder, including, without limitation, all non-competition agreements with employees; (ii) contracts and other agreements for the sale of products or services; (iii) contracts and other agreements for the purchase or acquisition of products, materials, supplies, equipment, merchandise, or services; (iv) joint venture agreements relating to its assets, properties or business or by or to which it or its assets or properties are bound or subject; (v) warehousing, distributorship, representative, management, marketing, sales agency or advertising agreements; and (vi) any other material contract or other agreement not made in the ordinary course of business (other than those reflected in any other Schedule). All of the contracts and other agreements set forth in Schedule 5.16 are (except as set forth in said Schedule) in full force and effect in accordance with their terms, and GAMZ is not in default, nor does any condition exist which with notice or lapse of time or both would constitute a default by GAMZ, in any material respect, under any of them, nor, to the knowledge of GAMZ, is any other party to any such contract or other agreement in default in any material respect thereunder on the date hereof. On the date hereof, GAMZ is not a party to or bound by any contracts or other agreements (other than those identified on a Schedule to this Agreement) which it believes either individually or in the aggregate have or could have a Material Adverse Effect on GAMZ. 5.17. Real Estate. Except as set forth in Schedule 5.17, GAMZ does not lease any real property. Schedule 5.17 sets forth a list of: (i) all leases, subleases or other agreements under which GAMZ is lessor or lessee of any real property. Schedule 5.17 includes, without limitation, the location of the property, the names of the lessor and lessee, and any affiliation or other association between GAMZ and the lessor and lessee. Such leases, subleases and other agreements are in full force and effect and, with respect to GAMZ's performance thereunder, no default, or event which, with notice or lapse of time or both, would constitute a default, in any material respect by GAMZ, has occurred thereunder. 16 The real estate leased by GAMZ is not subject in any material respect to any unlawful contamination from any substance or material presently identified as toxic or hazardous by any Environmental Laws and GAMZ has not caused or suffered to occur a material spillage or other discharge of any Hazardous Materials within the meaning of any Environmental Law or otherwise conducted operations which could reasonably lead to the imposition of any Lien upon any real property owned or leased by GAMZ or any material fine upon GAMZ pursuant to any Environmental Law. 5.18. Officers, Directors and Employees. Schedule 5.18 sets forth as of the date hereof the name and total annual compensation of each officer and director of GAMZ, and each employee and consultant of GAMZ who is compensated at a rate in excess of $60,000 per annum. Except for employment agreements described in Schedule 5.18, GAMZ is not a party to any Contractual Obligation which could obligate GAMZ to pay severance or other similar compensation to an officer, director, employee or other Person solely as a result of the Merger or other transactions contemplated hereunder. 5.19. Intellectual property. 5.19.1. Agreements. Schedule 5.19.1 contains a complete and accurate list and summary description, including any royalties paid or received by the GAMZ, of all contracts relating to the Intellectual Property Assets to which GAMZ is a party or by which GAMZ is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $5,000 under which GAMZ is the licensee. There are no outstanding and, to GAMZ's knowledge, no threatened, disputes or disagreements with respect to any such agreement. 5.19.2. Ownership of Intellectual Property 5.19.2.1. GAMZ is the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use without payment to a third party all of the Intellectual Property Assets. 5.19.2.2. Except as set forth in Schedule 4.19.2, all former and current employees of GAMZ have executed written contracts with GAMZ that assign to GAMZ all rights to any inventions, improvements, discoveries, or information relating to the business of GAMZ. No employee of GAMZ has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than GAMZ. 5.19.3. Patents 5.19.3.1. Schedule 5.19.3 contains a complete and accurate list and summary description of all Patents. 5.19.3.2. All of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of Closing. 17 5.19.3.3. No Patent has been or is now involved in any interference, reissue, reexamination, or opposition proceeding. There is not to GAMZ's knowledge any potentially interfering patent or patent application of any third party. 5.19.3.4. No Patent is infringed or, to GAMZ's knowledge, has been challenged or threatened in any way. None of the products manufactured and sold, nor any process or know-how used, by GAMZ infringes or is alleged to infringe any patent or other proprietary right of any other Person. 5.19.3.5. All products made, used, or sold under the Patents have been marked with the proper patent notice. 5.19.4. Trademarks 5.19.4.1. Schedule 5.19.4 contains a complete and accurate list and summary description of all Marks registered with the United States Patent and Trademark Office. 5.19.4.2. All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing. 5.19.4.3. Except as set forth in Schedule 5.19.4, no Mark has been or is now involved in any opposition, invalidation, or cancellation and, no such action is known by GAMZ to be threatened with respect to any of the Marks. 5.19.4.4. GAMZ does not know of any potentially interfering trademark or trademark application of any third party. 5.19.4.5. No Mark is infringed or, to GAMZ's knowledge, has been challenged or threatened in any way. None of the Marks used by GAMZ infringes or is alleged to infringe any trade name, trademark, or service mark of any third party. 5.19.4.6. All products and materials containing a Mark bear the proper federal registration notice where permitted by law. 5.19.5. Copyrights 5.19.5.1. Schedule 5.19.5 contains a complete and accurate list and summary description of all copyright registrations held by GAMZ. 5.19.5.2. All the Copyrights which have been registered and are currently in compliance with formal legal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of Closing. 5.19.5.3. No Copyright is infringed or, to GAMZ's knowledge, has been challenged or threatened in any way. None of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party. 18 5.19.6. Trade Secrets 5.19.6.1. With respect to each Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual. 5.19.6.2. GAMZ has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets. GAMZ has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and have not to GAMZ's knowledge been used, divulged, or appropriated either for the benefit of any Person (other than GAMZ) or to GAMZ's detriment. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way. 5.20. Products. GAMZ has furnished FERRIS with representative information describing GAMZ products and services. 5.21. Liens. GAMZ owns outright and has good and marketable title to all of its tangible property, including, without limitation, all of the tangible property reflected on the GAMZ Balance Sheet, in each case free and clear of any Lien, except as set forth on Schedule 5.21 and except for: (i) immaterial tangible property, (ii) assets and properties disposed of, or subject to purchase or sales orders, in the ordinary course of business since the GAMZ Balance Sheet Date, (iii) Liens securing taxes, assessments, governmental charges or levies, or the claims of materialmen, carriers, landlords and like persons, which are not yet due and payable, (iv) minor Liens of a character which do not substantially impair the assets or properties of GAMZ or materially detract from its business and (v) as reflected in the GAMZ Audited Financial Statements. 5.22. Liabilities. As at the date of this Agreement, GAMZ did not have any material direct or indirect indebtedness or uninsured liability accrued, absolute, or contingent (and likely of occurring) or otherwise, including, without limitation, liabilities on account of taxes, other governmental charges or lawsuits brought, whether or not of a kind required by GAAP to be set forth, accrued, reserved for or reflected in a financial statement ("GAMZ Liabilities"), which have not been adequately accrued, reserved for or reflected in the GAMZ Audited Financial Statements, except GAMZ Liabilities (i) incurred since the GAMZ Balance Sheet Date in the ordinary course of business, (ii) incurred in connection with this Agreement, or (iii) of the type expressly referred to elsewhere in this Agreement. 5.23. Employee Benefit Plans. Schedule 5.23 sets forth a true and complete list of all written and oral pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, incentive compensation, bonus, vacation, severance, sickness or disability, hospitalization, individual and group health and accident insurance, individual and group life insurance and other material employee benefit plans, programs, commitments or funding arrangements maintained by GAMZ, to which GAMZ is a party, or under which GAMZ has any obligations, present or future (other than obligations to pay current wages, salaries or sales commissions terminable on notice of 30 days or less) in respect of, or which otherwise cover or benefit, any of the current or former officers, employees or sales representatives (whether or not employees) of GAMZ, or their beneficiaries (hereinafter individually referred to as "GAMZ Employee Benefit Plan" and collectively referred to as "GAMZ Employee Benefit Plans"). GAMZ has delivered or made available to FERRIS true and complete copies of all documents, as they may have been amended to the date hereof, embodying the terms of the GAMZ Employee Benefit Plans. 19 Except for the GAMZ Employee Benefit Plans identified in Schedule 5.23, there is no "employee pension benefit plan," "employee welfare benefit plan" or "employee benefit plan" within the meaning of Sections 3(1), 3(2) and 3(3) of ERISA. No GAMZ Employee Benefit Plan to which GAMZ or any ERISA Affiliate has maintained or contributed to is subject to Title IV of ERISA or Section 412 of the Code. GAMZ does not maintain and has not maintained a plan which meets the safe harbor requirements of Section 414(n)(5) of the Code and GAMZ has not made any representations (including oral representations) with respect to the existence of such a plan to any customers, clients, employees or any other person. GAMZ does not maintain and has not maintained any "voluntary employees' beneficiary association" within the meaning of Section 501(c)(9) of the Code. Except as set forth in Schedule 5.23, each GAMZ Employee Benefit Plan described in Schedule 5.23 is in full force and effect in accordance with its terms and there are no material actions, suits or claims pending (other than routine claims for benefits) or, to GAMZ's knowledge, threatened, against any GAMZ Employee Benefit Plan or any fiduciary thereof and GAMZ has performed all material obligations required to be performed by it under, and is not in default under or in violation of, any GAMZ Employee Benefit Plan, in any material respect, and GAMZ is in compliance in all material respects with the requirements prescribed by all statutes, laws, ordinances, orders or governmental rules or regulations applicable to the GAMZ Employee Benefit Plans, including, without limitation, ERISA and the Code. Neither GAMZ nor any other "party-in-interest," as defined in Section 3(14) of ERISA, has engaged in any "prohibited transaction," as defined in Section 406 of ERISA, which could subject any GAMZ Employee Benefit Plan, GAMZ or FERRIS or any officer, director, partner or employee of GAMZ or FERRIS or any fiduciary of any GAMZ Employee Benefit Plan to a material penalty or excise tax imposed under Section 502(i) of ERISA and Section 4975 of the Code. 5.24. Potential Conflicts of Interest. Except as disclosed in Schedule 5.24, no officer or director of GAMZ: (i) owns, directly or indirectly, any interest in (excepting not more than 5% stock holdings for investment purposes in securities of publicly held and traded companies) or is an officer, director, employee or consultant of any entity which is a competitor, lessor, lessee, customer or supplier of GAMZ; (ii) has any interest, direct or indirect, in any material property or assets of GAMZ (except in his capacity as a stockholder of GAMZ); (iii) owns directly or indirectly, in whole or in part, any material copyright, trademark, trade name, service mark, franchise, patent, invention, permit, license, secret or confidential information of the nature requiring a license for use by GAMZ which GAMZ is using or the use of which is necessary for the business of GAMZ; or (iv) has any material cause of action or other claim whatsoever against, or owes any material amount to, GAMZ, except for claims in the ordinary course of business (such as for accrued vacation pay, accrued benefits under GAMZ Employee Benefit Plans, expense advances and similar matters). 5.25. Full Disclosure. None of the information supplied or to be supplied by GAMZ for inclusion in the documents to be prepared in connection with the transactions contemplated by this Agreement including, without limitation, (i) documents to be filed with the SEC, (ii) filings pursuant to any state securities and blue sky laws, and (iii) filings made in connection with obtaining the approvals of Governmental Authorities, at the time such documents are filed with any federal or state regulatory authority and/or at the time they are distributed to stockholders of GAMZ, contain or will contain any untrue statements of a material fact or omit to state any material fact necessary in order to make the statements therein not misleading. 