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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WINNERS ENTERTAINMENT, INC.
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
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/ / 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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PRELIMINARY COPY
WINNERS ENTERTAINMENT, INC.
1461 GLENNEYRE STREET
SUITE F
LAGUNA BEACH, CALIFORNIA 92651
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Winners Entertainment, Inc. to be held on October 15, 1996 at 10:00 a.m.
local time, at the Minneapolis Marriott, City Center, 30 South Seventh Street,
Minneapolis, Minnesota 55402.
The Notice of Annual Meeting and Proxy Statement which follow describe
the business to be conducted at the meeting. There will also be a brief report
on the current status of our business.
Whether or not you plan to attend the meeting in person, it is
important that your shares be represented and voted. After reading the Notice
of Annual Meeting and Proxy Statement, please complete, sign and date your
proxy ballot, and return it in the envelope provided.
On behalf of the Officers and Directors of Winners Entertainment,
Inc., I thank you for your interest in the Company and hope that you will be
able to attend our Annual Meeting.
For the Board of Directors,
EDSON R. ARNEAULT
Chairman of the Board of Directors and
President
September 13, 1996
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WINNERS ENTERTAINMENT, INC.
1461 GLENNEYRE STREET
SUITE F
LAGUNA BEACH, CALIFORNIA 92651
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Winners
Entertainment, Inc. will be held October 15, 1996 at 10:00 a.m. local time at
the Minneapolis Marriott, City Center, 30 South Seventh Street, Minneapolis,
Minnesota 55402, for the following purposes:
1. To elect four persons to serve as directors of the Company until the
next annual meeting of stockholders;
2. To amend the Company's Certificate of Incorporation to change the
Company's name to "MTR Gaming Group, Inc.";
3. To amend the Company's Certificate of Incorporation to effect a one
for five reverse split of the Company's Common Stock;
4. To amend the Company's Certificate of Incorporation to increase the
number of authorized shares of the Company's Common Stock from
25,000,000 to 50,000,000 in the event the proposed one for five
reverse stock split is not approved or from 5,000,000 to 10,000,000 in
the event the reverse stock split is approved;
5. To amend the Company's Certificate of Incorporation to create a new
class of Preferred Stock;
6. To ratify the adoption of the Company's 1996 Stock Option Plan;
7. To confirm Corbin & Wertz as the Company's accountants and independent
auditors; and
8. To transact such other business as may properly come before the
meeting.
Stockholders entitled to notice and to vote at the meeting will be
determined as of the close of business on August 29, 1996, the record date
fixed by the Board of Directors for such purposes.
By order of the Board of Directors,
THOMAS K. RUSSELL, Secretary
September 13, 1996
Please sign the enclosed proxy and return it promptly in the enclosed envelope.
Ifmailed in the United States, no postage is required.
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WINNERS ENTERTAINMENT, INC.
1461 GLENNEYRE STREET
SUITE F
LAGUNA BEACH, CALIFORNIA 92651
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PROXY STATEMENT
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INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the management of Winners Entertainment, Inc. (the "Company") for
use at the Annual Meeting of Stockholders to be held on October 15, 1996.
A copy of the Company's report for the year ended December 31, 1995,
containing financial statements for such fiscal year is enclosed herewith.
This proxy statement and form of proxy were first sent to stockholders on or
about the date stated on the accompanying Notice of Annual Meeting of
Stockholders.
Only stockholders of record as of the close of business on August 29,
1996 will be entitled to vote at the meeting and any adjournments thereof. As
of that date, 18,869,397 shares of Common Stock of the Company were issued and
outstanding. Each share outstanding as of the record date will be entitled to
one vote, and stockholders may vote in person or by proxy. Execution of a
proxy will not in any way affect a stockholder's right to attend the meeting
and vote in person. Any stockholder giving a proxy has the right to revoke it
at any time before it is exercised by written notice to the Secretary of the
Company or by submission of another proxy bearing a later date. In addition,
stockholders attending the meeting may revoke their proxies at any time before
they are exercised.
If no contrary instructions are indicated, all properly executed
proxies returned in time to be cast at the meeting will be voted FOR (i) the
election of the directors nominated herein, (ii) the adoption of an amendment
to the Company's Certificate of Incorporation changing the Company's name,
(iii) the adoption of an amendment to the Company's Certificate of
Incorporation effecting a one for five reverse split of the Company's Common
Stock, (iv) the adoption of an amendment to the Company's Certificate of
Incorporation increasing the number of shares of the Company's Common Stock
from 25,000,000 to 50,000,000 if the proposed reverse stock split is not
approved or from 5,000,000 to 10,000,000 if the reverse split is approved, (v)
the adoption of an amendment to the Company's Certificate of Incorporation to
create a new class of Preferred Stock, (vi) the ratification of the adoption of
the Company's 1996 Stock Option Plan, and (vii) the ratification of the
auditors. Members of the Company's
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management intend to vote their shares in favor of each of the proposals. A
quorum for the meeting requires the presence in person or by proxy of
stockholders entitled to cast a majority of the votes entitled to be cast at
the meeting. The election of directors requires a plurality of the votes cast
at the meeting. The adoption of each of the proposed amendments to the
Company's Certificate of Incorporation requires the affirmative vote of a
majority of the Company's outstanding shares. The ratification of the adoption
of the Company's 1996 Stock Option Plan and the ratification of the auditors
requires the affirmative vote of a majority of the shares present at the
meeting.
Stockholders will vote at the meeting by ballot and votes cast at the
meeting in person or by proxy will be tallied by the Company's transfer agent.
Shares held by stockholders present in person at the meeting who do not vote
and Ballots marked "abstain" or "withheld" will be counted as present at the
meeting for quorum purposes, but will not be counted as part of the vote
necessary to approve the proposals for the election of directors or the
ratification of the auditors. However, each of the proposed amendments to the
Company's Certificate of Incorporation requires the affirmative vote of the
majority of the Company's outstanding shares and thus an abstention will in
effect be a vote against the adoption of the amendments. "Broker non-votes"
(i.e., shares represented by proxies, received from a broker or nominee,
indicating that the broker or nominee has not voted the shares on a matter with
respect to which the broker or nominee does not have discretionary voting
power) will be treated in the same manner as abstentions.
The solicitation of proxies will be made primarily by mail. Proxies
may also be solicited personally and by telephone or telegraph by regular
employees of the Company, without any additional remuneration. The cost of
soliciting proxies will be borne by the Company. In addition, the Company may
also retain a proxy solicitation firm to solicit proxies, in which case, the
fees of any such firm will be paid by the Company. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries to
forward solicitation material to beneficial owners of such stock held of record
by such persons, and the Company will reimburse such persons for reasonable
out-of-pocket expenses in so doing.
The Company knows of no other matter to be presented at the meeting.
If any other matter should be presented at the meeting upon which a vote
properly may be taken, shares represented by proxies received by the Company
will be voted with respect thereto in accordance with the judgment of the
persons named as proxies.
ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office
until the next annual meeting and until their successors have been elected and
have qualified. The Company's Board of Directors (the "Board") has fixed the
number of directors at four, each of whom serves for a term of one year, or
until their successors are elected and qualify.
Any stockholder submitting a proxy has the right to withhold authority
to vote for an individual nominee to the Board by writing that nominee's name
in the space provided on the
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proxy. Shares represented by all proxies received by the Company and not so
marked as to withhold authority to vote for any individual director or for all
directors will be voted FOR the election of the nominees named below. The
Company knows of no reason why any such nominee should be unable to serve, but
if such should be the case, proxies will be voted for the election of some
other person.
NOMINEES FOR DIRECTORS
The Board has nominated the following persons to serve as Company's
directors, and all proxies not marked otherwise will be voted for the such
nominees, for a term expiring at the Annual Meeting in 1997:
EDSON R. ARNEAULT, 49, has served as the Company's President and Chief
Executive Officer since April 26, 1995. He is also a member of the Board and
an officer and director of the Company's subsidiaries Mountaineer Park, Inc.
("Mountaineer Park"), ExCal Energy Corporation ("ExCal"), and Golden Palace
Casinos, Inc. ("Golden Palace"). He has served as a member of the Board since
1992, when he was elected President of ExCal. Mr. Arneault is also president
and chief executive officer of Century Energy Management Co., Inc., which he
founded in 1987, and general partner of numerous partnerships directly or
indirectly engaged in the development and production of oil and gas. Mr.
Arneault also engages in oil and gas leasing, drilling and operation through
Biscayne Petroleum Corporation, which he founded in 1987, and in natural gas
transmission through Newport Transmission, Inc., which he founded in 1993.
Since becoming President of the Company and Mountaineer Park, however, Mr.