20 5.26. Information in Proxy Statement. Information supplied by GAMZ or any of its Subsidiaries for inclusion or incorporation by reference in (i) the Proxy Statement (or any amendment thereof or supplement thereto), at the date mailed to GAMZ stockholders and at the time of the GAMZ stockholders meeting contemplated hereby, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. 5.27. Ferris Equipment Leaseback Arrangements. GAMZ understands that following the Closing directors designated by FERRIS will constitute a majority of the Board of Directors of GAMZ, and that it is contemplated that a high priority will be placed upon satisfying all currently outstanding leaseback arrangements for FERRIS equipment promptly and in any event by November 30, 2001, and upon obtaining funds sufficient for that purpose. 5.28. GAMZ Merger Shares. The GAMZ Merger Shares and any Convertible Securities issued to holders of FERRIS Capital Stock or FERRIS Convertible Stock shall have been issued in compliance with all federal and state securities laws. 6. Incorporation of Schedules. The parties recognize that there may be some overlapping in the disclosure required pursuant to a number of the representations and Schedules set forth above. Failure of disclosure in response to one item shall not be deemed a default so long as disclosure is fairly contained in the Schedules and, in the case of GAMZ, the GAMZ Reports, taken as a whole. All Schedules are being delivered in preliminary form, with final Schedules to follow in accordance with Section 7.1.1. All references to the Schedules in this Agreement shall be deemed to refer to the final Schedules except in connection with the rights of a party to terminate this Agreement in accordance with Sections 8.12 or 9.11. 7. Covenants and Agreements. The parties covenant and agree as follows (references to FERRIS and GAMZ shall be deemed to include their respective Subsidiaries unless the context otherwise requires): 7.1. Covenants of Each of GAMZ and FERRIS. 7.1.1. Delivery of Final Schedules. Each of GAMZ and FERRIS shall deliver to the other, not later than May 14, 2001, final versions of the Schedules to this Agreement. 7.1.2. Conduct of Business by GAMZ or FERRIS. Commencing the date after the date hereof and at all times prior to the Effective Time or the date, if any, on which this Agreement is earlier terminated pursuant to Article 12 hereof, and except as may be required pursuant to this Agreement, or as disclosed or contemplated in the Disclosure Schedule (including the agreements and contemplated agreements referred to therein, and the consummation of the transactions contemplated by such agreements) or as may be consented to in writing by the other, GAMZ and FERRIS: 7.1.2.1. shall conduct their respective operations according to their ordinary and usual course of business. 21 7.1.2.2. shall use their best efforts to preserve intact their respective business organizations and good will in all material respects, keep available the services of their respective partners, officers and employees as a group and maintain satisfactory relations with lessees, suppliers, distributors, customers, banks and others having business relationships with them; 7.1.2.3. shall confer on a regular and frequent basis with one or more representatives of the other to report operational matters of a material nature and the general status of ongoing operations, subject to compliance with applicable law; 7.1.2.4. shall notify the other of any emergency or other change in the normal course of their respective businesses or in the operation of their properties and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) if such emergency, change, complaint, investigation or hearing or the effect thereof would be material to the business, operations or financial condition of either GAMZ or FERRIS, as the case may be, taken as a whole; 7.1.3. Litigation. GAMZ and FERRIS shall promptly notify each other of any lawsuit, claims, proceedings or investigations which after the date hereof are threatened or commenced against it or against any officer, director, employee, affiliate or consultant of it, with respect to the transactions contemplated hereby or which reasonably could be expected to have a Material Adverse Effect. 7.1.4. Corporate Examination and Investigations. Each party has afforded and shall continue to afford to the other party, through its employees and representatives, the opportunity to make such reasonable investigation of the property and plant of such party as are reasonable and appropriate for transactions of the nature contemplated hereby. In order that the parties may have full opportunity to make such business, accounting, regulatory and legal review, examination or investigation, each party shall furnish the representatives of the other during such period with all such information as such representatives may reasonably request and cause its officers, employees, consultants, accountants and attorneys to cooperate fully with such representatives in connection with such review and examination and to make full disclosure of all material facts affecting such party's financial condition, regulatory affairs and business operations. 7.1.5. Meeting of Stockholders. Each of GAMZ and FERRIS will take all action necessary in accordance with applicable law and its organizational documents to convene a meeting of its stockholders as promptly as practicable to consider and vote upon the adoption of this Agreement and the transactions contemplated hereby, as required by applicable law. The Boards of Directors of GAMZ and FERRIS will recommend that their respective stockholders vote in favor of such adoption, and GAMZ and FERRIS will each take all lawful action to solicit such approval, including, without limitation, timely mailing the Proxy Statement/; provided, however, that nothing contained in this Section 7.1.5 shall prohibit either GAMZ or FERRIS from taking and disclosing to its stockholders a position with respect to any tender offer from a third party as contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to, or having any communication with, their respective 22 stockholders if, in the good faith judgment of the Board of Directors of GAMZ or FERRIS, as applicable, after consultation with outside counsel, failure so to disclose or communicate would be inconsistent with its fiduciary duties under applicable law. The meetings of the stockholders of GAMZ and FERRIS shall be held as soon as practicable and in any event (to the extent permissible under applicable law) within 30 days after the date upon which the Proxy Statement shall have been cleared for release to the stockholders of GAMZ by the SEC; provided, however, that notwithstanding anything to the contrary contained in this Agreement, GAMZ may adjourn or postpone its meetings of stockholder to the extent necessary, in the opinion of its counsel, to supplement or amend the Proxy Statement in advance of a vote on this Agreement and the Merger. GAMZ and FERRIS shall coordinate and cooperate with respect to the timing of such meetings and shall endeavor to hold such meetings on the same day. 7.1.6. Cooperation in Preparing Applications. Each of the parties shall assist and cooperate fully with the other in the prompt preparation and filing of any applications, approvals, consents or similar documents necessary or advisable in connection with the transactions contemplated hereunder or under any qualifications under state securities laws, which counsel for FERRIS and counsel for GAMZ shall agree are required for the proper and effective consummation of the transactions provided for in this Agreement. 7.1.7. Confidentiality. FERRIS and GAMZ each will, and will each cause its officers, directors, employees, auditors, attorneys, financial advisors and other consultants to, hold in confidence all information furnished to it by the other in connection with the transactions contemplated by this Agreement and will not release or disclose such information to any other person, except to its officers, directors, employees, auditors, attorneys, financial advisors and other consultants who require such information in connection with the transactions contemplated hereby and who have been informed by it of the confidential nature of such information and directed by it to treat such information confidentially, unless, in any such case, (i) disclosure is compelled by judicial or administrative process or (ii) in the opinion of its counsel, taking into account the requirements of law, disclosure should be made. It is understood that each of FERRIS and GAMZ shall be deemed to have satisfied its obligations to hold such information confidential if it exercises the same care as it takes to preserve confidentiality for its own similar information. If this Agreement is terminated in accordance with Section 11 hereof, such confidence shall be maintained, and each of FERRIS and GAMZ will promptly return to the other or destroy all documents (including all copies thereof) received by it containing such information. The foregoing provisions of this Section 7.1.7 shall not apply to any information held or obtained by either FERRIS or GAMZ that is (i) obtained from public or published information, (ii) received from a third party not known to it to be under an obligation to the other to keep such information confidential, (iii) which is or becomes known to the public (other than through a breach of this Agreement), or (iv) which was independently developed by it. 7.1.8. Agreement to Defend. In the event any claim, action, suit, investigation or other proceeding by any Governmental Authority or other Person is commenced which questions the validity or legality of the proposed Merger, or any of the other transactions contemplated hereby or seeks damages in connection therewith, the parties shall cooperate and use their best efforts to defend against such claim, action, suit, investigation or other proceeding and, if an injunction or other order of the type referred to in Sections 8.2 and 9.2 hereof is issued in any such action, suit or other proceeding, shall use their best efforts to have such injunction or other order lifted. 23 7.1.9. No Disclosure. Unless and until this Agreement shall have been terminated by either FERRIS or GAMZ pursuant to Section 11 hereof, neither GAMZ nor FERRIS, nor their respective officers or directors will, except for such disclosure as GAMZ or FERRIS shall make in good faith pursuant to the Exchange Act or as may be required by court order, disclose to any Person any proprietary, financial or other information concerning the other party or its operations or business, or other transactions contemplated hereunder, not generally available to the public. 7.1.10. Further Assurances. Subject to the terms and conditions herein provided, GAMZ and FERRIS shall use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement and shall cooperate with each other in connection therewith, (a) to obtain all necessary waivers, consents and approvals from other parties to material loan agreements, leases and other contracts (provided that neither GAMZ nor FERRIS shall agree to any substantial modification to any such agreement, lease or contract or to any payment of funds in order to obtain such waiver, consent or approval without the prior written consent of the other), (b) to defend any lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby, (c) to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated thereby, (d) to effect all necessary registrations and filings, and (e) to fulfill all conditions to this Agreement. 7.1.11. Tax Treatment. FERRIS and GAMZ shall: (i) report the Merger on their respective tax returns and tax filings as a reorganization described in Section 368(a) of the Code; (ii) keep their records and file in connection with their tax returns all such information as may be required by Section 1.368-3 of the Treasury Regulations (and corresponding state rules and regulations) with respect to the Merger; (iii) refrain from taking any position in connection with their tax returns, or taking any other action, that would be inconsistent with the qualification of the Merger as a reorganization under Section 368(a) of the Code; and (iv) comply in all respects with the requirements of Section 368(a) of the Code and Treasury Regulations, rulings and administrative positions of the IRS thereunder applicable to the Merger. 7.1.12. No Solicitation. Each of FERRIS and GAMZ agrees that except as may be required by court order, from and after the date hereof until the earlier to occur of the Closing hereunder or the termination of this Agreement, none of its directors, officers, shareholders, agents, investment bankers, or other representatives, shall, directly or indirectly, (a) solicit, initiate or encourage submission of proposals or offers from any person relating to, or negotiate with any person or enter into any agreement, contract or understanding with respect to, any acquisition or purchase of all or a material part of the stock or assets of, or a merger, consolidation or business combination with FERRIS or GAMZ, or agreement to sell shares of Capital Stock of FERRIS or GAMZ, other than as contemplated by this Agreement (an "Acquisition Proposal") or (b) participate in any discussions or negotiations regarding or furnish to any other person any information with respect to or otherwise cooperate in any way, assist, facilitate or encourage any Acquisition Proposal by any other person. If FERRIS or GAMZ shall receive any Acquisition Proposal or any inquiry regarding any such proposal from a third party, such party agrees to promptly notify the other party of such Acquisition Proposal or inquiry, and that, without the prior written consent of the other party, it will not discuss directly or indirectly, any such Acquisition Proposal or inquiry (other than with the other party). 