Arneault has devoted virtually all his time and attention to the business of
the Company. Mr. Arneault is a certified public accountant, and served as a tax
partner with Seidman and Seidman (now "BDO Seidman"), a public accounting firm,
in Grand Rapids, Michigan, from 1977 to 1980. Mr. Arneault is a member of the
Independent Producers Association of America, the Ohio Oil and Gas Association,
the Michigan Oil and Gas Association and the Michigan Association of Certified
Public Accountants.
THOMAS K. RUSSELL, 43, has served the Company as its secretary,
treasurer, chief financial officer, general counsel and a director since
December 1989. Mr. Russell is also an officer and director of ExCal and
Mountaineer Park. Mr. Russell is an attorney with responsibility for the
management of compliance, litigation and general legal matters. From 1979 to
1989, he was a practicing attorney in Tustin and Palos Verdes, California
emphasizing business litigation, medical malpractice and representation of
American Indian Tribes in tribal and federal courts and legislative and
administrative matters. Since 1975, Mr. Russell has served as an officer or
director of various corporations engaged in the oil, mining, hotel, equipment
leasing, wholesale travel and motion picture businesses. Mr. Russell received
his Bachelor of Arts in Marketing from California State University at Fullerton
in 1975 and his Juris Doctor from Pepperdine University in 1978. He has been
an active member of the State Bar of California since 1979.
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ROBERT L. RUBEN, 34, is a principal in Freer & McGarry, P.C., a
Washington, D.C. law firm, where he has practiced since 1991. Mr. Ruben is also
a director of Mountaineer Park. From 1986 to 1988, Mr. Ruben was associated
with the firm of Bishop, Cook, Purcell & Reynolds, which later merged with
Winston & Strawn, and from 1989 to 1991, Mr. Ruben was associated with the firm
of Wickens, Koches & Brooks. Mr. Ruben practices principally in the areas of
commercial litigation and corporate/securities law. Freer & McGarry, P.C. has
served as counsel to the Company since November of 1991, and Mr. Ruben has
represented Mr. Arneault and various of his affiliates since 1987.
ROBERT A. BLATT, 55, is the Chief Executive Officer of Island Golf
Resorts, L.L.C., Championship Golf Enterprises, L.L.C., and Golf Development
Services, Limited of St. John's Antigua, and member of the board of
directors of AFP Imaging Corporation. Mr. Blatt is also a director of
Mountaineer Park. Since 1979 he has been chairman and majority owner of CRC
Group, Inc., and related entities, and since 1985, a member (seat owner) of the
New York Stock Exchange, Inc. From 1959 through 1991, Mr. Blatt served as
director, officer or principal of numerous public and private enterprises.
Mr. Blatt received his Bachelor of Science in Finance from the University of
Southern California in 1962 and his Juris Doctor from the University of
California at Los Angeles in 1965. He is a member of the State Bar of
California (inactive) and a Registered General Principal, NASD and New York
Stock Exchange, Inc.
The Board held five regular meetings and eight special meetings
during the fiscal year ended December 31, 1995. All directors attended at
least 75% of the total number of meetings of the Board. Mr. Ruben and Mr. Blatt
make up the Board's Compensation Committee.
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EXECUTIVE OFFICERS
The following persons serve as the officers indicated:
Principal
Occupation
Name and Address Position Last 5 Years
---------------- -------- ------------
EDSON R. ARNEAULT* Director, President, Excal Energy Corp.
7199 Thornapple River President, CHIEF and Century
Drive Executive Officer Energy Management Co., Inc.
Ada, MI 49306
THOMAS K. RUSSELL** Director, Secretary and Law, corporate finance
1461 Glenneyre Treasurer
Street
Laguna Beach,
CA 92651
- --------------------
* Also an officer and director of ExCal, Golden Palace and Mountaineer
Park, the Company's subsidiaries.
** Also an officer and director of ExCal and Mountaineer Park.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of August 29, 1996, the ownership
of the presently issued and outstanding shares of the Company's Common Stock by
persons owning more than 5% of such stock, and the ownership of such stock by
the Company's officers, directors and key employees, individually and as a
group. As of August 29, 1996 there were 18,869,397 shares of common stock
outstanding. All such shares were owned both beneficially and of record, except
as otherwise noted.
AMOUNT AND
NATURE OF BENE- PERCENTAGE
NAME AND ADDRESS FICIAL OWNERSHIP OF CLASS
---------------- ---------------- --------
Edson R. Arneault(1) 2,412,133 12.3
7199 Thornapple Drive
Ada, MI 49301
Donald G. & Bonnie Saunders 1,842,685 9.5
1987 Family Trust(2)
900 East Desert Inn Road, Suite 521
Las Vegas, Nevada 89109
Bennett Management & Development Corp.(3)
2 Clinton Square 1,530,000 8.1
Syracuse, NY 13202
Thomas K. Russell(4) 540,626 2.8
1461 Glenneyre Street, Suite F
Laguna Beach, CA 92677
Robert A. Blatt(5) 391,684 2.1
The CRC Group
Larchmont Plaza
1890 Palmer Avenue, Suite 303
Larchmont, NY 10538
Robert L. Ruben(6) 113,228 0.6
Freer & McGarry, P.C.
1000 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
All officers and directors as a 3,457,671 17.1
group (4 persons)(7)
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- ----------------------------------
(1) Includes 1,652,384 shares and options to acquire beneficial
ownership of 759,749 shares within 60 days held by
Mr. Arneault or his affiliates.
(2) Includes 1,216,816 shares and options to acquire beneficial
ownership of 625,869 shares within 60 days.
(3) Includes 780,000 shares for which voting rights have been
assigned to the Board to satisfy licensing requirements of the
West Virginia Lottery Commission.
(4) Includes 103,810 shares and options to acquire beneficial
ownership of 436,816 shares within 60 days held by Mr.
Russell.
(5) Includes 341,684 shares and options to acquire beneficial
ownership of 50,000 shares within 60 days held by Mr. Blatt.
(6) Includes 38,228 shares and options to acquire beneficial
ownership of 75,000 shares within 60 days held by Mr. Ruben.
(7) Includes Messrs. Arneault, Russell, Blatt and Ruben.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the provisions of Section 16(a) of the Securities Exchange Act
of 1934, the Company's officers, directors and 10% beneficial stockholders are
required to file with the SEC reports of their transactions in the Company's
securities. Based solely on a review of the Forms 3 and 4 and amendments
thereto furnished to the Company during its most recent fiscal year and Forms 5
and amendments thereto furnished to the Company with respect to its most recent
fiscal year, the Company believes that certain forms were not filed timely by
the Company's officers, directors and 10% beneficial stockholders.
Of these persons, Mr. Arneault did not file one report and filed seven
late reports relating to six transactions, Mr. Russell filed three late reports
relating to two transactions, Mr. Ruben filed three late reports relating to
one transaction, Mr. Blatt filed three late reports relating to two
transactions and Mr. Saunders did not file one report and filed six late
reports relating to 10 transactions. In addition, the Company has not received
at least six reports from Mr. Michael Dunn, the Company's former President,
relating to nine transactions or holdings known to the Company.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded, paid to or
earned by the most highly compensated executive officers of the Company whose
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
=================================================
LONG TERM COMPENSATION
-------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
==========================================================================================
OTHER RESTRICTED
ANNUAL STOCK OPTIONS LTIP ALL
SALARY BONUS COMP. AWARDS SARS PAYOUTS OTHER
NAME YEAR ($) ($) ($) ($) ($) ($) COMP.
---- ---- --------- -------- --------- --------- --------- --------- -----
=======================================================================================================================
(1) (2) (3) (4) (5) (6)
EDSON R. ARNEAULT 1995 213,652 23,000 -- -- 618,415 -- --
President and CEO -----------------------------------------------------------------------------------------
of Mountaineer Park, Inc. 1994 188,729 -- 4,021 46,000 -- -- --
ExCal Energy Corporation -----------------------------------------------------------------------------------------
1993 151,865 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
THOMAS K. RUSSELL 1995 147,288 -- -- -- 357,316 -- --
Secretary, Treasurer, CFO -----------------------------------------------------------------------------------------
General Counsel of 1994 134,075 -- 2,789 -- -- -- --
Winners Entertainment, -----------------------------------------------------------------------------------------
Inc. 1993 109,597 16,250 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MICHAEL R. DUNN (6) 1995 38,659 -- -- -- -- -- 176,973
President and CEO of -----------------------------------------------------------------------------------------
Winners Entertainment, 1994 204,437 -- 12,500 -- 240,000 -- --
Inc. -----------------------------------------------------------------------------------------
1993 161,436 36,250 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Compensation paid to all
officers and directors as 1995 399,599 23,000 -- -- 975,731 -- --
a group during 1995
=======================================================================================================================
- ---------------------------------
(1) Salaries for Mr. Arneault and Mr. Russell include accrued compensation
for the year ended December 31, 1995 of $144,667 and $41,554,
respectively. Subsequent to December 31, 1995, said amounts, together
with interest at the rate of 10% per annum, were converted to shares
of the Registrant's common stock at the market value of the shares on
February 9, 1996, the effective date of the conversion.
(2) Represents accrued 1994 vacation compensation for executive officers
distributed in 1994.
(3) Represents the dollar value of a stock award of 20,000 shares of
restricted common stock.
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(4) No options were granted in 1994 or 1993. All options granted by the
board of directors in 1995 were approved by vote of the stockholders
at the Registrant's annual meeting of shareholders held September 11,
1995.
(5) See "Employment Agreements" below.
(6) Mr. Dunn resigned from all offices with the Registrant and its
subsidiaries on April 26, 1995.
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The following table of contains information concerning the grant of
stock options during fiscal 1995 to the Company's executive officers named in
the Summary Compensation Table.
OPTIONS GRANTS IN 1995
============================
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM
=============================================================================================================
% OF TOTAL
OPTIONS
OPTIONS GRANTED IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PIRCE DATE 5% 10%
---- ------- ------------ --------- ----------- -------- ---------
=============================================================================================================
378,415 45.98% $1.219 Sep. 1998 $72,711 $152,686
EDSON R. ARNEAULT ------------------------------------------------------------------------------------
240,000 30.00% $2.000 (1) Oct. 1997 0 0
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
222,316 27.01% $1.219 Sep. 1998 $42,176 $89.702
THOMAS K. RUSSELL ------------------------------------------------------------------------------------
135,000 11.25% $2.000 (1) Oct. 1997 0 0
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
MICHAEL R. DUNN 240,000 20.00% $2.000 (1) Oct. 1997 0 0
=============================================================================================================
- ------------------------------
(1) In October 1992, the Board granted incentive stock options to certain
executive officers, key personnel and employees to purchase, in the
aggregate, 1,200,000 shares of the Company's Common Stock for a price
of $4.875 per share. In December, 1994, the Board voted and
shareholders approved at the annual shareholders' meeting, to reduce
the exercise price of such incentive stock options from $4.875 to
$2.00 per share.
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The following table sets forth information regarding the number and
value of options held by each of the Company's executive officers named in the
Summary Compensation Table during fiscal 1995. None of the named executive
officers exercised any stock options during fiscal 1995.
FISCAL YEAR END OPTION VALUES
=================================================================================================================
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS AT FISCAL
UNEXERCISED OPTIONS AT FISCAL YEAR END (2) YEAR END ($) (1)
=================================================================================================================
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
- -----------------------------------------------------------------------------------------------------------------
EDSON R. ARNEAULT 759,749 -- 0 --
- -----------------------------------------------------------------------------------------------------------------
THOMAS K. RUSSELL 436,816 -- 0 --
- -----------------------------------------------------------------------------------------------------------------
MICHAEL R. DUNN 419,133 -- 0 --
=================================================================================================================
- ---------------------------------
(1) Based on the market price of the Company's common stock at $0.75 on
December 31, 1995, as reported by Nasdaq.
(2) On January 23, 1996, the Company, pursuant to a qualified incentive
stock option plan, granted to Mr. Arneault and Mr. Russell, option to
purchase 300,000 shares and 100,000 shares of the Company's common
stock, respectively, at the estimated fair market value price on the
date of grant of $0.5625, the options are subject to approval at the
next annual meeting of shareholders. Such options grants were made in
1996, and are not reflected in the table above.
The following table sets forth the number of options held by officers
of the Company subject to repricing during the fiscal year ended December 31,
1995. See table entitled "Option Grants in 1995 - footnote (1), above.
TEN-YEAR OPTIONS/SAR REPRICINGS
====================================================================================================================
MARKET LENGTH OF
PRICE OF EXERCISE ORIGINAL
STOCK AT PRICE AT OPTION TERM
NUMBER OF REPRICING TIME OF NEW REMAINING AT
OPTION/SARS OR REPRICING OR EXERCISE DATE OF
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE REPRICING OR
FISCAL YEAR ($) ($) ($) AMENDMENT
====================================================================================================================
EDSON R. ARNEAULT Sep. 95 240,000 1.563 4.875 2.00 2 years
- --------------------------------------------------------------------------------------------------------------------
THOMAS K. RUSSELL Sep. 95 240,000 1.563 4.875 2.00 2 years
- --------------------------------------------------------------------------------------------------------------------
MICHAEL R. DUNN (6) Sep. 95 135,000 1.563 4.875 2.00 2 years
====================================================================================================================
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EMPLOYMENT AGREEMENTS
Messrs. Arneault and Russell each have an employment agreement with
the Company. Each agreement provides for a three year period of employment by
the Company of each of these individuals in the office that such individual
presently occupies. Both agreements terminate on May 9, 1998. Each employment
agreement provides that the employee will receive a base salary with annual
cost of living adjustments, increases contingent on certain events and bonuses
at the discretion of the Board. In Mr. Arneault's case the base salary is
$240,345 and Mr. Russell's base salary is $165,375.
Each agreement provides that if the employee's period of employment is
terminated by reason of death or physical or mental incapacity the Company will
continue to pay the employee or his estate the compensation otherwise payable
to the employee for a period of two years. If the employee's period of
employment is terminated for a reason other than death or physical or mental
incapacity or for cause, the Company will continue to pay the employee the
compensation that otherwise would have been due to him for the remaining period
of employment. If the employees' period of employment is terminated for cause,
the Company will have no further obligation to pay the employee, other than
compensation unpaid at the date of termination. The term "cause" is defined by
the agreement as (i) conviction of a felony, (ii) embezzlement or
misappropriation of funds or property of the Company or its affiliates, or
(iii) the employee's refusal to substantially perform, or willful misconduct
in the performance of, his duties and obligations under the agreement.
In the event that the termination of the employee's period of
employment occurs after there has been a change of control of the Company and
(i) the termination is not for cause or by reason of the death or physical or
mental disability of the employee or (ii) the employee terminates his
employment for good reason, then the employee will have the right to receive
within thirty days of the termination a sum that is three times his annual base
salary, but not to exceed the amount deductible by the Company under the
Internal Revenue Code of 1986. The term "change of control" means (i) any
change of control of the Company that would be required to be reported on
Schedule 14A under the Securities Exchange Act of 1934, (ii) any person
becoming the direct or indirect beneficial owner of 20% or more of the
Company's outstanding voting securities, other than a person who was an officer
or director of the Company on the date of the agreement or (iii) the
circumstance in which the present directors of the Company do not constitute a
majority of the Board. The term "good reason" means (i) the assignment to the
employee of any duties that in the employee's judgment are inconsistent with,
or constitute a diminution of, the employee's position, authority, duties or
responsibilities, (ii) the employee's involuntary relocation from San Juan
Capistrano, California or (iii) the Company's failure to comply with the
compensation provisions of the agreement.
Each agreement provides that, during the term of the agreement, the
employee will not compete with the business or any contemplated business of the
Company either individually or as an officer, director, stockholder, employee,
agent, partner or consultant of any entity at any
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location within ninety miles of any location at which the Company does business
or at which the employee knows that the Company contemplates doing business.
STOCK PERFORMANCE GRAPH
The following graph demonstrates a comparison of cumulative total
returns of the Company, the NASDAQ Market Index (which is considered to be a
broad index) and an industry peer group index based upon companies which are
publicly traded with the same four digit standard industrial classification
code ("SIC") as the Company (SIC 7999 Amusement and Recreational Services) for
the past five years. The beginning date for the graph is December 7, 1992, the
date on which the Company's Common Stock was first quoted on NASDAQ. The
following graph assumes $100 invested in each of the above groups and the
reinvestment of dividends.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG WINNERS ENTERTAINMENT, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
COMPANY 1992 1992 1993 1994 1995
- ------- ---- ---- ---- ---- ----
Winners Entertainment . . . . . . . . 100.00 88.71 53.23 15.32 9.68
Peer Group . . . . . . . . . . . . . 100.00 98.50 159.70 126.70 182.72
NASDAQ Market Index . . . . . . . . . 100.00 102.56 123.02 129.17 167.54
ASSUMES $100 INVESTED ON DEC. 7, 1992
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1995
(1) The peer group consists of the following companies: American Bingo &
Gaming; Argosy Gaming Co.; Boomtown, Inc.; Boyd Gaming Co.; Casino
America, Inc.; Childrobics, Inc.; Cinema Ride, Inc.; Crown Casino
Corp.; Gaming Corp. of America; Gaming World International; Global
Outdoors, Inc.; Grand Casinos, Inc.; Grand Gaming Corp.; Griffin
Gaming & Entertainment; Imax Co.; Jillian's Entertainment; Mirage
Resorts, Inc.; Mountasia Entertainment Int.; President Casinos, Inc.;
Quintel Entertainment; Renaissance Entertainment CP; S-K-I Ltd; Sands
Regent; Santa Fe Gaming Corp.; Sky Games International, Ltd.; Skyline
Multimedia Entertainment; Stratosphere Co.