24 7.1.13. Proxy Statement. GAMZ, with the cooperation of FERRIS, will promptly prepare and file with the SEC as soon as practicable a proxy statement and necessary forms of proxy in connection with the vote of GAMZ's stockholders with respect to the Merger (the "Proxy Statement"). No amendment or supplement to the Proxy Statement will be made by GAMZ without the approval of FERRIS, such approval not to be unreasonably withheld or delayed. Each of FERRIS and GAMZ shall use reasonable efforts to cause the Proxy Statement to be mailed to GAMZ's stockholders as soon as practicable after the date hereof. 7.1.14. Further Action. Each of GAMZ and FERRIS will, subject to the other terms and conditions set forth herein and to the fulfillment at or before the Effective Time of each of the conditions of performance set forth herein or the waiver thereof, perform such further acts and execute such documents as may be reasonably required to effect the Merger. Each of GAMZ and FERRIS will permit the other and its authorized representatives full access to all of its and its Subsidiaries premises, properties, personnel, books, records, contracts and documents, and each party will use commercially reasonable efforts to cause its representatives to furnish to the other party and its authorized representatives such additional financial and operating data and other information concerning its businesses and properties (and those of its Subsidiaries) as the other or its duly authorized representatives may from time to time reasonably request. 7.1.15. Expenses. If the Merger is not consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby will be paid by the party incurring such expenses except as expressly provided herein, except that the agreed post-due diligence expenses incurred in connection with the preparation, printing and mailing of the Proxy Statement, will be paid 50% by GAMZ and 50% by FERRIS. The provisions of this Section 7.1.16 will survive the termination of this Agreement. 7.1.16. Notice of Change in Representations and Warranties. GAMZ and FERRIS will each give prompt notice to the other of (i) any change in its condition or any event causing a breach of any of its representations and warranties, (ii) the occurrence or non-occurrence of any event which would, or which would be reasonably likely to, cause any conditions to their obligations to effect the Merger and other transactions contemplated hereby not to be satisfied in any material respect, and (iii) their failure to satisfy in any material respect any covenant or condition to be complied with by them pursuant to this Agreement. 7.1.17. Consents. GAMZ and FERRIS will use all reasonable efforts to obtain each of the consents required to carry on the transactions contemplated by this Agreement. 7.2. Additional Covenants of GAMZ. 7.2.1. Operations of GAMZ. Except as set forth in Schedule 7.2.1, from the GAMZ Balance Sheet Date through the Closing hereof, GAMZ will not (except as contemplated by, or disclosed in, this Agreement): 7.2.1.1. amend its Articles of Incorporation or Bylaws or merge with or into or consolidate with any other Person, subdivide or in any way reclassify any shares of its Capital Stock or change or agree to change in any manner the rights of its outstanding Capital Stock or, in any material manner, the character of its business; 7.2.1.2. issue or sell or purchase any Convertible Securities of GAMZ or enter into any contracts or commitments to issue or sell or purchase, any shares of its Capital Stock; 25 7.2.1.3. enter into or amend any material employment agreement, enter into any agreement with any labor union or association representing any material employee or enter into or amend any material GAMZ Employee Benefit Plan; 7.2.1.4. incur any indebtedness for borrowed money; 7.2.1.5. declare or pay any dividends or declare or make any distributions of any kind in respect of shares of its Capital Stock; 7.2.1.6. waive any right of material value of its business other than in the ordinary course of its business; 7.2.1.7. make any significant change in its accounting methods or practices from those reflected in the GAMZ Audited Financial Statements; 7.2.1.8. make any wage or salary increase or bonus, or increase in any other direct or indirect compensation, for or to any of GAMZ's officers, directors, or employees in excess of 5% in the aggregate or any accrual for or commitment or agreement to make or pay the same; 7.2.1.9. make any loan or advance to any of GAMZ's officers, directors, or employees in excess of $2,500 individually or $10,000 in the aggregate, other than travel and petty cash advances made in the ordinary course of business; 7.2.1.10. make any payment or commitment to pay any severance or termination pay to any of its officers, directors, or Significant Employees; 7.2.1.11. enter into any lease (as lessor or lessee) or sell, abandon or make any other disposition of any of its material assets or properties, or grant or suffer any Lien on any of its material assets or properties; 7.2.1.12. enter into or amend any written contract or other agreement pursuant to which it agrees to indemnify any party or to refrain from competing with any party; 7.2.1.13. except for inventory, supplies or equipment acquired in the ordinary course of business, make any acquisition of all or any part of the assets, properties, capital stock or business of any other entity which is material to GAMZ; 7.2.1.14. enter into any transaction other than in the ordinary course of business; or 7.2.1.15. sell, transfer, assign or otherwise dispose of any assets, property or portion of its business which is material to GAMZ. 7.2.2. Filing of Exchange Act Reports. GAMZ will file all reports required to be filed by it pursuant to the Exchange Act and the regulations promulgated thereunder and, if at any time the GAMZ is not required to file such reports, it will, upon the request of any holder of the GAMZ to be issued pursuant to this Agreement, make publicly available other information so long as necessary to permit sales of its securities pursuant to Rule 144. No such reports filed by GAMZ after the date hereof will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading (in each case as of the date filed). RULE 144. Upon the request of any such holder, GAMZ shall deliver to such holder a written certification of a duly authorized officer as to whether it has complied with such requirements. 26 7.2.3. Tax Returns. GAMZ will file when due all tax returns which are required to be filed by it on or before the date of the Closing. Such returns shall be properly prepared on a reasonable basis and in a manner consistent with prior returns. 7.2.4. D&O Insurance. Insurance. As of the Effective Time, GAMZ will have a binding commitment from an insurance company reasonably acceptable to FERRIS for officers and directors liability insurance providing coverage of an aggregate of at least $4,000,000 for the persons who will be Officers and Directors of GAMZ after the Effective Time. 7.2.5. Loan Agreement. On or before May 31, 2001, if the Closing has not previously occurred, GAMZ shall provide to FERRIS a loan in the amount of Five Hundred Thousand Dollars ($500,000). Such loan shall bear interest at the rate of 10% per annum and be paid within twelve (12) months from the date of the loan. 7.2.6. Agreements of Affiliates; Lockup Agreements. GAMZ shall deliver or cause to be delivered to FERRIS, prior to the Closing, from each of its directors, officers, and other persons who will, following the Merger, be "affiliates" of GAMZ within the meaning of Rule 145 of the rules and regulations promulgated under the Securities Act, a written lockup agreement, in a form reasonably satisfactory to counsel to FERRIS, pursuant to which each such person will agree not to sell, pledge, transfer or otherwise dispose (without the prior written consent of the Board of Directors of GAMZ, which consent may be withheld in the sole discretion of the Board of Directors) any GAMZ Shares for a period of one year after the Merger. Attached as Schedule 7.2.6 is a list of all such directors, officers and other affiliates. GAMZ will be entitled, to the extent it is so required by applicable law (as advised by outside counsel experienced in such matters) to place legends as specified in such Lockup Agreements on the certificates evidencing any GAMZ Shares held such affiliates pursuant to the terms of this Agreement, and to issue appropriate stop-transfer instructions to the transfer agent for the GAMZ Shares, consistent with the terms of such Lockup Agreements. 110,000 GAMZ Shares purchased by James Poynter will not be included in the Lockup Agreements. 7.2.7. FERRIS Options. GAMZ shall deliver or cause to be delivered to FERRIS, prior to the Closing, an equal number of non-qualified incentive options, on terms and conditions substantially similar to those existing conditional options presently held by GAMZ' directors, to those individuals to be designated by FERRIS. 7.3. Additional Covenants of FERRIS. 7.3.1. Operations of FERRIS. Except as set forth in Schedule 7.3.1, from the FERRIS Balance Sheet Date through the Closing, FERRIS will not (except as contemplated by, or disclosed in, this Agreement or, in the case of Section 7.3.1, to the extent necessary to insure that its corporate documents conform to the representations made in this Agreement): 7.3.1.1. amend its Certificate of Incorporation or Bylaws or merge with or into or consolidate with any other Person, subdivide or in any way reclassify any shares of its Capital Stock or change or agree to change in any manner the rights of its outstanding Capital Stock or, in any material manner, the character of its business; issue or sell or purchase any Convertible Securities of FERRIS or enter into any contracts or commitments to issue or sell or purchase, any shares of its Capital Stock; 27 7.3.1.2. enter into or amend any material employment agreement, enter into any agreement with any labor union or association representing any material employee or enter into or amend any material FERRIS Employee Benefit Plan; 7.3.1.3. incur any indebtedness for borrowed money; 7.3.1.4. declare or pay any dividends or declare or make any distributions of any kind in respect of shares of its Capital Stock; 7.3.1.5. waive any right of material value of its business other than in the ordinary course of its business; 7.3.1.6. make any significant change in its accounting methods or practices from those reflected in the FERRIS Unaudited Financial Statements; 7.3.1.7. make any wage or salary increase or bonus, or increase in any other direct or indirect compensation, for or to any of FERRIS's officers, directors, or employees in excess of 5% in the aggregate or any accrual for or commitment or agreement to make or pay the same; 7.3.1.8. make any loan or advance to any of FERRIS's officers, or directors, or employees in excess of $2,500 individually or $10,000 in the aggregate, other than travel and petty cash advances made in the ordinary course of business; 7.3.1.9. make any payment or commitment to pay any severance or termination pay to any of its officers, or directors, or employees; 7.3.1.10. enter into any lease (as lessor or lessee) or sell, abandon or make any other disposition of any of its material assets or properties, or grant or suffer any Lien on any of its material assets or properties; 7.3.1.11. enter into or amend any written contract or other agreement pursuant to which it agrees to indemnify any party or to refrain from competing with any party; 7.3.1.12. except for inventory, supplies or equipment acquired in the ordinary course of business, make any acquisition of all or any part of the assets, properties, capital stock or business of any other entity, which is material to FERRIS; 7.3.1.13. enter into any transaction other than in the ordinary course of business; or 7.3.1.14. sell, transfer, assign or otherwise dispose of any assets, property or portion of its business, which is material to FERRIS. 7.3.2. Tax Returns. FERRIS will file when due all tax returns which are required to be filed by it on or before the date of the Closing. Such returns shall be properly prepared on a reasonable basis and in a manner consistent with prior returns. 7.3.3. Audited Financial Statements. By May 11, 2001, FERRIS will provide GAMZ with a true, correct and complete copy of the balance sheets of FERRIS as at December 31, 2000, together with the related statements of income, cash flows, and changes in stockholders' equity, and the notes thereto, for the years then ended, audited by its current independent public accountants, whose opinion will be included therewith (the "FERRIS Audited Financial Statement"). The FERRIS Audited Financial Statement will have been prepared in accordance with GAAP consistently applied throughout the periods indicated and will fairly present the financial position, results of operations, cash flows and changes in stockholders' equity of FERRIS as at December 31, 2000 and for the respective periods stated therein. 