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COMPENSATION OF DIRECTORS
Mr. Ruben and Mr. Blatt are entitled to receive a fee of $2,500 for
each quarterly Board meeting that they attend and are also entitled to be
reimbursed for out-of-pocket expenses incurred in attending Board meetings.
Directors who are employees of the Company do not receive compensation for
attendance at Board meetings, but are entitled to reimbursement for expenses
that they incur in attending such meetings.
On January 23, 1996, Mr. Ruben and Mr. Blatt were granted options to
purchase 75,000 and 50,000 shares of the Company's Common Stock, respectively,
at the fair market value on the date of the grant of $0.5625 per share. The
options are exercisable at any time and from time to time in whole of in part
for a period of five years from the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On November 8, 1995, the Board voted to form an executive compensation
committee consisting of Mr. Ruben and Mr. Blatt, the Company's two non-employee
directors (the "Committee"). The Committee is authorized to review all
compensation matters involving directors and executive officers and Committee
approval is required for any compensation to be paid to executive officers or
directors who are employees of the Company.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Policy
The Committee's decisions with respect to executive compensation
will be guided by the general principle that compensation be designed (i) to
assure that the Company's executives receive fair compensation relative to
their peers at similar companies; (ii) to assure that the Company's
shareholders are receiving fair value for the compensation paid to the
Company's executives; and (iii) to allow the Company to secure and retain the
services of high quality executives.
The Company's compensation program will consist of three elements: a
base salary; annual incentives in the form of cash or restricted stock bonuses;
and long-term incentives in the form of stock options. The Committee believes
that annual incentives, or bonuses, should be used to reward an executive for
exceptional performance. The determination of what constitutes exceptional
performance is, at this stage, a subjective judgment by the Committee based on
the executive's contribution to the Company's revenues, legislative and
regulatory efforts,
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recruitment of high quality personnel, elevating public awareness and
perception of the Company's gaming resort, and development of the Company's
prospects.
Stock options allow the Company to motivate executives to increase
stockholder value. This type of incentive also allows the Company to recruit
members of the management team whose contributions and skills are important to
its long-term success. In light of the Company's history of operating losses
and periodic cash flow shortages, incentives in the form of stock options
provide a method of increasing an executive's overall compensation to
competitive levels without cash expenditures.
For the next three years, the base salary for the Company's two
executives, Mr. Arneault and Mr. Russell, has been established, subject to
annual cost of living adjustments, pursuant to employment contracts that were
executed in May of 1994. Raises in base salary tied to increases in the number
of video lottery terminals in operation at the Company's resort were also
established by the employment contracts. Further, in connection with the
Company's recent second mortgage financing, the Company agreed that no
executive's salary would be raised more than 20% per year while the second
mortgage is outstanding. The Committee will, of course, comply with that agreed
restriction on executive compensation.
Because of the Company's then existing cash flow, a total of $186,221
of base salary, bonus and other accrued compensation owed to the Company's
executives remained unpaid at December 31, 1995. To address this situation,
the Committee recommended, and on February 9, 1996, the Board agreed, to issue
in the aggregate approximately 466,676 shares of the Company's Common Stock to
the executives in satisfaction of this underpayment (plus accrued interest of
$3,366 calculated at the rate of 10% per annum) based on that day's closing
market price of $.40625 per share. The agreements pursuant to which the shares
were issued provide that, for a term of one year, in the event the executives
propose to sell any of the shares, they shall be required to notify the Company
of such intention, and the Company shall have the option to repurchase the
shares at $1.00 per share. The Company may also, at its sole option, redeem
the shares at any time for $1.00 per share.
The executives' employment agreements also provide that bonuses may be
awarded in the discretion of the Board. The Board, in turn, has delegated to
the Committee the task of recommending annual bonuses.
Chief Executive Officer Compensation
During 1995, Mr. Arneault, who became chief executive officer of the
Company and its Mountaineer Park, Inc. subsidiary in April upon the resignation
of Michael Dunn, was paid in accordance with his employment contract, modified
as set forth above by the issuance of 361,017 shares of the Company's Common
Stock in satisfaction of $146,663.29 of salary.
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Mr. Arneault was granted a bonus of $23,000 for 1995. Because of the
Company's then existing cash flow, however, the bonus remained unpaid at
December 31, 1995. To address that situation, the Committee recommended, and
the Board approved as part of the February 9, 1996 agreement, to issue Mr.
Arneault 56,615 shares of the Company's Common Stock in satisfaction of this
underpayment based on that day's closing market price of $.40625 per share.
The shares are subject to the same restrictions on resale and redemption rights
that govern the shares issued in consideration of unpaid salary as described
above.
In January of 1996, the Committee recommended, and the Board approved
- -- subject to shareholder approval -- that Mr. Arneault be granted options to
purchase 300,000 shares of the Company's Common Stock pursuant to the Company's
1996 Stock Option Plan. In deciding upon Mr. Arneault's bonus and the award of
options, the Committee took into account (i) Mr. Arneault's increased
responsibilities as chief executive officer; (ii) his continued responsibility
for the implementation of the Company's plan of divestiture of its oil and gas
assets; (iii) his success in substantially increasing the Company's revenues;
and (iv) his successful management of the Company's relationship with West
Virginia racing and lottery officials when the late filing of financial reports
by Bennett Management & Development Corporation, the Company's construction
lender, jeopardized the June 1995 renewal of the Company's racing and lottery
licenses. It is contemplated that the Company will enter into a new employment
agreement with Mr. Arneault in 1996 to reflect his new position and duties with
the Company. Any new agreement will be consistent with the policy stated
above.
Respectfully submitted,
Robert A. Blatt
Robert L. Ruben
CERTAIN TRANSACTIONS
On December 16, 1994, ExCal entered into an agreement to sell its Ohio
oil and gas leases pursuant to the Company's March 1993 plan of orderly
liquidation to Development & Acquisition Ventures in Energy, Inc. ("DAVE"), a
corporation that is controlled by David T. Arneault, the brother of Edson R.
Arneault. The buyer agreed to pay ExCal a total of $450,000 in the form of (i)
a promissory note in the amount of $300,000 bearing interest at 8% per annum
and payable in monthly installments of $10,000 beginning six months after the
sale and (ii) $150,000 payable from 50% of the portion of the monthly net
revenues of the wells in excess of $10,000. In addition, if the leases are
sold, ExCal is to receive any unpaid balance of the $150,000 plus 50% of the
payments received from the sale. The bid submitted by DAVE was the highest of
four independent bids received by the Company. DAVE is current in its payments
under the notes.
The original acquisition of the oil and gas leases by ExCal was part
of a larger transaction involving the acquisition by ExCal of 77 operating gas
wells formerly owned by 18 limited partnerships (the "Partnerships") controlled
by Edson R. Arneault in exchange for $100,000 in cash, a $790,000 non-interest
bearing note (of which $100,000 was paid on
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December 31, 1992, the balance being due during 1993) and 50,000 shares of the
Company's Common Stock. The Company and the Partnerships entered into
modifications of their agreement dated March 25 and November 17, 1993, March
30, August 10, and September 30, 1994, March 30, 1995 and October 1, 1995.
Under the terms of the September 30 modification, the balance remaining to be
paid by the Company to the Partnerships was $590,000, which the Company
satisfied by the payment of $100,000 in cash and the issuance of 98,333 shares
of its Common Stock to the Partnerships. The shares issued to the
Partnerships, together with 5,000 additional shares issued in consideration of
the Partnerships' agreement to extend the date for registration, were to be
registered for public sale under the Securities Act. Because the registration
statement covering the Partnerships' shares did not become effective before
March 31, 1995, the March 30, 1995 modification of the agreement (i) increased
the interest rate on the note representing the $590,000 balance to 10%, (ii)
reduced the balance to $467,084 by crediting the note with the average share
price of the Company's Common Stock for the first 14 days that the shares were
eligible for sale under Securities and Exchange Commission rule 144, and (iii)
amended the payment schedule to provide for payments of interest only from May
1, 1995 through October 1, 1995 and twelve payments of principal and interest
from November 1, 1995 through October 1, 1995 calculated on a 36 month
amortization schedule with a balloon payment of the unpaid balance on October
1, 1995. Pursuant to the October 1, 1995 modification, the outstanding balance
was retired through the issuance of 373,600 shares of the Company's Common
Stock.
During 1994 and 1995, various corporate affiliates of Mr. Arneault
advanced an aggregate sum of approximately $100,000 to ExCal primarily to cover
overhead expenses in connection with the maintenance of leases and other costs
associated with the Company's existing oil and gas interests in Michigan and
the Company's former interests in Ohio. In February 1996, such accrued amount,
along with accrued interest at the rate of 10% per annum, was converted into a
demand promissory note in the principal amount of $100,218 payable to Mr.
Arneault at the rate of 10% per annum.
To assist Fleur-David Corporation, the Company's joint venture partner
in rework activities related to the Company's plan of orderly liquidation of
its oil and gas interests in Michigan, Mr. Arneault purchased 25,000 shares of
the Company's Common Stock held by Fleur-David in July 1995 in a private
transaction.
During 1995, Thomas Russell and Mark C. Russell, his brother, each
purchased a working interest in the Marathon-Otter Lake oil and gas reserves in
Michigan, owned in part by the joint venture between the Company and
Fleur-David for an aggregate amount of approximately $50,000. The subject
working capital interests and others were offered by Fleur-David to raise
capital to finance further rework and remediation activities at the property.
Mr. Robert Ruben is a principal in the law firm of Freer & McGarry,
P.C., which has performed legal services for the Company since 1991. During
the fiscal year ended December 31, 1995, the Company paid Freer & McGarry the
sum of $86,295 for legal services. The
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Company and Freer & McGarry anticipate that the law firm will perform legal
services for the Company in the future.
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
A proposal will be presented at the Annual Meeting to amend the
Company's Certificate of Incorporation to change the Company's name to "MTR
Gaming Group, Inc." The new name is derived from Mountaineer Race Track and
Gaming Resort and, coupled with the planned relocation of the Company's
headquarters from California to West Virginia, is designed to demonstrate that
the Company's primary focus is on the operation of Mountaineer. The text of the
proposed amendment is attached as Exhibit A.
The affirmative vote of a majority of the Company's outstanding Common
Stock is required for the approval of the amendment. The management of the
Company recommends a vote FOR the amendment.
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
A proposal will be presented at the Annual Meeting to amend the
Company's Certificate of Incorporation to effect a one for five reverse split
of the Company's Common Stock whereby every five shares prior to the split will
become one share after the split. The text of the proposed amendment is
attached as Exhibit B.
The purpose of the reverse split is (i) to make the stock more
attractive to investors and (ii) to increase the per share trading price of the
Company's Common Stock in an effort to qualify the Common Stock during fiscal
year 1997 for listing on the Nasdaq Stock Market Nation Market System and to
make the Common Stock eligible for inclusion as margin stock under the margin
rules of the SEC.
A stock that trades for a continued period of time outside a broad
middle range of prices is less attractive to both investors and to
broker/dealers who wish to make a market in the stock. For two years, the
Company's Common Stock has traded at prices below the low end of that range.
The Company believes that one of the reasons for this is the large number of
shares that are outstanding compared to the market interest in the stock and
that the proposed reduction in the number of outstanding shares will help to
remedy this situation.
An issuer of common stock must satisfy several criteria in one of two
alternatives in order for the common stock to be listed on the National Market
System. Under the first alternative:
(1) The issuer must have had annual pre-tax income of at least
$750,000 and net income of at least $400,000 in the most recently completed
fiscal year or in two of the last three most recent fiscal years.
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(2) There are 500,000 publicly held shares.
(3) The market value of the publicly held shares is at least
$3,000,000.
(4) The price per share on each of the five business days
prior to the date of application by the issuer is $5 or more.
(5) The issuer has net tangible assets of at least $4,000,000.
(6) The issuer has a minimum of 800 shareholders if the issuer
has 500,000 to 1,000,000 shares publicly held or 400 shareholders if the issuer
has either (i) over 1,000,000 shares publicly held or (ii) over 500,000 shares
publicly held and average daily trading volume in excess of 2,000 shares per
day for the six months preceding the date of application.
(7) At least two dealers act as Nasdaq market makers with
respect to the security.
Under the second alternative:
(1) The issuer must have net tangible assets of at least
$12,000,000.
(2) There are at least 1,000,000 publicly held shares.
(3) The market value of the publicly held shares is at least
$15,000,000.
(4) The price per share on each of the five business days
preceding the application is $3 or more.
(5) At least two dealers act as Nasdaq market makers.
(6) The issuer has a three-year operating history.
(7) The issuer has a minimum of 400 shareholders.
The Board believes that the listing of the Company's Common
Stock on the National Market System would increase the market interest in the
Common Stock. In addition, the listing of the Common Stock on the National
Market System would exempt the stock from many provisions of the securities
laws of most of the states. Although an increase in the bid price of the
Company's Common Stock would not in itself be sufficient to meet all of the
Nasdaq listing criteria at the present time, the Board believes that the
Company will meet the other listing criteria after the end of the current
fiscal year. Accordingly, the Board has proposed the reverse stock split in
order to increase the bid price of the Company's Common Stock to a point that
will satisfy the listing price criterion. Although there can be no assurance
that the price would increase sufficiently to meet the National Market System
criterion, the
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Company's management nevertheless believes that the action should be taken in
order to increase the bid price and attempt to qualify.
If this amendment is approved, each holder of Common Stock will own
one share for each five shares owned before the approval of the amendment. In
this event, each holder will be notified of the procedure to be followed in
exchanging certificates representing the old number of shares for certificates
representing the new number of shares. If the reduction in the number of
outstanding shares should result in the creation of fractional shares,
no fractional shares will be issued and the holder will receive cash in the
amount of the fair market value of the fractional shares to which the holder
would otherwise be entitled.
The affirmative vote of the majority of the outstanding shares of the
Company's Common Stock is required for the approval of the amendment.
Management of the Company recommends a vote FOR the amendment.
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
A proposal will be presented at the Annual Meeting to amend the
Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's common stock from 25,000,000 shares to 50,000,000
shares (in the event the proposed one for five reverse split is not approved)
or from 5,000,000 shares to 10,000,000 shares (in the event the proposed one
for five reverse split is approved). A copy of the proposed alternative
amendments is attached as Exhibit C. The purpose of this amendment is to
provide a sufficient number of shares for the Company to honor its obligation
to issue shares of its common stock under various contractual agreements and to
provide a sufficient number of shares to be used for corporate purposes in the
future. Additionally, the Company's failure to amend the Certificate of
Incorporation by October 30, 1996 to increase the number of authorized shares
of Common Stock from 25,000,000 shares to at least 30,000,000 shares
(pre-reverse split) would constitute an event of default under the Company's
recent $5,000,000 second mortgage loan.
On July 2, 1996, the Company borrowed $5,000,000 from Madeleine, LLC
pursuant to a Term Loan Agreement. As part of the transaction, Madeleine also
provided a Financing Commitment to lend the Company, pursuant to the terms and
conditions thereof, an additional $11.1 million for the purpose of refinancing
the loan held by Bennett Management & Development Corporation. As part of the
consideration for the placement of the loan and the Financing Commitment, the
Company was required to issue the lender warrants to purchase 1,491,250 shares
of the Company's Common Stock at a price of $1.06 per share and to issue
affiliates of the lender warrants to purchase an aggregate 50,000 shares of the
Company's Common Stock at a price of $.80 per share as consideration for a
bridge loan they had provided in the amount of $250,000 pending the closing of
the $5,000,000 Term Loan. If the Company borrows the additional $11.1 million
pursuant to the Financing Commitment, the lender would
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be entitled to additional warrants to purchase 1,632,140 shares of the
Company's Common Stock at a price of $1.06 per share as well as the delivery of
550,000 shares of the Company's Common Stock. Further, pursuant to the Term
Loan Agreement and the Financing Commitment, the Company is required to issue
additional warrants and shares at the anniversary dates of loans made by the
lender based on the outstanding principal balances of the loans at such
anniversary dates.
In order to assure that the Company would have a sufficient number of
authorized but unissued shares of Common Stock available from which to honor
its commitments with respect to issuance of stock and warrants under the Term
Loan Agreement and the Financing Commitment (should the Company borrow
additional funds from the lender), and in light of the Company's previous
commitments to issue common stock in the future pursuant to the exercise of
outstanding options and warrants, price guarantees, or otherwise, the First
Amendment of the Term Loan Agreement provides that the Company shall be in
default if it does not amend its Certificate of Incorporation to increase the
number of authorized shares of Common Stock from 25,000,000 shares to at least
30,000,000 shares within 120 days after the closing of the loan, or October 30,
1996. If the Company were to default, the lender would be permitted to
accelerate the maturity date of the loan. This would have a material adverse
effect on the Company's financial condition.
While the Company has no plans to issue shares of its Common Stock
other than pursuant to its current contractual obligations, the authorization
of additional shares would also give the Company flexibility in the future to
utilize the Common Stock in seeking capital or in making acquisitions.
The favorable vote, either in person or by proxy, of a majority of the
outstanding shares of the Company's Common Stock is required to approve the
proposed amendment. The Board recommends a vote FOR the approval of the
amendment.