28 7.3.4. Filing Tax Returns. FERRIS will file when due all tax returns which are required to be filed by it on or before the date of the Closing. Such returns shall be properly prepared on a reasonable basis and in a manner consistent with prior returns. 8. Conditions Precedent to the Obligation of FERRIS to Close. The obligation of FERRIS to consummate the Merger is subject to the satisfaction, on or prior to the Closing, of the following conditions, any one or more of which may be waived by FERRIS in writing: 8.1. Representations and Covenants. The representations and warranties of GAMZ contained in this Agreement shall be true and complete in all material respects, except for changes in the ordinary course of business and as contemplated by this Agreement, on and as of the Closing with the same force and effect as though made on and as of such date. GAMZ shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by GAMZ on or prior to such date. GAMZ shall have delivered to FERRIS a certificate, executed by its principal executive officer and principal financial officer, and dated such date to the foregoing effect. 8.2. Litigation. No action, suit or proceeding shall have been instituted or threatened by any Governmental Authority, except for such matters set forth in the Disclosure Schedules, and no order or award shall have been entered (and not removed or stayed) by any court or Governmental Authority, in either case to restrain or prevent the carrying out of the Merger, or to seek damages in connection with any of the transactions provided for herein or which has or may have, in the reasonable opinion of FERRIS, a Material Adverse Effect on GAMZ, FERRIS or the merged entity. 8.3. Approval of Counsel to FERRIS. All actions and proceedings hereunder and all documents or other papers required to be delivered by GAMZ hereunder or in connection with the consummation of the transactions contemplated hereby and all other related matters shall have been reasonably approved in all material respects by FERRIS's attorneys as to their form. 8.4. Approval by FERRIS Stockholders. This Agreement, the Merger, and an amended certificate of incorporation in such form as has been supplied by FERRIS to GAMZ, shall have been approved by the FERRIS stockholders in accordance with Section 251 of the Delaware Law. 8.5. Absence of Certain Changes. GAMZ shall not, in FERRIS's reasonable judgment, have shown losses or deterioration in its cash position as described in Section 5.9 in excess of that which might reasonably be expected in view of its history of operations to date. 8.6. Board of Directors. GAMZ shall have taken all necessary actions and obtained stockholders approval to insure that its board of directors after the Closing consists of the directors specified in Section 1.4. 8.7. Aproval by GAMZ Stockholders. GAMZ stockholders' approval shall have been obtained to approve this Agreement and the Merger in accordance with Section 5.03 of the Texas Law and to amend GAMZ's articles of incorporation to increase the authorized Capital Stock of GAMZ by an additional 50,000,000 shares of common stock to a total of 100,000,000 shares of authorized Capital Stock. 29 8.8. Increase in Authorized Shares Under Stock Option Plan. GAMZ's stockholders' approval shall have been obtained to increase the number of shares which may be issued under its incentive stock option plan to 6 million. 8.9. Opinion of Counsel. FERRIS shall have received, on behalf of itself and the FERRIS shareholders, the opinion of Raice Paykin Krieg & Schrader LLP, counsel to GAMZ, dated the Closing, in form and substance to be agreed upon not later than 10 days from the date of this Agreement. 8.10. Appraisal Rights. The holders of less than 5% of the FERRIS Shares shall have exercised their appraisal rights as provided in Section 262 of the DGCL. For purposes of this Section, holders who are officers, directors or controlling stockholders of FERRIS will be deemed not to have exercised their appraisal rights, whether or not they in fact do exercise such rights. 8.11. Tax Matters. FERRIS shall be reasonably satisfied that the Merger will qualify as a reorganization under Section 368(a) of the Code. 8.12. Content of Final Schedules. The final schedules to be delivered by GAMZ in accordance with Section 7.1.1 shall not, in FERRIS's reasonable judgment, demonstrate a material adverse change in the financial position, results of operations or business of GAMZ as compared to the Schedules attached to this Agreement at the time of execution. 8.13. Third Party Consents. All consents and approvals from parties to any material contracts or agreement with GAMZ which may be required in connection with the performance by GAMZ of its obligations under this Agreement shall have been obtained. 8.14. Governmental Permits and Approvals. Any and all permits, licenses and approvals from any Governmental Authority required for the lawful consummation of the Merger and the issuance of the GAMZ Merger Shares shall have been obtained. 8.15. Employment Agreements. Employment agreements with GAMZ in form agreed upon not later than May 23, 2001 shall have been executed by the individuals identified in Schedule 8.15. Such employment agreements shall include, as appropriate, covenants not to compete following termination of applicable employment and severance packages. 8.16. Securities Opinion. GAMZ shall have received the opinion of Raice Paykin Krieg & Schrader LLP, its counsel, to the effect that the issuance of the GAMZ Merger Shares does not require registration under the Securities Act of 1933. 9. Conditions Precedent to the Obligation of GAMZ to Close. The obligation of GAMZ to consummate the Merger is subject to the satisfaction, on or prior to the Closing, of the following conditions, any one or more of which may be waived in writing by GAMZ: 9.1. Representations and Covenants. The representations and warranties of FERRIS contained in this Agreement shall be true and complete in all material respects, except for changes in the ordinary course of business and as contemplated by this Agreement, on and as of the Closing with the same force and effect as though made on and as of such date. FERRIS shall have performed and complied with all covenants and agreements required by this Agreement to be performed or complied with by it on or prior to such date. FERRIS shall have delivered to GAMZ a certificate, executed by its principal executive officer and principal financial officer, and dated such date to the foregoing effect. 30 9.2. Litigation. No action, suit or proceeding shall have been instituted or threatened by any Governmental Authority, except for such matters set forth in the Disclosure Schedules, and no order or award shall have been entered (and not removed or stayed), by any court or Governmental Authority, in either case to restrain or prevent the carrying out of the Merger or to seek damages in connection with any of the transactions provided for herein or which has or may have, in the reasonable opinion of GAMZ, a Material Adverse Effect on FERRIS. 9.3. Approval of Counsel to GAMZ. All actions and proceedings hereunder and all documents or other papers required to be delivered by FERRIS hereunder or in connection with the consummation of the transactions contemplated hereby and all other related matters shall have been reasonably approved in all material respects by GAMZ's attorneys as to their form. 9.4. Approval by GAMZ Stockholders. GAMZ stockholders' approval shall have been obtained to approve this Agreement and the Merger in accordance with Section 5.03 of the Texas Law and to amend GAMZ's articles of incorporation to increase the authorized Capital Stock of GAMZ by an additional 50,000,000 shares of common stock to a total of 100,000,000 shares of authorized Capital Stock. 9.5. Governmental Permits and Approvals. Any and all permits, licenses and approvals from any Governmental Authority required for the lawful consummation of the Merger shall have been obtained. 9.6. Third Party Consents. All consents and approvals from parties to any material contract or agreement with FERRIS which may be required in connection with the performance by FERRIS of its obligations under this Agreement shall have been obtained. 9.7. Audited Financial Statements. The FERRIS Audited Financial Statements shall not show that the financial position and results of operations of FERRIS reported therein are, in GAMZ's reasonable judgment, materially less favorable than the financial position and results of operations reported in the FERRIS Unaudited Financial Statements. 9.8. Absence of Certain Changes. FERRIS shall not, in GAMZ's reasonable judgment, have shown losses or deterioration in its cash position as described in Section 4.8.1 in excess of that which might reasonably be expected in view of its history of operations to date. 9.9. Opinion of Counsel. GAMZ shall have received, on behalf of itself and the GAMZ shareholders, the opinion of Titus, Brueckner & Berry, P.C., counsel to FERRIS, dated the Closing, in form and substance to be agreed upon not later than 10 days from the date of this Agreement. 9.10. Securities Opinion. GAMZ shall have received the opinion of Raice Paykin Krieg & Schrader LLP, its counsel, to the effect that the issuance of the GAMZ Merger Shares does not require registration under the Securities Act of 1933. 9.11. Appraisal Rights. The holders of less than 5% of the FERRIS Shares shall have exercised their appraisal rights as provided in Section 262 of the DGCL. 31 9.12. Content of Final Schedules. The final schedules 4.8, 4.10, 4.11, 4.13, 4.14 and 4.21 to be delivered by FERRIS in accordance with Section 7.1.1 shall not, in GAMZ's reasonable judgment, demonstrate a state of facts indicating a material adverse change in the financial position, results of operations or business of FERRIS as compared to the Schedules attached to this Agreement at the time of execution. This condition shall be deemed satisfied unless GAMZ shall have notified FERRIS in writing not later than the 7th calendar day after receipt of the last of such schedules that it has elected to terminate this Agreement for failure to satisfy this condition. 9.13. Questionnaires and other Securities Law Matters. GAMZ shall have received from each holder of the FERRIS Shares a completed questionnaire in the form of Schedule 9.12 confirming that he is acquiring the GAMZ Shares to be issued hereunder for investment, and not with a view to distribution, containing such additional information as may reasonably be required to determine his status as an accredited investor, and acknowledging that the GAMZ Shares to be issued pursuant to this Agreement will bear an appropriate legend referring to the restrictions on sale imposed by the Securities Act of 1933 and the securities laws of the various states. Each holder of FERRIS Shares who is not an accredited investor shall have appointed a qualified offeree representative to advise and assist him in evaluating the GAMZ Shares, and GAMZ shall have received from each such offeree representative an appropriate questionnaire containing such information as may reasonably be requested to evaluate the qualifications of the offeree representative. 10. Survival of Representations and Warranties. The representations and warranties set forth in this Agreement shall survive the Closing of the Merger for a period of 12 months. 11. Termination of Agreement. 11.1. Prior to Closing. This Agreement may be terminated as follows: 11.1.1. at any time prior to the Closing by mutual agreement of FERRIS and GAMZ. 11.1.2. at any time prior to the Effective Time by FERRIS if any representation or warranty of GAMZ contained in this Agreement (and the final schedules) is or becomes untrue or breached in any material respect or if GAMZ fails to comply in any material respect with any covenant contained herein, and any such misrepresentation, noncompliance or breach is not cured, waived or eliminated within ten (10) days following written notice thereof. 11.1.3. at any time prior to the Effective Time by GAMZ, if any representation or warranty of FERRIS contained in this Agreement (and the final schedules) is or becomes untrue or breached in any material respect or if FERRIS fails to comply in any material respect with any covenant contained herein, and any such misrepresentations, noncompliance or breach is not cured, waived or eliminated within 10 days following written notice thereof. 11.1.4. by FERRIS if the conditions stated in Section 8 have not been satisfied or waived in writing by FERRIS prior to July 15, 2001. 11.1.5. by GAMZ if the conditions stated in Section 9 have not been satisfied or waived in writing by GAMZ prior to July 15, 2001. 11.1.6. by GAMZ or FERRIS if the Merger is not consummated on or before August 1, 2001 32 11.2. Effect of Termination. In the event this Agreement is terminated pursuant to Section 11.1.1, or pursuant to Sections 11.1.4 or 11.1.5 , each party shall be fully released and discharged from any and all obligations under this Agreement. In the event this Agreement is terminated pursuant to subparagraph 11.1.2 or 11.1.3, then the nonbreaching party shall be entitled to pursue, exercise and enforce any and all remedies, rights, powers and privileges available at law or in equity; provided that 11.2.1. the nonbreaching party shall take all reasonable efforts to mitigate its damages upon its discovery of such breach, and 11.2.2. monetary damages shall not be available unless, in the case of a breach of a representation or warranty, the misstatement in the representation or warranty was deliberately made or, in the case of failure to comply with any covenant, such failure was deliberate Notwithstanding the foregoing, the provisions of Section 7.1.7 shall survive such termination. 