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO CREATE A CLASS OF PREFERRED STOCK
A proposal will be presented at the meeting to amend the Company's
Certificate of Incorporation to create a class of preferred stock consisting of
5,000,000 shares. A copy of the proposed amendment is attached as Exhibit D.
The proposed amendment creates, in accordance with Delaware law, a
number of shares of preferred stock without any provisions with respect to
voting rights, dividend rights, liquidation rights, conversion rights, sinking
fund provisions, redemption provisions or any other provisions relating to the
terms and conditions of the preferred stock. The proposed amendment allows the
Board to issue the shares of preferred stock in separate series, each of which
would
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have such rights as the Board determines at the time of issuance. This would
allow the Board to create a series of preferred stock that had rights greater
than the rights of the Common Stock.
The Company has no present plans to issue any shares of preferred
stock. However, management of the Company believes that the Company should have
the ability to issue preferred stock to facilitate business transactions that
the Company may desire to enter into on such terms and conditions as will
facilitate the consummation of such transactions.
The adoption the proposed amendment requires the favorable vote of a
majority of the Company's outstanding shares. Management recommends a vote
FOR the adoption of the amendment.
RATIFICATION OF ADOPTION OF EMPLOYEE
STOCK OPTION PLAN
The Company's Board of Directors has adopted, subject to the approval
of the Company's stockholders, the Company's 1996 Stock Option Plan (the
"Plan"). The Board has reserved 500,000 shares of the Company's Common Stock
for issuance pursuant to the exercise of options issued under the Plan. A copy
of the proposed Plan is attached as Exhibit E.
Under the terms of the Plan, the Board may issue options to those
persons whom the Board deems to be "key employees" of the Company and who may
include officers of the Company. However, no director may vote upon the grant
of options to himself. The options to be granted under the Plan may be either
incentive stock options eligible for favored treatment under Section 422 of the
Internal Revenue Code of 1986 (the "Code") or non-qualified options that are
not eligible for such treatment. Approximately ten employees of the Company
are eligible to participate in the Plan.
The exercise price for any incentive stock option may not be less than
100% of the fair market value of the stock on the date the option is granted,
except that with respect to a participant who owns more than 10% of the
Company's common stock the exercise price must be not less than 110% of fair
market value. The exercise price of any non-qualified option may not be less
than 85% of the fair market value of the stock on the date of grant. The
aggregate fair market value of the shares that may be subject to any incentive
stock option granted to any participant may not exceed $100,000. There is no
comparable limitation with respect to non-qualified stock options.
All incentive stock options granted under the Plan will be exercisable
in whole or in part during the period beginning on the date the option is
granted and ending five years from such date. Non-qualified stock options may
be granted, in the discretion of the Board, having an exercise period of up to
ten years and may be exercised in whole or in part at any time within such
period. The right of exercise will be cumulative, so that shares that are not
purchased in one year may be purchased in a subsequent year. No incentive
stock option granted to any employee may be exercised while any incentive stock
option previously granted to such
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employee is outstanding. Upon exercise of any option, in whole or in part,
payment in full is required for the number of shares purchased. Payment may be
made in cash, by delivery of shares of the Company's common stock of equivalent
fair market value or by any other form of legal consideration that is
acceptable to the Board.
If an employee's employment is terminated by reason of death or
disability, either the employee or his or her beneficiary will have the right
for one year to exercise the option to the extent the option was exercisable on
the date of death or disability. If an employee retires after age 60, he or
she may, for a period of three months, exercise the option to the extent that
it was exercisable on the date of retirement. If an employee's employment is
terminated for any reason other than death, disability or retirement, any
option held by such employee shall terminate on the same date.
The Plan will be administered by the Board, which is authorized to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan and to determine the employees to whom, and the time,
terms and conditions under which, options may be granted. The Board is also
authorized to adjust the number of shares available under the Plan, the number
of shares subject to outstanding options and the option prices to take into
account the Company's capitalization by reason of a stock dividend,
recapitalization, merger, consolidation, stock split, combination or exchange
of shares or otherwise.
The Board may amend, suspend or terminate the Plan in any respect at
any time. However, no amendment may (i) increase the number of shares reserved
for options under the Plan, (ii) modify the requirements for participation in
the Plan, or (iii) modify the Plan in any way that would require stockholder
approval under the rules and regulations under the Securities Exchange Act of
1934.
Under current Federal law, no taxable income will be recognized by the
recipient of an incentive stock option within the meaning of Section 422 of the
Code upon either the grant or exercise of the incentive stock option (provided
the exercise occurs while the participant is an employee of the Company or
within three months after termination of employment), nor will a deduction be
allowed the Company by reason of the grant or exercise, provided the employee
does not dispose of the shares issued upon exercise within two years from the
date the option was granted and within one year from the date the shares were
issued. If the recipient fails to satisfy these holding period requirements,
the difference between the amount realized upon disposition of the shares and
the adjusted basis of the shares is includible as compensation in the
recipient's gross income and the Company will be entitled to a deduction in
that amount.
Under current law, the holder of a non-qualified stock option is
taxable at the time of exercise on the difference between the exercise price
and the fair market value of the shares on the date of exercise. Upon
disposition of the stock, the stockholder is taxable upon the difference
between the basis of the stock (which is equal to the fair market value at the
time the option was exercised) and the amount realized upon the disposition.
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In January 1996, the Board approved the issuance of options to
purchase an aggregate of 500,000 shares of its common stock at $0.5625 per
share, which was the fair market value on the date of grant, subject to
approval of the Plan by the Company's stockholders. Mr. Arneault received
300,000 and Mr. Russell received 100,000 of these options. The term of all of
these options is five years.
The Board believes the Plan will further the growth and development of
the Company by issuing options to certain key employees as an incentive for
stock ownership. It is contemplated that the Plan will provide such persons
with increased interest in the Company's success as they increase their
proprietary stake in the Company.
The favorable vote, either in person or by proxy, of the holders of a
majority of the common shares is necessary for the adoption of the Plan. The
Board recommends a vote FOR the adoption of the Plan.
RATIFICATION OF SELECTION OF AUDITORS
The Board has selected the firm of Corbin & Wertz, independent public
accountants, to serve as auditors for the fiscal year ending December 31, 1996,
subject to ratification by the stockholders. Corbin & Wertz has served as the
Company's auditors since 1991.
The Board recommends a vote FOR ratification of this selection.
It is expected that a member of the firm Corbin & Wertz will be
present at the Annual Meeting to respond to appropriate questions. Such
representative will have an opportunity to make a statement if he or she
desires to do so, and will be available to respond to questions.
FINANCIAL INFORMATION
The Financial Statements of the Company included in the Company's
Annual Report to Stockholders that accompanies this Proxy Statement are
incorporated herein by reference.
OTHER MATTERS
STOCKHOLDER PROPOSALS FOR NEXT MEETING
Proposals of stockholders intended for inclusion in the proxy
statement for the Annual Meeting of Stockholders to be held in 1997 must be
received by the Company's executive offices not later than May 10, 1997.
Proponents should submit their proposals by Certified Mail--Return Receipt
Requested.
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NO OTHER BUSINESS
Management is not aware at this date that any other business matters
will come before the meeting. If, however, any other matters should properly
come before the meeting, it is the intention of the persons named in the proxy
to vote thereon in accordance with their judgment.
September 13, 1996 WINNERS ENTERTAINMENT, INC.
Thomas K. Russell, Secretary
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Exhibit A
Article I
The name of the Corporation is MTR Gaming Group, Inc.
30
Exhibit B
Article IV
(b) The 18,869,397 shares of the common stock of the Corporation, par
value $.00001 per share, either issued and outstanding or held by the
Corporation as treasury stock, immediately prior to the time this amendment
becomes effective shall be and are by this means automatically reclassified and
changed (without any further act) into 3,773,879 fully paid and non-assessable
shares of the common stock of the Corporation, par value $.00001 without
increasing or decreasing the amount of stated capital or paid-in surplus of the
Corporation, provided that no fractional shares shall be issued. The fractional
share interests that occur as a result of the foregoing reclassification and
change shall be aggregated by the transfer agent of the Corporation and the
shares resulting from such aggregation shall be sold by the transfer agent and
the net proceeds received from such sale shall be allocated and distributed
among the holders of such fractional interests in shares as their interests may
appear.
31
Exhibit C
Alternative 1
Article IV
The number of shares which the Corporation shall have the authority to
issue is 50,000,000, all such shares to be of a single class of common stock
with the par value of $.0001 per share.
Alternative 2
Article IV
The number of shares which the Corporation shall have the authority to
issue is 10,000,000, all such shares to be of a single class of common stock
with the par value of $.00001 per share.
32
Exhibit D
ARTICLE IV
(a) The number of shares which the Corporation shall have the
authority to issue is 55,000,000, of which 50,000,000 shall be shares of a
single class of Common Stock with a par value of $.00001 per share and
5,000,000 shall be shares of preferred stock as described in Section (b) of
this Article IV.
or
if the reverse stock split is approved:
(a) The number of shares which the Corporation shall have the
authority to issue is 15,000,000, of which 10,000,000 shall be shares of
a single class of common stock with a par vlaue of $.00001 per share and
5,000,000 shall be shares of preferred stock as described in section (b) of
this Article IV.
(b) Shares of preferred stock may be issued from time to time
in one or more series, each series to have such distinctive designation or
title as may be fixed by the board of directors prior to the issuance of any
shares of preferred stock. Each such series may differ from every other series
already outstanding, as may be determined from time to time by the board of
directors prior to the issuance of any shares thereof, in any or all of the
following respects:
(1) The right, if any, to vote on any matter presented to the
stockholders, including the right to vote in the event of the failure to the
corporation to pay dividends;
(2) The rate of dividend which the preferred stock of any such
series shall be entitled to receive;
(3) The amount per share which the preferred stock of any such
series shall be entitled to receive in case of the redemption, or in of the
voluntary or involuntary liquidation, distribution or sale of assets,
dissolution or winding up of the corporation;
(4) The right, if any, of the holders of preferred stock of
any such series to convert the same into other classes of stock, and the terms
and conditions of such conversion; and
(5) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the preferred stock of any such series;
provided, however, that no such sinking fund or redemption or purchase account
shall be provided for the preferred stock of any series unless the preferred
stock of all other series outstanding at any time during which the operation of
such fund or account shall be entitled to share (in such manner as the board of
directors may determine) in the benefits of such fund or account, pro rata,
according to the number of shares outstanding from time to time in each such
series.
The description and terms of the preferred stock of each
series in respect of the foregoing particulars shall be fixed and determined by
the board of directors by appropriate resolution or resolutions at or prior to
the time of the authorization of the issue of the original shares of each such
series, shall be summarized in the certificates representing the shares of each
such series and shall be set forth in a certificate of designations executed,
acknowledged, filed and recorded in accordance with the law of the State of
Delaware. All shares of preferred stock shall be of equal rank and shall be
identical in all respects except in respect of the particulars that may be
fixed by the board of directors as provided in this section (b) of Article IV
and all shares of each series shall be identical in all respects.
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Exhibit E
WINNERS ENTERTAINMENT, INC.
-------------------------------------------
1996 STOCK OPTION PLAN
-------------------------------------------
1. PURPOSE. The purpose of this Plan (the "Plan") is to further
the growth and development of Winners Entertainment, Inc. (the "Company") and
related corporations, by issuing to certain key employees (including officers)
of the Company and any parent or subsidiary corporation, as an incentive and
encouragement to stock ownership, options to purchase shares of the Company's
common stock. It is contemplated that the Plan will provide such persons with
increased interest in the Company's success as they increase their proprietary
stake in the Company.
2. ADMINISTRATION. The Plan shall be administered by the
Company's Board of Directors (the "Board"). Subject to the provisions of this
Plan, the Board shall have plenary authority to administer the Plan, including
authority to determine the officers and key employees to whom options pursuant
to this Plan ("Options") should be granted, and the time or times at which
Options should be granted and the period for which they should be exercisable;
to interpret the Plan and to prescribe, amend, and rescind rules and
regulations relating thereto as it may deem appropriate; provided that no
member of the Board shall vote with respect to the issuance of Options to
himself.
3. GRANT OF OPTIONS. Options to purchase shares of the Company's
common stock conforming to the provisions of this Plan ("Options") may from
time to time be granted on behalf of the Company by the Board. The officers
and other key employees of the Company or of any subsidiary corporation to whom
Options are to be granted, the number of shares to be optioned to each, and the
Option price shall be determined by the Board. Options granted under this Plan
may be either non-qualified stock options or incentive stock options
("Incentive Stock Options") as defined by Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). At the time each Option is granted, the
Board shall designate such Option as either a non-qualified stock option or an
Incentive Stock Option.
4. SHARES SUBJECT TO THE PLAN. The shares to be optioned (the
"Shares") shall consist of authorized and unissued shares of common stock of
the Company or shares of its common stock reacquired by the Company, not to
exceed in the aggregate 500,000 shares. Any Shares subject to Options that
shall have terminated for any reason other than by exercise shall be available
for subsequent optioning.
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5. ANNUAL LIMIT. To the extent that the aggregate fair market
value (determined as of the time the Option is granted) of stock with respect
to which Incentive Stock Options (determined without regard to this Section 5)
are exercisable for the first time by any employee during any calendar year,
under this Plan or any other Incentive Stock Option Plan of the Company and/or
any parent or subsidiary of the Company, exceeds $100,000 (or such higher
amount as may be permitted by applicable provisions of the Code now or as
hereafter amended), such options will be treated as options which are not
Incentive Stock Options.
6. ELIGIBILITY. All officers and key employees of the Company
and officers and key employees of any subsidiary corporation shall be eligible
to receive Options. In granting Options, the Board may include or exclude
previous participants in the Plan. No director shall be eligible to receive
Options unless such director is also an officer or employee of the Company or a
parent or subsidiary corporation. As used herein, the term "subsidiary" shall
mean a "subsidiary corporation" as defined in Section 424(f) of the Code.
7. OPTION PRICE. (a) The price of each Incentive Stock Option
shall be not less than 100% of the fair market value of the stock subject to
the Option on the date the Option is granted. The price of each non-qualified
stock option shall be not less than 85% of the fair market value of the stock
subject to the option on the date the option is granted. In the case of any
grant of Incentive Stock Options to a holder of more than 10% of the voting
power or value of all classes of the Company's stock (or that of its parent or
subsidiary), the price at which such Shares may be optioned shall be not less
than 110% of their fair market value at the time such Options are granted, and
such Options by their terms shall not be exercisable after the expiration of 5
years from the date of issuance.
(b) Fair Market Value. For purposes of the Plan, the "fair market
value" of a share of the Company's common stock as of a given date shall be (i)
the closing price of a share of the Company's common stock on the principal
exchange on which shares of the Company's common stock are then traded, if any,
on such date, or, if shares were not traded on such date, then on the next
preceding trading day during which a sale occurred; or (ii) if the Company's
common stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (1) the last sales price (if the common stock is
then listed as a National Market Issue under the NASD National Market System)
or (2) the mean between the closing representative bid and asked prices (in all
other cases) for the common stock on such date as reported by NASDAQ or such
successor quotation system; or (iii) if the Company's common stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for the
common stock on such date as determined in good faith by the Board; or (iv) if
the Company's common stock is not publicly traded, the fair market value
established by the Board acting in good faith at each time such Options are
granted by it. In addition, with respect to any Incentive Stock Option, the
fair market value on any given date shall be determined in a manner consistent
with any regulations issued by the Secretary of the Treasury for the purpose of
determining fair market value of securities subject to an Incentive Stock
Option Plan under the Code.
8. OPTION PERIOD. (a) Subject to Section 15, the period for
exercising an Incentive Stock Option (the "Exercise Period") granted under this
Plan shall be the period beginning on
35
the date the Option is granted and ending five years from the date the Option
is granted; except that:
(i) If a participant, being over the age of 60 years, retires
during the Exercise Period, such Option shall be exercisable
by him or her only during the three months following his or
her retirement, but in no event after the expiration of the
Exercise Period.
(ii) In the case of the death or permanent and total disability of
a participant, such Option shall be exercisable by the
executors, administrators, legatees or distributees of his or
her estate only during the 12 months following his or her
death or disability, but in no event after the expiration of
the Exercise Period.
(iii) If a participant voluntarily ceases to be an employee of the
Company or is dismissed for cause, such Option shall terminate
as of the date of the cessation of his or her employment.
Subject to clauses (i), (ii) and (iii) of this Subsection (a), an Option may be
exercised at any time and from time to time, in whole or in part, during the
Exercise Period.
(b) At the discretion of the Board, non-qualified stock options may be
granted for a duration not to exceed 10 years from the date the Option is
granted and may be exercisable in whole or in part at such time or times as the
Board shall designate at the time of grant.
9. PAYMENT FOR SHARES. Full payment for shares purchased,
together with the amount of any tax or excise due in respect of the sale and
issue thereof, shall be made (i) in cash or by certified or bank cashier's
check at the time the Option is exercised, or (ii) at the discretion of the
Board, either at the time of the grant or exercise of the Option, (A) by
delivery to the Company of other common stock of the Company, (B) according to
a deferred payment or other arrangement (which may include, without limiting
the generality of the foregoing, the use of other common stock of the Company)
with the person to whom the Option is granted or to whom the Option is
transferred pursuant to Section 10 of this Plan, or (C) in any other form of
legal consideration that may be acceptable to the Board. A participant shall
have none of the rights of a stockholder until certificates for the Shares
purchased are issued to him or her, and no certificates shall be issued until
full payment for the shares subject thereof has been made.