12. Indemnification. 12.1.1. From and after the Effective Time, GAMZ shall indemnify, defend and hold harmless the present and former directors, officers and employees of GAMZ and FERRIS and their respective Subsidiaries (each, an "Indemnified Party") against all costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of actions or omissions as directors or officers of GAMZ or FERRIS and their respective Subsidiaries occurring at or prior to the Effective Time, including, without limitation, the transactions contemplated by this Agreement, to the fullest extent that such persons are indemnified under the laws of the States of Delaware or Texas and the organizational documents, as in effect on the date hereof, of GAMZ and FERRIS and their respective Subsidiaries or any existing indemnification agreement with either GAMZ or FERRIS (and during such period GAMZ shall also advance expenses as incurred to the fullest extent permitted under applicable law, provided that the Person to whom expenses are advanced provides a written affirmation of his or her good faith that the standard of conduct necessary for indemnification has been met and an undertaking to repay such advances if it is ultimately determined that such Person is not entitled to indemnification with no bond or security to be required); provided that any determination required to be made with respect to whether an officer's or director's conduct complies with the standards set forth under applicable law and any such organizational documents shall be made by independent counsel selected by GAMZ and reasonably acceptable to such officer or director; and provided, further, that in the absence of applicable judicial precedent to the contrary, such counsel, in making such determination, shall presume such officer's or director's conduct complied with such standard and GAMZ shall have the burden to demonstrate that such officer's or director's conduct failed to comply with such standard. 12.1.2. For a period of not less than six years after the Effective Time, GAMZ will maintain officers' and directors' liability insurance in an amount of no less than $4,000,000 covering the Indemnified Parties who are currently covered, in their capacities as current or former officers and directors of GAMZ and covering similarly situated Indemnified Parties of FERRIS, by existing officers' and directors' liability insurance policy on terms substantially no less advantageous to the Indemnified Parties than such insurance. 33 12.1.3. Any Indemnified Party wishing to claim indemnification under Section 12.1.1 upon learning of any claim, action, suit, proceeding or investigation described above, shall promptly notify GAMZ thereof; provided that the failure so to notify shall not affect the obligations of GAMZ under Section 12.1.1 unless and to the extent such failure materially increases GAMZ's liability under such subsection 12.1.1. 12.1.4. If GAMZ or any of its successors or assigns shall consolidate with or merge with any other entity and shall not be the continuing or surviving entity of such consolidation or merger or shall transfer all or substantially all of its assets to any Person, then and in each case, proper provision shall be made so that the successors and assigns of GAMZ or any of its Subsidiaries shall assume the obligations set forth in this Section 12. 12.1.5. GAMZ shall pay all reasonable costs, including attorneys' fees, that may be incurred by any Indemnified Party in enforcing the indemnity and other obligations provided for in this Section 12. The rights of each Indemnified Party hereunder shall be in addition to any other rights such Indemnified Party may have under applicable law. 12.1.6. GAMZ will keep in effect provisions in FERRIS and GAMZ subsidiaries' organizational documents providing for exculpation of director and officer liability and its indemnification of the Indemnified Parties to the fullest extent permitted under the DGCL or the Texas Business Corporation Act, as applicable, which provisions will not be amended except as required by applicable law or except to make changes permitted by law that would enlarge the Indemnified Parties' right of indemnification. 12.1.7. In any proceeding for which indemnification is sought under this Section 12, GAMZ will be entitled to participate in such proceeding and, to the extent that it wishes (unless GAMZ is also a party to such proceeding and the indemnified party determines in good faith that joint representation would be inappropriate), to assume the defense of such proceeding with counsel satisfactory to GAMZ and, after notice from GAMZ to the indemnified party of its election to assume the defense of such proceeding, GAMZ will not, as long as it diligently conducts such defense, be liable to the indemnified party under this Section for any fees of other counsel or any other expenses with respect to the defense of such proceeding subsequently incurred by the indemnified party in connection with the defense of such proceeding, other than reasonable costs of investigation. 12.1.8. The provisions of this Section 12 will survive the consummation of the Merger and expressly are intended to benefit each Indemnified Party. 13. Definitions. 13.1. Defined Terms. As used in this Agreement, the following terms have the following meanings: 13.1.1. "Acquisition Proposal": has the meaning set forth in Section 7.1.13. 13.1.2. "Affiliate": shall mean, with respect to any Person, any other Person that directly, or through one or more intermediaries, controls or is controlled by or is under common control with such Person. 13.1.3. "Agreement": this Agreement of Merger, as amended, supplemented or otherwise modified from time to time. 34 13.1.4. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, and any and all equivalent ownership interests in a partnership or other Person (other than a corporation). 13.1.5. "Certificate of Merger": has the meaning set forth in Section 1.2. 13.1.6. "Closing": has the meaning set forth in Section 3. 13.1.7. "Code": has the meaning set forth in Recital B. 13.1.8. "Contractual Obligation": as to any Person, any provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. 13.1.9. "Convertible Securities": options, warrants, subscriptions or other commitments or rights of any nature to purchase, or securities convertible into or exchangeable for, Capital Stock. 13.1.10. "Delaware Law": the General Corporation Law of the State of Delaware, as amended from time to time. 13.1.11. "Disclosure Schedule": means the schedules dated as of the date hereof and delivered by or on behalf of each party to the other party in connection with this Agreement and which set forth exceptions to the representations and warranties contained herein and certain other information called for by other provisions of this Agreement. 13.1.12. "Effective Date": the date upon which the Effective Time occurs. 13.1.13. "Effective Time": has the meaning set forth in Section 1.2. 13.1.14. "Environmental Laws": any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection matters, including without limitation, Hazardous Materials, as currently in effect. 13.1.15. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and rulings issued thereunder. 13.1.16. "ERISA Affiliate": of any Person shall mean any trade or business (whether or not incorporated) which is under common control with that Person, within the meaning of Sections 414(b) and 414(c) of the Code or the regulations promulgated thereunder. 13.1.17. "Exchange Act": the Securities Exchange Act of 1934, as amended from time to time, and the regulations and rulings issued thereunder. 13.1.18. "Fully Diluted Shares" means, with respect to any Person the number of shares of that Person's common stock which would at the time of reference be issued and outstanding if all shares of common stock issuable upon exercise or conversion of that person's Convertible Securities had been exercised or converted in full as of that time, excluding, however, in the case of GAMZ common shares issuable to its directors under performance-based incentive stock options. 13.1.19. "GAAP": generally accepted accounting principles in the United States of America, in effect from time to time. 35 13.1.20. "GAMZ Audited Financial Statements": has the meaning set forth in Section 5.15. 13.1.21. "GAMZ Balance Sheet": the audited balance sheet of GAMZ as of December 31, 2000, a copy of which has been delivered to FERRIS. 13.1.22. "GAMZ Balance Sheet Date": December 31, 2000. 13.1.23. "GAMZ Merger Shares": has the meaning set forth in Section 2.3. 13.1.24. "GAMZ Reports": has the meaning set forth in Section 5.15. 13.1.25. "GAMZ Shares": shares of Common Stock, par value $0.005 per share, of GAMZ. 13.1.26. "GAMZ Transaction Document": has the meaning set forth in Section 5.3. 13.1.27. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any federal, state, county, local or foreign entity or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 13.1.28. "FERRIS Audited Financial Statement": has the meaning set forth in Section 7.3.3. 13.1.29. "FERRIS Balance Sheet": the unaudited balance sheet of FERRIS as of December 31, 2000. 13.1.30. "FERRIS Balance Sheet Date": December 31, 2000. 13.1.31. "FERRIS Shares": shares of common stock, par value $0.01(????) per share, of FERRIS. 13.1.32. "FERRIS Transaction Document": has the meaning set forth in Section 4.3. 13.1.33. "FERRIS Unaudited Financial Statement": has the meaning set forth in Section 4.15. 13.1.34. "Hazardous Materials": any (i) "hazardous substance," "pollutant," or "contaminant" (as defined in Sections 101(14), (33) of the Comprehensive Environmental Response Compensation Liability Act ("CERCLA") or the regulations designated pursuant to Section 102 of CERCLA and found at 40 C.F.R. ss.302), including any element, compound, mixture, solution, or substance that is designated pursuant to Section 102 of CERCLA; (ii) substance that is designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act, as amended (33 U.S.C. ss.ss.1251, 1321(b)(2)(A)) ("FWPCA"); (iii) hazardous waste having the characteristics identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act, as amended (42 U.S.C. ss.ss. 6901, 6921) ("RCRA"); (iv) substance containing petroleum, as that term is defined in Section 9001(8) of RCRA; (v) toxic pollutant that is listed under Section 307(a) of FWPCA; (vi) hazardous air pollutant that is listed under Section 112 of the Clean Air Act, as amended (42 U.S.C. ss.ss. 7401, 7412); (vii) asbestos, asbestos-containing material, or urea formaldehyde or material that contains it; and (viii) waste oil and other petroleum products. 36 13.1.35. "Intellectual Property Assets": of a Person means all that person's 13.1.35.1. corporate, partnership or other business names, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications (collectively, "Marks"); 13.1.35.2. patents, patent applications, and inventions and discoveries that may be patentable (collectively, "Patents"); 13.1.35.3. copyrights in both published works and unpublished works (collectively, "Copyrights"); 13.1.35.4. rights in mask works; and 13.1.35.5. know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints (collectively, "Trade Secrets"), owned, used, or licensed as licensee or licensor. 13.1.36. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security interest or agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). 13.1.37. "Material Adverse Effect": a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the specified party and its Subsidiaries taken as a whole, (b) the ability of the party to perform its obligations under this Agreement, or (c) the validity or enforceability of this Agreement or the rights or remedies of the other party or parties hereunder or thereunder. 13.1.38. "Merger": has the meaning set forth in Recital A. 13.1.39. "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. 13.1.40. "Proxy Statement": has the meaning set forth in Section 7.1.14. 13.1.41. "Rule 144": Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same effect as such Rule. 13.1.42. "SEC": the Securities and Exchange Commission. 13.1.43. "Securities Act": the Securities Act of 1933, as amended, and the rules and regulations thereunder. 13.1.44. "Significant Employee": as to any Person, "significant employees" of such Person as that term is defined in Regulation S-K of the Securities Act. 37 13.1.45. "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. A Subsidiary, as to any Person, shall include a partnership, which has such Person or a Subsidiary of such Person as a general partner of such partnership. 13.1.46. "Surviving Corporation": has the meaning set forth in Section 1.1. 13.1.47. "Texas Law": the Texas Business Corporation Act of the State of Texas, as amended from time to time. 13.2. Other Definitional Provisions; Interpretation. 13.2.1. Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other agreement, instrument or document made or delivered pursuant hereto. 13.2.2. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. 13.2.3. The headings in this Agreement are included for convenience of reference only and shall not in any way affect the meaning or interpretation of this Agreement. 13.2.4. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 14. Miscellaneous. 14.1. Broker. Each of the parties represents and warrants to the other that no broker, finder or other financial consultant, has acted on its behalf in connection with the negotiation and execution of this Agreement. Each such party agrees to indemnify and save the other harmless from any claim or demand for commission or other compensation by any broker, finder, financial consultant or similar agent not so disclosed claiming to have been employed by or on behalf of such party, and to bear the cost of legal expenses incurred in defending against any such claim. 14.2. Schedules. The Schedules to this Agreement are a part of this Agreement as if set forth in full herein. 14.3. Publicity. No publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued without advance approval of the form and substance thereof by FERRIS and GAMZ subject to GAMZ's right to make any such publicity release or announcement reasonably required to comply with its obligations as a public company including, without limitation, under the Exchange Act, the Securities Act or the rules and regulations of the National Association of Securities Dealers, Inc. 38 14.4. Notices. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, telegraphed or telecopied, or sent by FedEx, Express Mail or certified or registered mail, postage prepaid, and shall be deemed given when so delivered personally, telegraphed or telecopied or if sent by FedEx or Express Mail, one business day after the date of sending, or if sent by certified or registered mail, four business days after the date of mailing, as follows (or to such other address as any party may from time to time specify in writing pursuant to the notice provisions hereof): If to FERRIS to: Ferris Productions, Inc. 5631 South 24th Street Phoenix, Arizona 85040 Attention: President With a copy to: Titus, Bruechner & Berry 7373 N. Scottsdale Road, Suite B-252 Scottsdale, AZ 85253 Attention: Todd M. Johnson, Esq. If to GAMZ, to: GAMZ, Inc. GameCom Inc. 440 North Center Arlington, TX 76011 Attention: Chief Executive Officer With a copy to: Raice Paykin Krieg & Schrader LLP 185 Madison Ave., 10th Floor New York, NY 10016 Attention: David C. Thomas, Esq. 14.5. Entire Agreement. This Agreement (including all Schedules and Exhibits hereto and all agreements or covenants contained therein) contains the entire agreement among the parties with respect to the Merger, and all transactions related thereto, and supersedes all prior agreements or understandings, written or oral, with respect thereto. 14.6. Waivers and Amendments. This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, signed by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. 39 14.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to the choice of law principles thereof. 14.8. No Assignment. This Agreement is not assignable except by operation of law. 14.9. Variations in Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neither singular or plural, as the identity of the person or persons may require. 14.10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 14.11. Severability. If any one or more of the provisions of this Agreement is held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intent of the parties. 14.12. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives and permitted assigns. 14.13. Legal Fees. In any legal action, arbitration (if any) or other proceeding brought to enforce this Agreement or in any other way arising out of or in relation to this Agreement, the court or arbitrator(s) shall award reasonable attorneys' fees and costs to the prevailing party, which amount shall be included in any judgment recovered. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties on the date first above written. GAMECOM, INC. By: ___________________________________ ___________________________________ Chief Executive Officer FERRIS PRODUCTIONS, INC. By: ___________________________________ Bob Ferris, President 40 SCHEDULES FERRIS 1.4 Directors of Surviving Corporation 1.5 Officers of Surviving Corporation 2.6 Rights of Holders of FERRIS Shares 4.2 FERRIS Qualification as Foreign Corporation 4.4 FERRIS Capital Stock 4.5 FERRIS Convertible Securities 4.6 Subsidiaries 4.8 Conflicts 4.9 Material Adverse Changes 4.10 FERRIS Tax Matters 4.11 Compliance with Law 4.12 Required Consents 4.13 Loan Agreements 4.14 Litigation 4.15 Agreements 4.17 Real Estate 4.18 FERRIS Officers and Directors Compensation 4.19 Intellectual Property 4.21 Liens 4.22 Liabilities 4.23 Employee Benefit Plans 7.3.1 Operations of FERRIS GAMZ 5.2 GAMZ Qualification as a Foreign Corporation 5.6 Subsidiaries 5.8 Conflicts 5.10 Tax Matters 5.11 Compliance with Law 5.13 Loan Agreements 5.14 Litigation 5.16 Agreements 41 5.17 Real Estate 5.18 Officers, Directors, Employees Compensation 5.19 Intellectual Property 5.21 Liens 5.23 Employee Benefit Plans 5.24 Potential Conflicts of Interest 7.2.1 Operations 9.13 Form of Questionnaire 42 EX-99.3 4 ex99-3.txt ADDITIONAL EXHIBITS ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION OF GAMECOM, INC. The undersigned, chief executive officer of GameCom, Inc., a Texas corporation, certifies as follows. 1. The name of the corporation is GameCom, Inc. 2. Paragraph A of Article Four of the Articles of Incorporation, which paragraph sets forth the number of shares which the corporation is authorized to issue, is amended to read as follows: "(A) Authorized Capital Stock. The aggregate number of shares of all classes of stock the Company shall have authority to issue is 102,000,000 consisting of and divided into: (i) one class of 100,000,000 shares of Common Stock, par value $0.005 per share (the 'Common Stock'); and (ii) one class of 2,000,000 shares of Preferred Stock, par value $0.005 (the 'Preferred Stock'), which may be divided into and issued in one or more series, as hereinafter provided." 3. The shareholders of the corporation adopted the amendment on September 14, 2001. 4. As of the date the amendment was adopted, the number of shares outstanding, and the number of shares entitled to vote on the amendment, was 13,688,978 shares of Common Stock, par value $0.005 per share. 5. The number of shares voted for the amendment was___and the number of shares voted against the amendment was ____. 6. The amendment does not effect any change in the corporation's stated capital. Dated: September 14, 2001 --------------------------------------- L. Kelly Jones, chief executive officer EX-99.4 5 ex99-4.txt ADDITIONAL EXHIBITS GAMECOM, INC. 2000 INCENTIVE STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this GameCom, Inc. 2000 Incentive Stock Option Plan, (the "Plan") are to enable GameCom, Inc. (the "Company") and its Subsidiaries (as defined herein) to attract, retain and motivate the Key Employees (as defined herein) who are important to the success and growth of the business of the Company, and to create a long-term mutuality of interest between the stockholders of the Company and such Key Employees by granting them options (which may, in the case of Key Employees, be either incentive stock options (as defined herein) or non-statutory stock options) to purchase the Company's Common Stock. 2. Definitions. (a) "Act" means the Securities Exchange Act of 1934. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means such committee, if any, as may be appointed from time to time by the Board to administer the Plan, consisting of two or more directors, each of whom shall qualify as an "outside director" within the meaning of Section 162(m) of the Code and, to the extent required by Rule 16b-3 promulgated under Section 16(b) of the Act as then in effect, or any successor provisions ("Rule 16b-3"), as a "non-employee director" within the meaning of Rule 16b-3. If for any reason the appointed Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of the Code, such non-compliance shall not affect the validity of the Options, grants, interpretations or other actions of the Committee. If the Board does not appoint a committee for this purpose, "Committee" means the Board. (e) "Common Stock" means the common stock of the Company, par value $.005, any common stock into which such Common Stock may be converted, and any common stock resulting from any reclassification of the Common Stock. (f) "Company" means the Company and its Subsidiaries, any of whose employees are Participants in the Plan. (g) "Disability" means permanent and total disability, as determined by the Committee in its sole discretion, provided that in no event shall any disability that is not a permanent and total disability within the meaning of Section 22(e)(3) of the Code be treated as a Disability. A Disability shall be deemed to occur at the time of the determination by the Committee of the Disability. (h) "Fair Market Value" means the value of a Share (as defined herein) on a particular date, determined as follows: (i) If the Common Stock is listed on such date on a national securities exchange or quoted on the National Market System of The Nasdaq Stock Market, Inc. ("NASDAQ"), the closing sales price of a Share on such exchange or on the National Market System, as the case may be, on such date, or in the absence of reported sales on such day, the mean between the reported bid and asked prices on such exchange or on the National Market System, as the case may be, on such date; or (ii) If the Common Stock is not listed or quoted as described in the preceding clause, but bid and asked prices are quoted through NASDAQ, the mean between the closing bid and asked prices as quoted through NASDAQ on such date; or (iii) If the Common Stock is not listed or quoted as described in clauses (i) or (ii) above, by such other method as the Committee determines to be reasonable and consistent with applicable law; or (iv) If the Common Stock is not publicly traded, such amount as is set by the Committee in good faith. (i) "Incentive Stock Option" means any Option which is intended to qualify as an "incentive stock option" as defined in Section 422 of the Code. (j) "Key Employee" means any person who is an executive officer or other valuable staff, managerial, professional or technical employee of the Company, as determined by the Committee. A Key Employee may also be a director of the Company. (k) "Option" means the right to purchase one Share at a prescribed purchase price on the terms specified in the Plan. An Option may be an Incentive Stock Option or a non-qualified option. (l) "Participant" means a Key Employee of the Company who is granted Options under the Plan. (m) "Purchase Price" means the purchase price per Share payable upon exercise of an option. (n) "Securities Act" means the Securities Act of 1933, as it may be amended from time to time, or any successor statute. (o) "Share" means a share of Common Stock. (p) "Subsidiary" means any "subsidiary corporation" within the meaning of Section 424(f) of the Code. An entity shall be deemed a Subsidiary of the Company only for such periods as the requisite ownership relationship is maintained. (q) "Substantial Stockholder" means any Participant who is a Key Employee and who, at the time of grant, owns directly or is deemed to own, by reason of the attribution rules set forth in Section 424(d) of the Code, Shares possessing more than 10% of the total combined voting power of all classes of stock of the Company, a Subsidiary, or any "parent corporation" within the meaning of Section 424(e) of the Code. (r) "Termination of Employment" means cessation of an individual's status as an employee of the Company or any Subsidiary. In the event an entity shall cease to be a Subsidiary of the Company, any individual who is not otherwise an employee of the Company or another Subsidiary shall suffer a Termination of Employment at the time the entity ceases to be a Subsidiary. A leave of absence approved by the Committee shall not constitute a Termination of Employment. 2 3. Effective Date/Expiration of Plan. The Plan shall become effective on February 1, 2000 (the "Effective Date"), subject, however, to approval by the Company's stockholders. The Plan will terminate on the tenth anniversary of the Effective Date, unless earlier terminated in accordance with Section 11. No Option shall be granted under the Plan on or after the tenth anniversary of the Effective Date, but Options previously granted may extend beyond that date. 4. Administration. (a) Duties of the Committee. The Plan shall be administered by the Committee. The Committee shall have full authority, subject to the terms of the Plan: to interpret the Plan and to decide all questions and settle all controversies and disputes that may arise in connection with the Plan; to establish, amend, and rescind rules for carrying out the Plan; to administer the Plan; to select Key Employees to participate in, and grant Options to Key Employees under, the Plan; to determine the terms, exercise price and permitted forms of payment for each Option granted under the Plan; to determine which Options granted under the Plan to Key Employees shall be Incentive Stock Options; to prescribe the form or forms of the agreements evidencing Options and any other instruments required under the Plan and to change such forms from time to time; and to make all other determinations and take all such steps in connection with the Plan and the Options as the Committee, in its sole discretion, deems necessary or desirable. The Committee shall not be bound to any standards of uniformity or similarity of action, interpretation or conduct in the discharge of its duties, regardless of the apparent similarity of the matters coming before it. The determination, action or conclusion of the Committee in connection with the foregoing shall be final and conclusive. (b) Advisors. The Committee may designate officers or other employees of the Company or professional advisors to assist it in the administration of the Plan, and may grant authority to such persons to execute Option Agreements (as defined herein) or other documents on behalf of the Committee. The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan, and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultants and agents shall be paid by the Company. (c) Indemnification. No officer, member or former member of the Committee shall be liable for any action taken or made in good faith with respect to the Plan or any Option granted under it. To the maximum extent permitted by applicable law, the Company shall indemnify and hold harmless each officer, member or former member of the Committee and the Board against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim), and shall advance all amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted by applicable law, arising out of any act or omission to act in connection with the Plan. Such indemnification shall be in addition to any rights of indemnification the officers, members or former members may have as officers or directors under applicable law or under the Certificate of Incorporation or By-Laws of the Company. 3 (d) Meetings of the Committee. The Committee shall select one of its members as a Chairman and shall adopt such rules and regulations as it shall deem appropriate concerning the holding of its meetings and the transaction of its business. Any member of the Committee may be removed at any time, either with or without cause, by resolution adopted by the Board, and any vacancy on the Committee may at any time be filled by resolution adopted by the Board. All determinations by the Committee shall be made by the affirmative vote of a majority of its members. Any such determination may be made at a meeting duly called and held at which a majority of the members of the Committee are in attendance in person or through telephonic communication. Any determination set forth in writing and signed by all of the members of the Committee shall be as fully effective as if it had been made by a majority vote of the members at a meeting duly called and held. 5. Shares; Adjustment Upon Certain Events. (a) Shares to be Delivered; Fractional Shares. Shares to be issued under the Plan shall be made available, at the discretion of the Board, either from authorized but unissued Shares or from issued Shares reacquired by the Company and held in treasury. No fractional Shares will be issued or transferred upon the exercise of any Option. In lieu thereof, the Company shall pay a cash adjustment equal to the same fraction of the Fair Market Value on the date of exercise. (b) Number of Shares. Subject to adjustment as provided below in this Section 5, the maximum aggregate number of Shares that may be issued under the Plan shall be 6,000,000. If Options are for any reason canceled, or expire or terminate unexercised, the Shares covered by such Options shall again be available for the grant of Options, subject to the limit provided in the preceding sentence. Subject to adjustment as provided below in this Section 5, the maximum number of Shares subject to any Option which may be granted under the Plan to each Key Employee shall not exceed 500,000 Shares in each calendar year during the entire term of the Plan. Notwithstanding the foregoing, in order to comply with Section 162(m) of the Code, the Committee shall take into account that (i) if an Option is canceled, the canceled Option continues to be counted against the maximum number of Shares for which Options may be granted to a Key Employee under this Section 5(b) of the Plan, and (ii) if after the grant of an Option, the Committee or the Board reduced the Purchase Price, the transaction is treated as a cancellation of the Option and a grant of a new Option, and in such case, both the Option that is deemed to be canceled and the Option that is deemed to be granted, reduce the maximum number of Shares for which Options may be granted to a Key Employee under the Option. To the extent that Shares for which Options are permitted to be granted to a Key Employee during a calendar year are not covered by a grant of an Option in the calendar year, such Shares shall be available for grant or issuance to the Key Employee in any subsequent calendar year during the term of the Plan. (c) Adjustments; Recapitalization, etc. The existence of the Plan and Options granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting Common Stock, the dissolution or liquidation of the Company, or any sale or transfer of all or part of its assets or business or any other corporate act or proceeding. If the Company takes any such action, however, the following provisions shall, to the extent applicable, govern: 4 (i) If and whenever the Company shall effect a stock split, stock dividend, subdivision, recapitalization or combination of Shares or other change in the Company's capital stock, (x) the Purchase Price (as defined herein) per Share and the number and class of Shares and/or other securities with respect to which outstanding Options thereafter may be exercised, and (y) the total number and class of Shares and/or other securities that may be issued under the Plan, shall be proportionately adjusted by the Committee. The Committee may also make such other adjustments as it deems necessary to take into consideration any other event (including, without limitation, accounting changes) if the Committee determines that such adjustment is appropriate to avoid distortion in the operation of the Plan. (ii) Subject to Section 5(c)(iii), if the Company merges or consolidates with one or more corporations, then, from and after the effective date of such merger or consolidation, upon exercise of Options theretofore granted, the Participant shall be entitled to acquire under such Options, in lieu of the number of Shares as to which such Options shall then be exercisable but on the same terms and conditions of exercise thereof, the number and class of Shares and/or other securities or property (including cash) which the Participant would have held or been entitled to receive immediately after such merger or consolidation if, immediately prior to such merger or consolidation, the Participant had been the holder of record of the total number of Shares receivable upon exercise of such Options (whether or not then exercisable) had such merger or consolidation not occurred. (iii) In the event of a merger or consolidation in which the Company is not the surviving entity or any transaction that results in the acquisition of substantially all of the Company's outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all of the Company's assets (all of the foregoing being referred to as "Acquisition Events"), then the Committee may, in its sole discretion, terminate all outstanding Options granted to Key Employees by delivering notice of termination to each such Key Employee, provided that, during the twenty (20) day period following the date on which such notice of termination is delivered, each Participant who is a Key Employee shall have the right to exercise in full all of his Options that are then outstanding (without regard to any limitations on exercisability otherwise contained in the Option Agreements). If an Acquisition Event occurs and the Committee does not terminate the outstanding Options pursuant to the preceding sentence, then the provisions of Section 5(c)(ii) shall apply. (iv) Subject to Section 5(b), the Committee may grant Options under the Plan in substitution for options held by employees of another corporation who concurrently become employees of the Company as the result of a merger or consolidation of the employing corporation with the Company, or as the result of the acquisition by the Company of property or stock of the employing corporation. Such substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. (v) If, as a result of any adjustment made pursuant to the preceding paragraphs of this Section 5, any Participant shall become entitled upon the exercise of Options to receive any securities other than Common Stock, then the number and class of securities thereafter receivable upon exercise shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock set forth in this Section 5, as determined by the Committee in its sole discretion. 5 (vi) Except as expressly provided above, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash, property, labor or services, whether upon direct sale, upon the exercise of rights or warrants to subscribe therefore, or upon conversion of shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number and class of Shares and/or other securities or property subject to Options theretofore granted or the Purchase Price per Share. 6. Awards and Terms of Options for Key Employees. (a) Grant. The Committee may grant Options, including Options intended to be Incentive Stock Options, to Key Employees of the Company. Each Option shall be evidenced by an Option agreement (the "Option Agreement") in such from not inconsistent with the Plan as the Committee shall approve from time to time. (b) Exercise Price. The purchase price per share (the "Purchase Price") deliverable upon the exercise of an Option granted to a Key Employee shall be determined by the Committee (but in no event less than the par value of the Share), except that the Purchase Price of an Incentive Stock Option shall not be less than 100% (110% for an Incentive Stock Option granted to a Substantial Stockholder) of the Fair Market Value at the time the Incentive Stock Option is granted. To the extent that the grant of an Option is intended to comply with the exception for performance-based compensation under Section 162(m) of the Code, the Purchase Price of the Option shall not be less than 100% of the Fair Market Value at the time the Option is granted. (c) Number of Shares. Each Option Agreement shall specify the number of Options granted to the Key Employees, as determined by the Committee in its sole discretion. (d) Exercisability. At the time of grant, the Committee shall specify when and on what terms the Options granted to a Key Employee shall be exercisable. In the case of Options not immediately exercisable in full, the Committee may at any time accelerate the time at which all or any part of the Options may be exercised. No Option shall be exercisable after the expiration of ten (10) years from the date of grant (five years (5) in the case of an Incentive Stock Option granted to a Substantial Stockholder). Every Option shall be subject to earlier termination as provided in Section 7 below. (e) Special Rule for Incentive Options. If required by Section 422 of the Code or any successor provision, to the extent the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by a Key Employee during any calendar year (under all plans of his employer corporation and its parent and subsidiary corporations) exceeds $100,000, such Options shall not be treated as Incentive Stock Options. Nothing in this special rule shall be construed as limiting the exercisability of any Option. (f) Acceleration of Exercisability on Change of Control. Upon a Change of Control of the Company (as defined herein) all outstanding Options granted to Key Employees not then fully exercisable shall immediately become fully exercisable. For this purpose, a "Change of Control" shall be deemed to have occurred if: (i) any person (or group of persons acting in concert) becomes the beneficial owner of 30% or more of the Company's outstanding voting securities or securities convertible into such amount of voting securities; or 6 (ii) within two years after a tender offer or exchange offer, or as the result of a merger, consolidation, sale of substantially all of the Company's assets or a contested election of the Board of Directors, or any combination of such transactions, the persons who were directors of the Company prior to such transaction do not constitute a majority of the Board of Directors of the Company or its successor; provided, however, that no transaction shall be deemed to constitute a Change in Control if such transaction is approved by two-thirds of the Prior Directors of the Company and the Successor Directors (each as hereafter defined), if any, voting together. For purposes of this Agreement, Prior Directors are those directors of the Company in office immediately prior to such event, and Successor Directors are successors to Prior Directors who were recommended to succeed Prior Directors by a majority of the Prior Directors then in office. (g) Exercise of Options. (i) A Key Employee may elect to exercise one or more Options by giving written notice to the Committee of such election and the number of Options such Participant has elected to exercise, accompanied by payment in full of the aggregate Purchase Price for the number of shares for which the Options are being exercised. (ii) Shares purchased pursuant to the exercise of Options granted to Key Employees shall be paid for at the time of exercise as follows: (A) in cash or by check, bank draft or money order payable to the order of the Company; (B) if so permitted by the Committee: (x) through the delivery of unencumbered Shares (including Shares being acquired pursuant to the Options then being exercised), provided such Shares (and such Options) have been owned by the Key Employee for such periods as may be required by applicable accounting standards to avoid a charge to earnings, (y) through a combination of Shares and cash as provided above, (z) by delivery of a promissory note of the Key Employee to the Company, such promissory note to be payable, in the case of an Incentive Stock Option, on such terms as are specified in the Option Agreement (except that, in lieu of a stated rate of interest, an Incentive Stock Option may provide that the rate of interest on the promissory note will be such rate as is sufficient, at the time the note is given, to avoid the imputation of interest under the applicable provisions of the Code), or by a combination of cash (or cash and Shares) and the Key Employee's promissory note; provided, that, if the Shares delivered upon exercise of the Option is an original issue of authorized Shares, at least so much of the exercise price as represents the par value of such Shares shall be paid in cash or by a combination of cash and Shares; (C) if the Common Stock is at the time publicly traded, through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Purchase Price; or (D) on such other terms and conditions as may be acceptable to the Committee and in accordance with the law of the State of Texas. Upon receipt of payment, the Company shall deliver to the Participant as soon as practicable a certificate or certificates for the Shares then purchased. 7 7. Effect of Termination of Employment. (a) Death, Disability, Retirement, etc. Upon the Termination of Employment of a Key Employee, all outstanding Options then exercisable (and any outstanding Options not previously exercisable but made exercisable by the Committee at or after the Termination of Employment) shall remain exercisable by the Key Employee for the following time periods (subject to the ten year limit set forth in Section 6(d)). (i) In the event of the Key Employee's death, such Options shall remain exercisable (by the Key Employee's estate or by the person given authority to exercise such Options by the Key Employee's will or by operation of law) for a period of one (1) year from the date of the Key Employee's death, provided that the Committee, in its sole discretion, may at any time extend such time period to up to three years from the date of the Key Employee's death. (ii) In the event the Key Employee retires at or after age 65 (or, with the consent of the Committee, before age 65), or if the Key Employee's employment terminates due to Disability, such Options shall remain exercisable for one (1) year from the date of the Key Employee's termination of employment, provided that the Committee, in its sole discretion, may at any time extend such time period to up to three years from the date of the Key Employee's Termination of Employment. (b) Other Termination. In the event of a Termination of Employment for any reason other than as provided in Section 7(a) or in 7(c), all outstanding Options shall remain exercisable after such Termination of Employment (but only to the extent exercisable immediately prior thereto) for a period of three (3) months after such termination, provided that the Committee, in its sole discretion, may extend such time period to up to one year from the date of the Key Employee's Termination of Employment. (c) Cause. Upon the Termination of Employment of a Key Employee for Cause (as defined herein) or if it is discovered after his other Termination of Employment that such Key Employee had engaged in conduct that would have justified a Termination of Employment for Cause, all outstanding Options held by the Key Employee shall immediately be canceled. Termination of Employment shall be deemed to be for "Cause" for purposes of this Section 7(c) if (i) the Key Employee shall have committed fraud or any felony in connection with his duties as an employee of the Company, willful misconduct or any act of disloyalty, dishonesty, fraud or breach of trust or confidentiality as to the Company, or any other act which is intended to cause or may reasonably be expected to cause economic or reputational injury to the Company or (ii) such termination is or would be deemed to be for Cause under any employment agreement between the Company and the Key Employee. 8. Nontransferability. No Option shall be transferable by the Participant otherwise than by will or under applicable laws of descent and distribution, and during the lifetime of the Participant may be exercised only by the Participant or his guardian or legal representative. In addition, no Option shall be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and no Option shall be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate any Option, or in the event of any levy upon any Option by reason of any execution, attachment or similar process contrary to the provisions hereof, such Option shall immediately become null and void. Notwithstanding the foregoing, the Committee may determine at the time of grant or thereafter that an Option (other than an Incentive Stock Option) that is otherwise not transferable pursuant to this Section 8, is transferable in whole or in part and in such circumstances and under such conditions, as specified by the Committee. 8 9. Rights as a Stockholder. A Participant (or a permitted transferee of his Options) shall have no rights as a stockholder with respect to any Shares covered by such Participant's Options until such Participant shall have become the holder of record of such Shares, and no adjustments shall be made for dividends in cash or other property or distributions or other rights in respect to any such Shares except as otherwise specifically provided for in this Plan. 10. Determinations. Each determination, interpretation or other action made or taken pursuant to the provisions of this Plan by the Committee shall be final and binding for all purposes and upon all persons, including, without limitation, the Participants, the Company, the directors, officers and other employees of the Company, and their respective heirs, executors, administrators, personal representatives and other successors in interest. 11. Termination, Amendment and Modification. The Plan shall terminate at the close of business on the tenth anniversary of the Effective Date, unless terminated sooner as hereinafter provided, and no Option shall be granted under the Plan on or after that date. The termination of the Plan shall not terminate any outstanding Options that by their terms continue beyond the termination date of the Plan. At any time prior to that date, the Board or the stockholders of the Company may terminate, suspend or amend the Plan; provided, however, that no amendment may be made that would require the approval of the stockholders of the Company under Rule 16b-3, Section 162(m) of the Code or, with respect to Incentive Stock Options, Section 422 of the Code, or under the rules of any exchange or system on which the Company's securities are listed or traded at the request of the Company, unless any such amendment is subject to such stockholder approval. No such Option may be exercised prior to the receipt of such stockholder approval. Nothing contained in this Section 11 shall be deemed to prevent the Board or the Committee from authorizing amendments of outstanding Options of Key Employees, so long as all Options outstanding at any one time shall not call for issuance of more Shares than the remaining number provided for under the Plan, and so long as the provisions of any amended Options would have been permissible under the Plan if such Option had been originally granted or issued as of the date of such amendment with such amended terms. Notwithstanding anything to the contrary contained in this Section 11, no termination, amendment or modification of the Plan may without the consent of the Participant (or any transferee of such Participant's Options), alter or impair the rights and obligations arising under any then outstanding Option. 12. Non-exclusivity. Neither the adoption nor the amendment of the Plan by the Board, nor the submission of the Plan or such amendments to the stockholders of the Company for approval, shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting or issuance of stock options, Shares and/or other incentives otherwise than under the Plan, and such arrangements may be either generally applicable or limited in application. 13. Use of Proceeds. The proceeds of the sale of Shares subject to Options under the Plan are to be added to the general funds of the Company and used for its general corporate purposes as the Board shall determine. 9 14. General Provisions. (a) Right to Terminate Employment. Neither the adoption or the amendment of the Plan nor the grant of Options shall impose any obligations on the Company to continue the employment of any Key Employee, nor shall it impose any obligation on the part of any Key Employee to remain in the employ of the Company, subject, however, to the provisions of any agreement between the Company and a Key Employee. (b) Purchase for Investment. If the Board determines that the law so requires, the holder of Options granted hereunder shall, upon any exercise or conversion thereof, execute and deliver to the Company a written statement, in form satisfactory to the Company, representing and warranting that such Participant is purchasing or accepting the Shares then acquired for such Participant's own account and not with a view to the resale or distribution thereof, that any subsequent offer for sale or sale of any such Shares shall be made either pursuant to (i) a registration statement on an appropriate form under the Securities Act of 1933 (the "Securities Act"), which registration statement shall have become effective and shall be current with respect to the Shares being offered and sold, or (ii) a specific exemption from the registration requirements of the Securities Act, and that in claiming such exemption the holder will, prior to any offer for sale or sale of such Shares, obtain a favorable written opinion from counsel approved by the Company as to the availability of such exception. (c) Trusts, etc. Nothing contained in the Plan and no action taken pursuant to the Plan (including, without limitation, the grant of any Option thereunder) shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and any Participant or the executor, administrator or other personal representative, or designated beneficiary of such Participant, or any other persons. Any reserves that may be established by the Company in connection with the Plan shall continue to be part of the general funds of the Company, and no individual or entity other than the Company shall have any interest in such funds until paid to a Participant. If and to the extent that any Participant or such Participant's executor, administrator, or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. (d) Notices. Each Participant shall be responsible for furnishing the Committee with the current and proper address for the mailing to such Participant of notices and the deliver to such Participant of agreements, Shares and payments. Any notices required or permitted to be given shall be deemed given if directed to the person to whom addressed at such address and mailed by regular United States mail, first class and prepaid. If any item mailed to such address is returned as 13 undeliverable to the addressee, mailing will be suspended until the Participant furnishes the proper address. (e) Severability of Provisions. If any provisions of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provisions had not been included. (f) Payment to Minors, etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and their employees, agents and representatives with respect thereto. 10 (g) Headings and Captions. The headings and captions herein are provided for reference and convenience only. They shall not be considered part of the Plan and shall not be employed in the construction of the Plan. (h) Controlling Law. The Plan shall be construed and enforced according to the laws of the State of Texas. 15. Issuance of Stock Certificates; Legends and Payment of Expenses. (a) Stock Certificates. Upon any exercise of Options and payment of the aggregate Purchase Price as provided in the relevant Option Agreements, a certificate or certificates for the Shares as to which Options have been exercised shall be issued by the Company in the name of the person or persons exercising such Options and shall be delivered to or upon the order of such person or persons. (b) Legends. Certificates for Shares issued upon exercise of Options shall bear such legend or legends as the Committee, in its discretion, determines to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or to implement the provisions of any agreements between the Company and a Key Employee with respect to such Shares. (c) Payment of Expenses. The Company shall pay all issue or transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer and with the administration of the Plan. 16. Listing of Shares and Related Matters. If at any time the Board shall determine in its sole discretion that the listing, registration or qualification of the Shares covered by the Plan upon any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the award or sale of Shares under the Plan, no Shares will be delivered unless and until such listing, registration, qualification, consent or approval 14 shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board. 17. Withholding Taxes. The Company shall be entitled to withhold (or secure payment from the Key Employee in cash or other property, including Shares already owned by the Key Employee for six (6) months or more (valued at the Fair Market Value thereof on the date of delivery) in lieu of withholding) the amount of any Federal, state or local taxes required to be withheld by the Company in connection with any Shares or cash payments deliverable under this Plan in respect of Options granted to any Key Employee, and the Company may defer delivery unless such withholding requirement is satisfied. The Committee may permit any such withholding obligation to be satisfied by reducing the number of Shares otherwise deliverable to the Key Employee. 11 -----END PRIVACY-ENHANCED MESSAGE-----