10. NON-ASSIGNABILITY. (a) Options granted pursuant to this Plan
shall be non-transferrable except by will or pursuant to laws of descent and
distribution, and shall be exercisable, during a participant's lifetime, only
by him or her.
(b) Shares issued upon exercise of these Options shall, unless a
registration statement under the Securities Act of 1933 (the "Act") is
effective with respect to such shares, containing such current information as
is required by the rules and regulations under the Act, bear a legend to the
effect that such Shares have not been registered under the Act and may not be
transferred
3
36
unless the Company shall have received an opinion of counsel satisfactory to
the Company that such registration is not required.
11. CONDITIONS TO EXERCISE OF OPTIONS. (a) No Option shall be
exercisable for less than 100 Shares at any one time (or the remaining Shares
then purchasable under the Option, if less than 100 Shares).
(b) No Option shall be granted or exercised if the grant of such
Option or the exercise and the issuance of Shares pursuant thereto would be
contrary to law or the regulations of any duly constituted authority having
jurisdiction over either the Company or the grant of options. The Board may,
in its discretion, as a condition to the issuance of any Shares, require that
the participant shall execute a certificate, in form and substance satisfactory
to the Company and its counsel, representing, warranting and agreeing that he
or she is acquiring the Shares for his or her own account, for investment and
not with a view to or in connection with any distribution, and that he or she
will not transfer such Shares unless, in the opinion of counsel to the Company,
such transfer would not result in any violation of state or federal securities
laws, either in connection with the transfer of such Shares or their issuance.
12. AMENDMENT. (a) The Board may at any time, and from time to
time, amend the Plan. However, except as provided in Section 14 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within 12 months before or after
the adoption of the amendment, where the amendment will: (i) increase the
number of shares reserved for Options under the Plan; (ii) modify the
requirements as to eligibility for participation in the Plan (to the extent
such modification requires stockholder approval in order for the Plan to
satisfy the requirements of Section 422(b) of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Securities Exchange Act of
1934); or (iii) modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422(b) of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934.
(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide the participants
with the maximum benefits provided or to be provided under the provisions of
the Code and the regulations promulgated thereunder relating to employee
incentive stock options and/or to bring the Plan and/or Incentive Stock Options
granted under it into compliance therewith.
(c) Rights and obligations under any Option granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan
unless (i) the Company requests the consent of the person to whom the Option
was granted and (ii) such person consents in writing.
13. TERMINATION OR SUSPENSION. (a) The Board may suspend or
terminate the Plan at any time. Unless sooner terminated, the Plan shall
terminate on March 1, 2006. No Options shall be granted under the Plan while
the Plan is suspended or after it is terminated.
4
37
(b) Rights and obligations under any Option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan without the consent of the participant, except as provided by Sections 14
and 15 of the Plan.
14. ADJUSTMENTS IN COMMON STOCK. If the Company shall combine,
subdivide or reclassify its shares of common stock generally (including those
Shares which have been or may be optioned), or shall declare thereon any
dividend payable in shares of common stock, or shall reclassify or take any
other action of a similar nature affecting its common stock, then the number
and class of shares of stock which may thereafter be optioned (in the aggregate
and to any participant) shall be adjusted accordingly and, in the case of
Options outstanding at the time of any such action, the number and class of
Shares which may thereafter be purchased pursuant to such Options and the
Option price per Share shall be adjusted to such extent as the Board shall
determine to be necessary to preserve unimpaired the rights of the
participants, and each and every such determination shall be conclusive and
binding upon each participant.
15. REORGANIZATION. (a) In case of any one or more
reclassifications, changes or exchanges of outstanding shares of common stock
or other stock (other than as provided in Section 14), or consolidations of the
Company with, or mergers of the Company into, other corporations, or other
recapitalizations or reorganizations (other than transactions in which the
Company continues to exist and which do not result in any reclassification,
change or exchange of outstanding shares of the Company), or in case of any one
or more sales or conveyances to another corporation of the property of the
Company as an entirety, or substantially as an entirety (any and all of which
are hereinafter called "Reorganization"), the holder of each Option then
outstanding shall have the right, upon any subsequent exercise thereof, to
acquire the same kind and amount of securities and property which such holder
would then hold if such holder had exercised such Option immediately before the
first of any such Reorganizations, and had continued to hold all securities and
property which came to such holder as a result of that and subsequent
Reorganizations, less all securities and property surrendered or cancelled
pursuant to any of the same, the adjustment rights in Section 14 and this
Section 15 being continuing and cumulative, except that, notwithstanding any
provisions of Section 8(a) to the contrary, the Board shall have the right in
connection with any such Reorganization, to terminate the Exercise Period upon
not less than 30 days written notice to the holders of outstanding Options, and
in such event all outstanding Options, other than Options as to which one of
the events referred to in Section 8(a) have occurred, may be exercised only to
the extent thereby permitted, in each case only at a time prior to such
Reorganization. A liquidation shall be deemed a Reorganization for the
foregoing purposes.
(b) In the event of a Reorganization in which more than 50% of the
shares of the Company entitled to vote are exchanged, then at the sole
discretion of the Board and to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Options outstanding under the Plan or
shall substitute similar Options for those outstanding under the Plan, or (ii)
such Options shall continue in full force and effect. In the event any
surviving corporation refuses to assume or continue such Options, or to
substitute similar Options for those outstanding under the Plan, then, with
respect to Options held by persons then employed by the
5
38
Company, the time during which such Options may be exercised shall be
accelerated and the Options terminated if not exercised prior to such event as
provided in paragraph (b) of this Section 15.
16. SHARES TO BE RESERVED. The Company shall at all times during
the term of this Plan reserve and keep available such number of shares of its
common stock as will be sufficient to satisfy the requirements of the Plan, and
shall pay all fees and expenses necessarily incurred by the Company in
connection with the exercise of Options granted hereunder.
17. OTHER TERMS. Any Option granted hereunder shall contain such
other and additional terms, not inconsistent with the terms of this Plan, which
are deemed necessary or desirable by the Board or by legal counsel to the
Company, and with respect to Incentive Stock Options, such other terms shall
include those which, together with the terms of this Plan, shall qualify such
Option under Section 422 of the Code.
6
39
PROXY
WINNERS ENTERTAINMENT, INC.
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 15, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Edson R. Arneault and Thomas K.
Russell, and each of them, with full power of substitution, as the proxies of
the undersigned to vote all the undersigned's shares of the Common Stock of
Winners Entertainment, Inc. (the "Corporation") at the Annual Meeting of the
Corporation's Stockholders to be held at the Minneapolis Marriott, City Center,
30 South Seventh Street, Minneapolis, Minnesota 55402 on October 15, 1996 at
10:00 a.m. and at any adjournments or postponements thereof, with the same
force and effect as the undersigned might or could do if personally present
thereat:
1. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY
Edson R. Arneault Thomas K. Russell Robert L. Ruben
Robert A. Blatt
(The Board of Directors recommends a vote FOR.)
This proxy will be voted in the Election of Directors in the manner
described in the Proxy Statement for the Annual Meeting of Stockholders.
(INSTRUCTION: To withhold authority to vote for one or more individual
nominees, write such names or names in the space provided below.)
- -------------------------------------------------------------------------------
2. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE
COMPANY'S NAME TO "MTR GAMING GROUP, INC.". (The Board of Directors recommends
a Vote FOR.)
FOR AGAINST ABSTAIN
3. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT A
ONE FOR FIVE REVERSE SPLIT OF THE COMPANY'S COMMON STOCK. (The Board of
Directors recommends a Vote FOR.)
FOR AGAINST ABSTAIN
4. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK TO 50,000,000 IF
THE ONE FOR FIVE REVERSE STOCK SPLIT IS NOT APPROVED OR TO 10,000,000 SHARES IF
THE REVERSE STOCK SPLIT IS APPROVED.
40
(The Board of Directors recommends a Vote FOR.)
FOR AGAINST ABSTAIN
5. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO CREATE A
NEW CLASS OF PREFERRED STOCK. (The Board of Directors recommends a Vote FOR.)
FOR AGAINST ABSTAIN
6. PROPOSAL TO RATIFY THE ADOPTION OF THE COMPANY'S 1996 STOCK OPTION PLAN.
(The Board of Directors recommends a Vote FOR.)
FOR AGAINST ABSTAIN
7. PROPOSAL TO CONFIRM THE SELECTION OF CORBIN & WERTZ, AS INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE CORPORATION FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996.
(The Board of Directors recommends a Vote FOR.)
FOR AGAINST ABSTAIN
8. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5, 6 AND 7.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized person. If a
partnership, please sign in full partnership name by authorized person.
DATED: , 1996.
-----------------
-----------------------------
Signature
-----------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE