-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BiNHSXJ/TuDhoSXZ7Lep+Zl4d6TperFmH03H8GYDNqRggY+5ei/BjNxg79sQ9N4g yHIgTO00XcPvMmMJjIkM5g== 0000912057-97-011237.txt : 19970401 0000912057-97-011237.hdr.sgml : 19970401 ACCESSION NUMBER: 0000912057-97-011237 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19970101 FILED AS OF DATE: 19970331 SROS: NASD SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS WORLD GAMING CORP CENTRAL INDEX KEY: 0000914577 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 133738518 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25244 FILM NUMBER: 97569845 BUSINESS ADDRESS: STREET 1: ONE PENN PLAZA STREET 2: STE 4303 CITY: NEW YORK STATE: NY ZIP: 10119-0002 BUSINESS PHONE: 2128263355 MAIL ADDRESS: STREET 1: ONE PENN PLAZA STREET 2: STE 4303 CITY: NEW YORK STATE: NY ZIP: 10119-0002 10KSB 1 10KSB - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- --------------------- COMMISSION FILE NO.: 0-25244 -------------------- TRANS WORLD GAMING CORP. (Exact name of registrant as specified in its charter) NEVADA 13-3738518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE PENN PLAZA, SUITE 1503 10119-0002 NEW YORK , NY (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (212) 563-3355 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001 PAR VALUE WARRANTS TO PURCHASE COMMON STOCK -------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. / / As of March 31, 1997, 3,044,286 shares of Common Stock of the Registrant were deemed outstanding, and the aggregate market value of the Common Stock of the Registrant as of that date (based upon the closing price of the Common Stock at that date as reported by the Nasdaq SmallCap Market), excluding outstanding shares beneficially owned by directors and executive officers, was approximately $3,234,554. Portions of the Registrant's proxy statement, dated April 24, 1997 for the Annual Meeting of Shareholders to be held May 27, 1997 (the "1997 Proxy Statement"), are incorporated by reference into Part III of this Report, to the extent specific pages are referred to herein. Transitional Small Business Disclosure Format (check one) YES / / NO /X/ - -------------------------------------------------------------------------------- PART I ITEM 1. DESCRIPTION OF BUSINESS. (a) GENERAL DEVELOPMENT OF BUSINESS. Trans World Gaming Corp. (the "Company") was organized in October 1993 to acquire, develop and manage, to the extent permitted by applicable local laws, gaming establishments featuring mechanized gaming, including video gaming devices such as video poker machines. The Company currently owns certain interests in two gaming establishments at truck stops in Louisiana, which include (i) an establishment located at the 76 Plaza in Lafayette, Louisiana known as the "Gold Coin" (formerly the Gold Nugget), which has fifty (50) video lottery terminals ("VLTs"), and (ii) the Toledo Palace (the "Toledo Palace"), which the Company established and licensed at a truck stop located in DeRidder, Louisiana, known as the Woodlands Travel Plaza (the "Woodlands") which has fifteen (15) VLTs. Both the Gold Coin and the Toledo Palace establishments are licensed to operate only video lottery terminals, also known as "draw poker" machines. The Company owns real property at the Woodlands, and owns the right to receive the profits at the Gold Coin. In November 1996, residents in 35 out of 64 parishes in Louisiana, including both parishes in which the Gold Coin and the Toledo Palace are located, voted to discontinue video poker effective June 30, 1999. Currently, the Company is seeking to develop or acquire interests in gaming operations at other locations so that it will generate positive cash flow by 1999; however, there can be no assurance that the Company will be able to develop or acquire any such new operations by June 1999. On December 22, 1994, the Company acquired from Chrysolith, L.L.C., a Louisiana-licensed video gaming machine operator ("Chrysolith") and Prime Properties, Inc., which leases the 76 Plaza from National Auto Truckstops, Inc. ("Prime Properties"), certain rights (including an 18-year sub-leasehold interest, subject to the terms of an over-lease expiring in 1999, and a 100% interest in adjusted net revenues) in the Gold Coin. In December 1994, the Company purchased a non-voting 49% interest in Chrysolith for $1.00 and entered into an agreement with Chrysolith pursuant to which Chrysolith owns, maintains and operates the VLTs at the Gold Coin. The remaining 51% interest in Chrysolith is owned by Mr. Lee Young, a former director of the Company. Pursuant to a management agreement entered into between Chrysolith and the Company dated December 31, 1996, Chrysolith provides on-site management for all of the operations of both the Gold Coin and the Toledo Palace and acquires, installs, operates and maintains the VLTs at both facilities. The aggregate consideration paid by the Company to acquire both the interests of Chrysolith and Prime Properties in the adjusted net revenues of the Gold Coin and the sublease interest of Chrysolith was $10.5 million, of which $9.4 million has been paid in cash to date and of which approximately $1.1 million is due in four (4) equal quarterly installments through December 22, 1997 to Prime Properties. The Company receives the net revenues at both the Gold Coin and the Toledo Palace, which is the revenue generated by VLTs at both facilities after payment of franchise taxes by Chrysolith to the State of Louisiana and after payment of all prizes to the players (the "Net Win After Tax"). In accordance with a management arrangement between the Company and Chrysolith, the Company then reimburses Chrysolith for all direct operating costs incurred in the operation of the VLTs. At the Woodlands truckstop, additional revenue for the Company is derived from the sale of fuel, supplies and food normally associated with a truckstop operation. The Company's corporate offices are located at One Penn Plaza, Suite 1503, New York, New York 10119-0002 and its telephone number is (212) 563-3355. 1 (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Company operates in a single industry segment: the ownership and management of gaming establishments that feature mechanized gaming devices. (c) NARRATIVE DESCRIPTION OF BUSINESS. SUMMARY The company is engaged in the management of gaming establishments which feature mechanized gaming devices, such as video poker machines (the "VLTs" or "Devices"). The Company currently owns certain interests in two gaming establishments at truck stops in Louisiana, which include (i) the Gold Coin, located at the 76 Plaza in Lafayette, Louisiana, and (ii) the Toledo Palace that the Company established and licensed at the Woodlands located in DeRidder, Louisiana, which is approximately 120 miles from the Gold Coin. Both the Gold Coin and the Toledo Palace video poker parlors are licensed to operate only video lottery terminals, also known as "draw poker" machines. The Company owns real property at the Woodlands, and owns the right to the profits at the Gold Coin. In November 1996, residents in 35 out of 64 parishes in Louisiana, including both parishes in which the Gold Coin and the Toledo Palace are located, voted to discontinue video poker effective June 30, 1999. INDUSTRY OVERVIEW The gaming industry is highly fragmented and characterized by a high degree of competition among a large number of participants. The Gold Coin and the Toledo Palace compete with numerous existing and proposed gaming operations in Louisiana and adjacent portions of Mississippi, including truck stop sites which contain VLTs, comprehensive land-based and riverboat casinos, Native American gaming ventures and other forms of legalized gaming. In addition, under Louisiana law racetracks and off-track betting parlors may install an unlimited number of VLTs and establishments with alcoholic beverage licenses, such as restaurants and bars, are eligible to apply for a license to operate up to three VLTs. Hotels can apply for a license to operate up to twelve Devices. On November 5, 1996, voters in 35 of 64 parishes in Louisiana, including both parishes where the Company has operations, voted to discontinue video poker after June 30, 1999 (see "Regulations and Licensing"). Many of the Company's competitors and potential competitors have greater financial and marketing resources, have significantly more experience in operating gaming facilities, operate a greater number and variety of gaming facilities, and have better sites, than the Company. The Company believes that competition in the gaming industry is based on the quality and location of gaming facilities, the effectiveness of marketing resources and customer service and satisfaction. There are four gaming operations within five miles of the Gold Coin and one gaming operation within five miles of the Toledo Palace, each of which contains 50 VLTs, as well as restaurants, bars and hotels which are limited to three VLTs each. In addition there are three land-based casinos on Native American reservations in Charenton, Kinder and Marksville, Louisiana, which are located approximately 60 miles from either the Gold Coin or the Toledo Palace. In 1991, Louisiana enacted a law permitting unlimited stakes riverboat gaming on up to six gaming riverboats in any one parish (county) with a maximum of 15 riverboats for the entire state. The first of these riverboats became operational in December 1993. On November 5, 1996, all parishes that currently have riverboats voted to continue gaming beyond June 30, 1999. Louisiana has also approved land-based gaming for one location in downtown New Orleans, which opened a temporary facility in May 1995 and suspended operations in November 1995, and dockside gaming at certain locations on the Red River. The land-based casino has applied for reinstatement of its operations, approval for which is pending. The Gold Coin and the Toledo Palace also compete with other forms of gambling, including bingo and pull tab games, card clubs, pari-mutuel betting on horse racing and dog racing and state sponsored lotteries, as well as other forms of wagering entertainment. 2 THE COMPANY'S FACILITIES The Company owns certain interests in both the Gold Coin and Toledo Palace which feature VLTs, also known as "draw poker" machines. Louisiana law permits VLTs to be owned, maintained and operated only by a Louisiana resident or an entity that is majority-owned by a Louisiana resident. The VLTs at both locations are owned, maintained and operated by Chrysolith, which is a Louisiana-licensed video gaming machine operator. The Company owns a 49% membership interest in Class B membership units of Chrysolith. Under Louisiana law, a truck stop gaming establishment site must meet certain standards in order to qualify as a licensed gaming facility. An establishment license must be obtained in order for the gaming facility to be operated at the site, however, the owner of an establishment for which there is an establishment license need not be a Louisiana resident or an entity which is majority-owned by Louisiana residents. THE GOLD COIN The Gold Coin gaming facility is located at a major intersection in Lafayette, Louisiana, currently has 50 VLTs that can be played for amounts ranging from $.25 to $2.00 per play, and is open 24 hours a day, seven days a week. The average daily net win of a VLT machine at the Gold Coin during 1996 was $292. Maintaining the existing customer base of the Gold Coin is a high priority of the Company's management. The Company believes that the atmosphere within the gaming facility, the training and responsiveness of the staff, the comfort factor and the security of the facility all contribute to continued patronage by its customers. Except for the Gold Coin, all of the businesses at the 76 Plaza are managed and operated by Prime Properties, which leases the 76 Plaza from National Auto Truck Stops, Inc. The portion of the 76 Plaza occupied by the Gold Coin is subleased by Prime Properties to the Company. The VLTs at the Gold Coin are owned, maintained and operated by Chrysolith, and the Gold Coin is managed by the Company. SUBLEASE FOR GOLD COIN. In 1994, Prime Properties entered into an 18-year sublease (the "Sublease") with the Company for the Gold Coin that includes the right to operate under Prime Properties' establishment license for the Gold Coin. The Sublease is subject to the terms and conditions of a certain Over-Lease dated May 1, 1993 between National Auto Truck Stops, Inc. ("National"), as lessor, and Prime Properties, as lessee (the "Over-Lease"), which expires September 30, 1999. Upon expiration of the base term of the Over-Lease in 1999, Prime Properties has the contractual right (without any obligation to the Company) to extend the term for up to five successive three-year periods if Prime Properties fulfills all necessary conditions set forth in the Over-Lease. National, the lessor under the Over-Lease, has not granted its written consent to the Sublease. Prime Properties is not contractually obligated to the Company to exercise its right to extend the Over-Lease at the end of its term or any renewal term. In addition, National has the right to terminate the Over-Lease under certain circumstances, including a default by Prime Properties under the terms of the Over-Lease, or a non-renewal of the franchise relationship between National and Prime Properties. Rent under the Sublease is $3,000 per month, subject to adjustment for increases in the consumer price index and electricity costs. The Company's interest in the Sublease is security for the Company's three-year promissory note to Prime Properties dated December 22, 1994 in the original principal amount of $3,000,000, bearing interest at the rate of 10% per annum, payable in 12 equal quarterly installments (the "Prime Note"). Prime Properties must satisfy the following conditions in order to have the right to renew the Over-Lease: (i) Prime Properties must have complied with all conditions of the Over-Lease; (ii) Prime Properties must not be in default of any provisions in the Over-Lease, including that Prime Properties must use its good faith efforts to abide by the terms of a Franchise Agreement between National and Prime Properties, and a marketing agreement, if applicable; (iii) Prime Properties must satisfy all monetary obligations owed to National under the Over-Lease; (iv) Prime Properties must have complied with the qualification and training requirements of National; (v) Prime Properties must have executed a general release in favor of National and its officers, directors, shareholders and employees; and (vi) Prime Properties must simultaneously renew the franchise relationship between National and Prime Properties. CHRYSOLITH OPERATING AGREEMENT. The Company is a member under, and party to, the Amended and Restated Regulations and Operating Agreement of Chrysolith, L.L.C., a Louisiana limited liability company, dated as of December 22, 1994 (the "Chrysolith Operating Agreement"). Lee Young, a former director of the Company, is the original manager of Chrysolith and holds a 33% interest in Chrysolith assets as they existed prior to the Company's 3 becoming a member (the "Original Member Property"). The Chrysolith Operating Agreement sets forth the rights and obligations of the original members, all of whom are individuals (the "Original Members"), and the Company, which is a member. Under this agreement, Chrysolith operates, services and maintains the VLTs at the Gold Coin, and the Company provides management, financial and consulting services. The Company receives the Net Win After Taxes and pays a management fee to Chrysolith in an amount equal to its direct operating costs at the Gold Coin. The Original Members of Chrysolith had a membership interest in the Original Member Property until July 2, 1996 when the Company retired the Chrysolith Note. WOODLANDS The Woodlands, where the Toledo Palace is located, includes a 24-hour restaurant, a convenience store and a gas station that currently sells an average of approximately 130,000 gallons of fuel per month. The Woodlands is located on State Route 3236 in DeRidder, Louisiana, approximately 20 miles from the Texas border. The Company's wholly-owned subsidiary, Trans World Gaming of Louisiana, Inc. ("TWGLa"), has an establishment license for the operation of up to 50 VLTs at the Woodlands, and currently has 15 such devices at the Toledo Palace. The average daily net win of a VLT machine at the Woodlands during 1996 was $77. The Company is awaiting approval from the Louisiana authorities to increase the number of VLTs at the Toledo Palace to 33. In accordance with local law, alcoholic beverages are not sold at the Woodlands. The primary customers of the Woodlands have been the loggers and truckers who service the Boise Cascade Paper Mill located one mile away, local farmers and loggers who purchase "off-the-road" diesel fuel, and local truckers. All fuel storage tanks at the Woodlands are situated above ground in order to minimize potential environmental issues typically associated with a fuel station. Pursuant to the terms of the Chrysolith Operating Agreement, Chrysolith has purchased and installed, and operates, maintains and services the VLTs at the Toledo Palace, and the Company manages the truck stop operations at the Woodlands. The Company receives the Net Win After Taxes from the Toledo Palace and the net operating revenues derived from all of the truck stop operations at the Woodlands, after payment of all taxes payable to the State of Louisiana and payout of winnings from the Toledo Palace, and pays a management fee to Chrysolith in an amount equal to its direct operating costs at the Toledo Palace. FUTURE OPERATIONS The Company is currently investigating gaming facility management and acquisition opportunities in Europe and on Native American lands. The Company has no specific arrangements or understandings with respect to the management or acquisition of any gaming facility. There can be no assurance that the Company will manage or acquire any other gaming facilities. Currently, the Company is focusing on developing and maximizing the profit potential of the Gold Coin and the Toledo Palace, two Louisiana video poker locations which the Company acquired in December 1994. The Company's long-range objective is to become a premier management company of mechanized gaming establishments in the United States at local neighborhood sites and internationally at hotel or resort locations. To achieve this goal, the Company's strategy consists of: (i) identifying gaming establishments which focus primarily on a local, machine-based market and in which the mechanized gaming devices are centrally audited by a local or state governmental office (such as the State Police Department in Louisiana); (ii) leasing or owning mechanized gaming machines that are user-friendly for occasional video gaming customers; and (iii) retaining local management following an acquisition to insure a smooth transition to the Company. Through this strategy, the Company believes it can address a specific niche in the gaming industry which attracts local, neighborhood markets as opposed to the destination, high-roller clientele. While the Company believes that there are significant opportunities in the Company's niche market outside the State of Louisiana, the Company is committed first to maximizing performance at its existing establishments before expanding to other markets. In November 1996, residents in 35 out of 64 parishes in Louisiana, including both parishes in which the Gold Coin and the Toledo Palace are located, voted to discontinue video poker effective June 30, 1999. Currently, the Company is seeking to develop or acquire interests in other gaming operations at other locations so that the Company will continue 4 to generate positive cash flow through 1999; however, there can be no assurance that the Company will be able to develop or acquire any such new operations by June 1999. ACQUISITION AGREEMENTS TOTTENHAM & CO. On January 1, 1997 the Company completed the acquisition of Art Marketing, Ltd. d/b/a Tottenham & Co., a United Kingdom corporation. Tottenham & Co. was founded in 1988 by Andrew Tottenham and is engaged in providing consulting services to gaming companies worldwide. The consideration paid for Tottenham & Co. by the Company included 500,000 shares of the Company's common stock, par value $.001 per share (the "Common Stock"), and warrants to purchase 250,000 shares at an exercise price of $.5938, the bid price of the Company's Common Stock on the date of the agreement as reported by the NASDAQ SmallCap Market System. In addition, the Company issued two promissory notes in the aggregate principal amount of $200,000 bearing interest at the rate of 10% per annum and payable on January 1, 2002. Beginning January 1, 1998, the Notes are convertible to shares of the Company's Common Stock at a conversion price of $1.00 per share at the option of the holders. Such convertibility feature will vest at a rate of 20% per year for each year after the date of the Note; provided, however, that if the Company completes a registered public offering of its common stock during the respective terms of the Notes, the Notes immediately become 100% vested and fully convertible. All of the Common Stock as well as the Common Stock underlying the warrants, carries certain piggyback registration rights. GOLD COIN ACQUISITION. The Company acquired the interests of Prime Properties and Chrysolith in the Gold Coin Gaming Facility on December 22, 1994. The Company acquired the rights of Prime Properties to a fifty percent interest in the profits of the Gold Coin, under the terms of an agreement dated September 21, 1994 between Prime Properties and the Company (the "Prime Agreement"). Under the Prime Agreement, the Company agreed to pay a total of $6 million, of which $4.9 million has been paid to date, with the balance of $1.1 million due in four equal quarterly installments through December 22, 1997. The Company also issued to Prime Properties 120,000 shares of its Common Stock and options to purchase up to an additional 120,000 shares of Common Stock exercisable at $7.00 per share, exercisable for a period of three years after the closing on the Prime Agreement. On December 22, 1994, the Company acquired Chrysolith's right to participate in the profits of the Gold Coin and its subleasehold interest therein, for an aggregate purchase price of $4.5 million which was paid in full on July 2, 1996. Under an Agreement dated September 21, 1994 among Prime Properties, Chrysolith, Monarch and the Company, if the Company fails to pay the Prime Note, all amounts due under this note would become immediately due and payable, the Company would lose all sublease rights, operating rights and rights to receive revenue from the Gold Coin, and the Company would forfeit all amounts previously paid to Prime Properties and Chrysolith in connection with the Gold Coin transactions. Pursuant to an Agreement for Exchange of Shares dated July 13, 1994 between the Company and the shareholders of Lee Young Enterprises ("LYE"), under the Chrysolith Agreement, on December 22, 1994, the Company acquired all of the issued and outstanding capital stock of LYE in exchange for 100,000 shares of the Company's Common Stock and options to acquire up to an additional 200,000 shares of Common Stock at an exercise price of $7.00 which are exercisable for a period of two years commencing December 23, 1995. LYE owned various software programs and other technology and know-how relating to the operations of, and accounting for, gaming establishments. WOODLANDS ACQUISITION. In October 1994, TWGLa acquired the Woodlands for approximately $1,000,000 pursuant to the exercise of an option originally granted to Monarch and assigned by Monarch to the Company. The balance of the purchase price for the Woodlands was paid in full in July 1996. MONARCH In April 1994, the Company acquired for $49,000 a 49% ownership interest in Monarch Casinos ("Monarch"), a Louisiana-licensed video gaming device operator founded in December 1993. In June and August 1994, the Company loaned Monarch an aggregate of $55,000 for working capital to manage the operations of the Woodlands under an agreement with the previous owner of the Woodlands. All of such loans are payable on demand, bear interest at the rate 5 of 10% and are evidenced by promissory notes of Monarch. In October 1994, the Company credited Monarch $25,000 against prior advances in consideration for the assignment by Monarch to the Company of an option to purchase the Woodlands. It was originally intended that Monarch would own, operate and maintain the VLTs at both the Toledo Palace and the Gold Coin. However, the Company learned that as of June 30, 1995, Monarch did not renew its operator's license as required by the state of Louisiana, and as such, is no longer a licensed video operator in the state. Pursuant to the management agreements between Monarch and the Company, such a failure to renew or other termination of the operator's license results in a default under the agreements and the agreements were terminated on March 14, 1996. No further discussions have taken place between Monarch and the Company. MARKETING Since customers of truck stop video gaming facilities generally are drawn from the local population and surrounding area, the Company will focus its sales and marketing efforts within a 20 to 30 mile range of the Gold Coin and the Toledo Palace. Although the Company believes word-of-mouth and personal referrals are the most effective means of attracting regular patrons for local video gaming facilities, the Company intends to continue to advertise in local publications, provide brochures to tourist facilities, air brief commercials on local television and advertise on local billboards. REGULATION AND LICENSING LOUISIANA VLT LICENSE. The manufacture, distribution, servicing and operation of VLTs in Louisiana are subject to the Louisiana Video Draw Poker Devices Control Law and the Rules and Regulations promulgated thereunder (the "Louisiana Act"), and to licensing and regulatory control by the Video Gaming Division of the Gaming Enforcement Section of the Office of State Police within the Department of Public Safety and Corrections (the "Louisiana Authorities"). The laws and regulations of the State of Louisiana are based upon declarations of policy which are concerned with protecting the video gaming industry from organized crime, illegal gambling activities and other harmful elements, and protection of the public from illegal and unscrupulous gaming to ensure the fair play of VLTs. The Company also owns a 49% interest in Chrysolith, a licensed machine operator in Louisiana. Pursuant to the Chrysolith Operating Agreement with the Company, Chrysolith maintains, services and operates the VLTs at the Gold Coin and the Toledo Palace. The license held by Chrysolith is not transferable and must be renewed annually through payment of fees and continued compliance with the suitability requirements of the Louisiana Act. The Louisiana Authorities may, in accordance with certain regulatory procedures, limit, condition, suspend or revoke the license of Chrysolith for any violation of any rules or regulations of the Louisiana Authorities or any violations of the Louisiana Act, or for any other cause deemed reasonable by the Louisiana Authorities. Fines for violations of gaming laws, rules, or regulations may be levied against the licensees and the persons involved. Suspension or revocation of the license of Chrysolith could have a material adverse effect upon the business of the Company. The Louisiana Authorities have the authority to conduct overt and covert investigations of any person, entity, applicant or participant involved directly or indirectly in the video gaming industry in Louisiana. This investigation may extend beyond the information provided in the formal application, including information with regard to the licensee's immediate family and relatives and their affiliations with certain groups, organizations, corporations, firms or other business entities. The investigation may also extend to every person who has or controls more than a five percent ownership, income or profit interest in an entity which has or applies for a license in accordance with the provisions of the Louisiana Act, or exercises a significant influence over the activities of a licensee. The Louisiana Authorities require the submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing must pay a filing fee which also covers the cost of investigation. If such a stockholder is found unsuitable, the Louisiana Authorities may require his removal from the venture or refuse to license the applicant. Further, the Louisiana Authorities, in their discretion, may require holders of the Company's debt securities, if any, to be found to be suitable persons. All persons or entities who have invested must meet all suitability requirements and qualifications for licensees. Each applicant for licensing must pay a filing fee which also covers the cost of investigation. Determinations of suitability or of questions pertaining to licensing are subject to review under the provisions of Louisiana's 6 Administrative Procedures Act and the Louisiana Act. In order for a corporation, such as Chrysolith, to be licensed by the Louisiana Authorities, it must be demonstrated that a majority of the equity securities in that corporation is owned by persons who have been domiciled in Louisiana for a period of at least two years prior to the date of the application. VLTs must meet strict specifications established by the Louisiana Act and the number of VLTs which may be operated at a particular location depends on the nature of the location. The number of VLTs which may be operated at a truck stop is based upon average monthly fuel sales: (i) no more than 50 VLTs if sales equal at least 100,000 gallons per month and 40,000 of such gallons are diesel; (ii) no more than 40 VLTs if sales equal at least 75,000 gallons per month and 30,000 of such gallons are diesel; (iii) no more than 35 VLTs if sales equal at least 50,000 gallons per month, and 10,000 of such gallons are diesel; (iv) no more than 3 machines if sales are less than 50,000 gallons per month, and (v) license can be revoked if sales are less than 25,000 gallons in any single month. ESTABLISHMENT LICENSE. The Louisiana Act provides that a truck stop facility ("Establishment") must obtain a license as an Establishment to allow the placement and operation of VLTs therein. As of January 1, 1996, in order to qualify for a license to operate as a truck stop in Louisiana, the location must have paved parking for at least 50 18-wheelers, a 24 hour on-site restaurant facility, an on-site repair facility with at least one mechanic available, five developed contiguous acres, and certain other specified amenities (the "Qualified Truck Stop"). The Establishment license is typically granted to the owner of the truck stop facility, but may also be granted to a lessee of the facility. Prime Properties holds an Establishment license for the Gold Coin and TWGLa holds an Establishment license for the Toledo Palace. In accordance with current video gaming law in Louisiana, the licensee of any license revoked by the Video Gaming Division of the State Police may not reapply for such license for a period of five years from the date of such revocation. Prior to having its license revoked by Louisiana Authorities, a truck stop facility which did not meet all of the requirements as of January 1, 1996 may voluntarily surrender its license under certain conditions and reapply when all criteria are met. Except under emergency circumstances determined by Louisiana Authorities, if a licensed Establishment which otherwise was a Qualified Truck Stop, fails to sell a minimum of 25,000 gallons of fuel in any single month, the Establishment's video gaming license is subject to immediate revocation without a hearing. Establishment and VLT owner licenses are subject to annual renewal in June of each year and the payment of an annual fee. The Louisiana Authorities have the same authority to deny, suspend, condition or revoke an Establishment license and to conduct investigations, including investigations of 5% or more owners, as it does for VLT owner licenses. The loss by Prime Properties or TWGLa of the Establishment licenses for the Gold Coin or the Toledo Palace, respectively, would have a materially adverse effect upon the business of the Company. The Louisiana Act also provides protection to lessees of truck stop facilities. It provides that if the lease of a licensed Establishment expires or is terminated without legal cause by the owner of the Establishment, neither the owner nor any new lessee shall have the right to apply for a VLT license at the Establishment for six years; unless the owner of the Establishment was also the holder of the VLT license for the VLTs being operated at the Establishment, and the former lessee/licensee is given the right to continue operations at the Establishment by agreement with the owner or any new lessee. GAMING TAXES. Effective July 1, 1994, the Louisiana Act was amended to increase the franchise payment rate from 22.5% to 32.5% of net VLT revenues from licensed truck stop gaming establishments. There can be no assurance that tax rates, fees or other payments to the State of Louisiana applicable to the Company's gaming operations will not be increased in the future. FEDERAL REGULATION. The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it unlawful, in general, for a person to manufacture, deliver, or receive gaming machines, gaming machine type devices, and related components across state lines or to operate gaming machines unless that person has first registered with the Attorney General of the United States. In order to manufacture, sell, deliver, or operate certain of its current and proposed products, the Company must register and renew its registration annually. In addition, various record keeping and equipment 7 identification requirements are imposed by the Federal Act. Violation of the Federal Act may result in seizure and forfeiture of equipment, as well as other penalties. LOUISIANA GAMING REFORM. At the close of a special legislative session on April 19, 1996, a local option bill was passed which required the residents of each parish in the state to vote on the future of gambling in their parish. On November 5, 1996 the residents in Lafayette and Beauregard parishes in Louisiana, where the Company currently has video poker operations, were among 35 of 64 Louisiana parishes that voted to eliminate video poker. As a result, the Company must cease its video poker operations by June 30, 1999 in both of those parishes. Currently, these are the only two facilities at which the Company has operations. The Company, through its Chrysolith affiliate, has joined with two video poker operators in the State in challenging the vote in the courts. The hearing was originally scheduled for January 13, 1997 but the State received a postponement to a date yet to be determined. The Company believes that cash flow generated from existing operations, barring any extraordinary circumstances, and assuming operations continue at or above current levels, should be sufficient to cover carrying interest and retire its existing debt by June 30, 1999. Currently, the Company is seeking to develop or acquire interests in other gaming operations at other locations so that it will be generating positive cash flow by 1999; however, there can be no assurance that the Company will be able to develop or acquire any such new operations by June 1999. The Company has evaluated the impact that this voter mandate has under FASB 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and recorded an impairment loss in the fourth quarter 1996 of $11.4 million. APPLICATION OF FUTURE OR ADDITIONAL REGULATORY REQUIREMENTS. In the future, the Company intends to seek the necessary licenses, approvals and findings of suitability for the Company and its personnel in other jurisdictions. However, there can be no assurance that such licenses, approvals or findings of suitability will be obtained and will not be revoked, suspended or conditioned or that the Company will be able to obtain the necessary approvals for its future activities. If a license, approval or finding of suitability is required by a regulatory authority and the Company fails to seek or does not receive the necessary license or finding of suitability, the Company may be prohibited from owning or operating gaming establishments in the jurisdiction. COMPETITION The gaming industry is highly fragmented and characterized by a high degree of competition among a large number of participants. The Gold Coin and the Toledo Palace compete with numerous existing and proposed gaming operations in Louisiana and adjacent portions of Mississippi, including truck stop sites which contain VLTs, comprehensive land-based and riverboat casinos, Native American gaming ventures and other forms of legalized gaming. In addition, under Louisiana law racetracks and off-track betting parlors may install an unlimited number of VLTs, and establishments with alcoholic beverage licenses, such as restaurants and bars, as well as hotels, are eligible to apply for a license to operate up to three VLTs. Many of the Company's competitors and potential competitors have greater financial and marketing resources, have significantly more experience in operating gaming facilities, operate a greater number and variety of gaming facilities, and have better sites, than the Company. The Company believes that competition in the gaming industry is based on the quality and location of gaming facilities, the effectiveness of marketing resources and customer service and satisfaction. There are four gaming operations within five miles of the Gold Coin and one gaming operation within five miles of the Toledo Palace, as well as numerous restaurants, bars and hotels which are limited to three VLTs each. As of December 31, 1996, there were over 100 truck stops in Louisiana with VLTs. In addition there are three land-based casinos on Native American reservations in Charenton, Marksville and Kinder, Louisiana, which are located within 65 miles from the Gold Coin and the Toledo Palace, respectively. There also is a significant number of gaming license applications currently pending in Louisiana. In 1991, Louisiana enacted a law permitting unlimited stakes riverboat gaming on up to six gaming riverboats in any one parish (county) with a maximum of 15 riverboats for the entire state. The first of these riverboats became operational in December 1993. On November 5, 1996, all parishes that currently have riverboats voted to continue gaming beyond June 30, 1999. Louisiana has also approved land-based gaming for one location in downtown New Orleans, which 8 opened a temporary facility in May 1995 and suspended operations in November 1995, and dockside gaming at certain locations on the Red River. The land-based casino has applied for reinstatement of its operations, approval for which is pending. The Gold Coin and the Toledo Palace also compete with other forms of gambling, including bingo and pull tab games, card clubs, pari-mutuel betting on horse racing and dog racing and state sponsored lotteries, as well as other forms of wagering entertainment. EMPLOYEES As of January 1, 1997, the Company had 14 full-time employees, (including two executive officers), 11 of whom are involved in managing and operating the Woodlands. The Company believes that its employee relations are satisfactory. Item 2. DESCRIPTION OF PROPERTY. The Company's corporate offices are located at One Penn Plaza, Suite 1503, New York, New York, where it occupies approximately 1,000 square feet of office space under a lease at the rental rate of $2,500 per month expiring in October 1999. The original lease for the corporate offices was canceled on November 14, 1996. The Company leases space for the Gold Coin under an 18-year sublease from Prime Properties consisting of 5,000 square feet of space, at a rent of $3,000 per month. TWGLa owns the 20-acre site on which the Woodlands is located in DeRidder, Louisiana. ITEM 3. LEGAL PROCEEDINGS. In March 1995, the Company's wholly owned subsidiary TWGLa was served with a petition filed by Charles Alan Jones III and Kelly McCoy Jones (the "Petitioners") to enforce a mortgage held by the Petitioners on the Woodlands. The Petitioners held a promissory note from the Company in the principal amount of $435,000 (the "Note") which was secured by a mortgage on the property. The Company repaid the Note in July 1996 and the petition was dismissed. The Company is not currently involved in any other material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report. ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY. The executive officers of the Company, their ages and the offices held, as of March 15, 1997 are as follows: Name Age Position in the Company - ---- --- ----------------------- Stanley Kohlenberg 64 Chairman and Director Andrew Tottenham 39 Chief Executive Officer, President and Director Dominick J. Valenzano 48 Chief Financial Officer, Treasurer and Director Information regarding the business experience of the executive officers of the Company is set forth below. STANLEY KOHLENBERG was the Chief Executive Officer and President of the Company from March 6, 1996 until his retirement on December 31, 1996. He has been a director of the Company since September 1994 and has been retained as a consultant through March 31, 1999. He has been a Managing Director of Tottenham & Co. an international gaming industry consulting company since January 1991. Mr. Kohlenberg was the acting Chief Financial Officer for the start-up and opening of the Teller House Casino is Central City, Colorado in 1991. Prior to January 1991, Mr. Kohlenberg held senior executive positions in the cosmetics industry as Chief Executive Officer of Alfin Inc. (1989- 9 1991), President of Sanofi Beauty (1984-1989), President of CFT Marketing (1980-1984), which was acquired by Sanofi Beauty in 1984, President of Calvin Klein Cosmetics (1977-1980), and Executive Vice President of Revlon, Inc. (1974-1977). ANDREW TOTTENHAM was hired on January 1, 1997 as President and Chief Executive Officer. Mr. Tottenham was a consultant to the Company from July 1996 to December 31, 1996 and has been a director of the Company since May 1996. He has been the President of Tottenham & Co., an international gaming industry consulting company, since 1988. Mr. Tottenham commenced his career in the gaming industry in 1975 and has worked for the Silhouette Club, Bally's Park Place, Connoisseur Club, and Victoria Casino. DOMINICK J. VALENZANO has served as a consultant to the Company since May 1994 and as the Treasurer, Chief Financial Officer and a director of the Company since September 1994. From September 1992 until May 1994, Mr. Valenzano was a mortgage banking representative for Jennings Mortgage Co., a mortgage banker. From 1974 to August 1992, Mr. Valenzano was employed by Control Data Corporation holding various positions, most recently that of Divisional Vice President of Finance. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Effective December 15, 1994, the Company's Common Stock and warrants (the "$8.50 Warrants") commenced trading on the Nasdaq National Market System under the symbols IBET and IBETW, respectively. Prior to December 15, 1994, there was no established public trading market for the Company's Common Stock or the $8.50 Warrants. On December 17, 1996 trading on the Company's Common Stock was transferred to the NASDAQ SmallCap Market System for failure to maintain the minimum bid price requirements of the National Market System. COMMON STOCK . . . . . . . . . . . . . . HIGH LOW 1995 First Quarter. . . . . . . . . . . . . . 7 3/4 3/4 Second Quarter . . . . . . . . . . . . . 4 2 5/8 Third Quarter. . . . . . . . . . . . . . 2 7/8 2 3/8 Fourth Quarter . . . . . . . . . . . . . 1 3/4 1 5/16 1996 First Quarter. . . . . . . . . . . . . . 1 1/2 3/4 Second Quarter . . . . . . . . . . . . . 3 1/2 25/32 Third Quarter. . . . . . . . . . . . . . 3 1/16 1 3/8 Fourth Quarter . . . . . . . . . . . . . 1 1/8 3/8 $8.50 WARRANTS 1995 First Quarter. . . . . . . . . . . . . . 1 1/8 1/2 Second Quarter . . . . . . . . . . . . . 3/4 13/32 Third Quarter. . . . . . . . . . . . . . 9/16 5/16 Fourth Quarter . . . . . . . . . . . . . 5/16 1/8 1996 First Quarter. . . . . . . . . . . . . . 1/4 1/8 Second Quarter . . . . . . . . . . . . . 1/32 1/8 Third Quarter. . . . . . . . . . . . . . 3/8 1/4 Fourth Quarter . . . . . . . . . . . . . 7/32 1/16 As of the date of this report (March 31, 1997), there were (a) 3,044,286 shares of Common Stock outstanding held of record by approximately 1,300 persons, (b) outstanding options to purchase an aggregate of 332,500 shares of Common 10 Stock outside of the Company's 1993 Incentive Stock Option Plan (the "1993 Plan"), (c) outstanding $8.50 Warrants to purchase an aggregate of 1,511,429 shares of Common Stock, (d) outstanding Warrants to purchase an aggregate of 499,875 shares of Common Stock issued in connection with the March 1996 Financing (see Item 6, Management's Discussion and Analysis or Plan of Operation - - Liquidity and Capital Resources), (e) outstanding $11.55 Warrants to purchase an aggregate of 151,143 shares of Common Stock, (f) outstanding $13.50 Warrants to purchase an aggregate of 151,143 shares of Common Stock, (g) $4.8 million principal amount of outstanding Senior Bonds convertible into shares of Common Stock at conversion prices of $2.00 to $3.125 per share (see Item 6, Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources), (h) outstanding $1.00 Warrants to purchase an aggregate of 960,000 shares of Common Stock issued in connection with the sale of the Senior Bonds (see Item 6, Management's Discussion and Analysis or Plan of Operation - Liquidity and Captial Resources), and (i) outstanding $.5938 Warrants to purchase an aggregate of 250,000 shares of Common Stock issued in connection with the acquisition of Tottenham & Co. (see to Item 1, Description of Business - - Narrative Description of Business - Acquisition Agreements). The Company has not declared or paid any cash dividends on its Common Stock since its inception and does not intend to pay any dividends for the foreseeable future. The following chart sets forth information regarding all securities sold by the Company during the period covered by this Report which were not registered under the Securities Act:
DATE OF EXEMPTION CONVERSION/EXERCISE ------- --------- ------------------- SECURITIES SOLD SALE PURCHASERS CONSIDERATION CLAIMED TERMS - --------------- ---- ---------- ------------- ------- ----- Bridge Warrants for 3/96 C.P. Baker & Placement Agent Section (2) Exercisable at $.01 per share 499,875 shares Co., Ltd. Services of '33 Act Common Stock 9.6 Units (each Unit 6/96 Six accredited $500,000 per Unit Section (2) Senior Bonds convertible at consisting of one investors (1) of '33 Act $2.00 to $3.125 per share; convertible Senior Warrants exercisable at $1.00 Bond and one Warrant per share (2) to purchase 100,000 shares Common Stock) 500,000 shares 1/97 Andrew and Common Stock of Section (2) N/A Common Stock Robin Tottenham & Co. (3) of '33 Act Tottenham Warrants for 1/97 Andrew and Common Stock of Section (2) Exercisable at $.5938 per share 250,000 shares Robin Tottenham & Co. (3) of '33 Act Common Stock Tottenham
(1) Value Partners, Ltd. - 6 Units; Anasazi Partners, Ltd. - 2 Units; Belvin and Lucille Friedson - 1/5 Unit; Fundamental Investors, L.P. - 2/5 Unit; and New Generation Limited Partnership - 1 Unit. (2) For description of transaction, see Item 6, Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources. (3) For description of transaction, see Item 1, Description of Business - Narrative Description of Business - Acquisition Agreements. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. This Form 10-KSB contains certain forward-looking statements. For this purpose, any statements contained in this Form 10-KSB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will,", "expect," "believe," "anticipates," "estimates," or "continue" or comparable terminology are intended to identify certain forward-looking statements. These statements by their nature involve 11 substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, including those set forth in the section below entitled "Important Factors to Consider." The following discussion and analysis relates to the financial condition and results of operation of the Company for the two years ended December 31, 1996. This information should be read in conjunction with the Company's Consolidated Financial Statements and notes appearing elsewhere herein. All amounts in the following discussions have been rounded to the nearest thousand except where indicated. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1996 1995 ---- ---- (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) Revenue $ 6,655 $ 5,853 Pre-Tax Income/(Loss) (12,440) 172 Net Income/(Loss) (12,760) 90 Earnings/(Loss) per share $(5.02) $.04 Common Shares Outstanding 2,544,286 2,544,286 FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1995 REVENUES Net revenues from the Company's video poker operations (defined as those amounts remaining with the Company after payment of winnings and state gaming taxes) from the Gold Coin and the Toledo Palace were $3.9 million for the year ended December 31, 1996, representing an increase of $.3 million or 8% as compared to the prior year ended December 31, 1995. Approximately $.2 million of the increase is attributable to a full year of operations at the Toledo Palace, as compared to three (3) months of operations in 1995. At the Woodlands, the Company derived revenues amounting to $2.8 million for the year ended December 31, 1996 primarily from the sale of fuel, representing an increase of $.5 million or 22% over the prior year's total of $2.3 million. COST OF REVENUE Cost of revenue, which consists of the direct cost of operating both the Gold Coin and the Toledo Palace, primarily in the areas of labor, security, and general office expenses on a 24-hour, 7-day schedule, were $1.1 million in 1996, representing a 19% increase over the prior year ended December 31, 1995. Of this increased amount, $.1 million is directly attributable to the expenses for a full year of operation at the Toledo Palace which was only in operation for three (3) months during 1995. The cost of revenue at the Woodlands was $2.9 million ($2.5 million of which was the cost of fuel) in 1996 as compared to $2.4 million ($1.9 million of which was the cost of fuel) in 1995, due to the increased fuel sales at the truck stop. EXPENSES Selling, general and administrative expenses were $1.87 million in 1996 representing a 33% increase over 1995. This increase is primarily attributable to one-time charges in 1996 as follows: approximately $175,000 in legal, accounting and financing costs in connection with an unsuccessful effort to complete a proposed underwritten secondary offering of securities in March 1996; fees of approximately $56,000 and expenses of $23,000 in connection with the Bridge during 12 1996 (see Item 6, Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources); office relocation costs of $80,000; and new business development costs of $100,000. Amortization and depreciation increased from $.7 million in 1995 to $1.1 million in 1996 due to the amortization of deferred placement costs incurred in connection with the Senior Bonds issued by the Company on July 2, 1996 (see Item 6, Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources). Interest expense for the year ended December 31, 1996 was $1.1 million compared to $.6 million for the year ended December 31, 1995, and is due primarily to the interest expense of $.3 million incurred in connection with the Senior Bonds issued on July 2, 1996. As a result of the Company's issuance of the Bridge Warrants (See: Liquidity and Capital Resources) and the subsequent repayment of the Bridge, the Company recognized interest expense of $416,000 in the second quarter of 1996, representing the difference between the trading price of $.8438 of the Company's Common Stock at the time of the Bridge as reported on the NASDAQ National Market System (Symbol: IBET) and the exercise price of $.01 per share for the 499,875 warrants issued in connection with the Bridge. All these warrants carry demand registration rights commencing in July 1996. EARNINGS/(LOSS) On November 5, 1996, the residents in the parishes in Louisiana where the Company's video poker operations are located voted to eliminate video poker effective June 30, 1999. The Company reviewed the carrying amount of long-lived assets, identifiable intangibles and goodwill related to those operations. Based on a comparison of those assets against the expected future cash flows generated by those operations the Company recorded an asset impairment charge of $10.7 million. The Company is also offering for sale an associated truck stop property and upon reviewing the fair value of that property, which was less than the carrying amount, an additional impairment write down of $.7 million was recorded. LIQUIDITY AND CAPITAL RESOURCES The level of cash increased by $.3 million for the year ended December 31, 1996 due primarily to the receipt of the net proceeds of the private placement of $4.8 million in aggregate principal amount of the Senior Bonds, as hereinafter defined. In March 1996 the Company retained C.P. Baker & Co., Ltd. ("Baker") for a period of one year as placement agent to arrange bridge and convertible debt financings. From March 25, 1996 through June 5, 1996, the Company completed bridge financings (the "Bridge") in the form of unsecured loans in the aggregate principal amount of $375,000, bearing interest at the rate of 10% per annum, which amount was paid in full in July 1996. In connection with the Bridge, the Company issued to Baker warrants to purchase 499,875 shares of the Company's common stock at an exercise price of $.01 per share (the "Bridge Warrants"). As compensation to Baker, the Company paid a cash commission of 15% of the aggregate Bridge proceeds, or $56,250. In June 1996, through Baker as placement agent, the Company privately offered to selected accredited investors a minimum of 7 units and a maximum of 12 units (each, a "Unit") consisting of one 12% secured convertible senior bond due June 30, 1999 in the principal amount of $500,000 (each, a "Senior Bond") and a warrant to purchase 100,000 shares of Common Stock of the Company, at an exercise price of $1.00 per share (each, a "Warrant"). The Warrants are exercisable at any time until June 30, 2001. Initially the Senior Bonds, which are convertible at the option of the holder thereof to shares of the Company's Common Stock, had a conversion price of $5.00 per share. The conversion price was amended on December 23, 1996 to $2.00 per share if converted between December 23, 1996 and June 30, 1997; $2.50 per share of Common Stock if converted between July 1, 1997 and June 30, 1998 and $3.125 per share of Common Stock if converted thereafter. The Company may, at its option, redeem the Senior Bonds in whole, but not in part, at 100% of the principal amount then outstanding, together with the interest accrued thereon through the date fixed for redemption, within six months following a public offering by the Company of Common Stock that raises not less than $6,000,000 in gross proceeds. Holders of the Warrants are entitled to have the shares of Common Stock underlying their Warrants registered as part of the next registered public offering of the Common Stock of the Company as permitted under the rules of the SEC. If no public offering of Common Stock has occurred by December 31, 1997, then upon written request of the holders of Warrants issued in connection with the Senior Bonds and exercisable for not less 13 than 700,000 shares of Common Stock, the Company will be obligated to file and use its reasonable efforts to cause to be declared effective a registration statement or post-effective amendment for such Common Stock as permitted under the Securities Act of 1933. Interest on the Senior Bonds is payable by the Company semi-annually and the first payment was made on December 15, 1996. The Company and Baker terminated the offering on November 30, 1996, after selling 9.6 Units, with gross proceeds of $4.8 million raised. As compensation to Baker, the Company paid a cash commission of 10% and a non-accountable expense allowance of 3% of the proceeds raised in the offering, totalling $624,000. The net proceeds to the Company of the $4.8 million private placement after deducting commissions, non-accountable expenses, and offering expenses were approximately $4.1 million. The proceeds were used to retire the Chrysolith and Monarch Notes (collectively, $2.1 million) which were due on June 30, 1996, to repay the outstanding balance of the bridge financings due Baker ($220,000), to pay the scheduled quarterly payments of June 21, September 21, and December 21, 1996 on the Prime Note (collectively, $876,000), to retire the Woodlands Note ($435,000), to pay trade payables ($300,000) and for general corporate purposes ($169,000). In connection with the issuance of the Senior Bonds, the Company has recorded as a capital item deferred placement costs through December 31, 1996 of $790,000 consisting of $624,000 in commissions and fees paid to Baker, and legal fees of $166,000, all of which will be amortized over the term of the debt in thirty-six (36) equal monthly installments. In addition, the Company determined that the fair market value of the Common Stock underlying the issuance of Warrants to purchase 960,000 shares of Common Stock to be $1,080,000 or $1 1/8 per share. The Company has therefore recorded the difference between the fair market value of the Common Stock and the exercise price of the Warrants as a discount on Convertible Debt which will be amortized over a thirty-six (36) month period unless converted to Common Stock. The Company believes, although there can be no assurance, that existing cash and anticipated cash flow from current operations will be sufficient to satisfy its liquidity and capital requirements for the next twelve months. The Company's obligation due to Prime Properties in connection with the December 1994 acquisition of the Gold Coin is evidenced by a three-year promissory note in the original principal amount of $3.0 million, which note is secured by the Company's sublease with Prime Properties for the Gold Coin premises (the "Prime Note"). As of March 26, 1997, the principal amount outstanding on the Prime Note was $835,000. Such amount matures in its entirety on December 22, 1997. If the Company defaults in its obligation under the Prime Note, it would lose all its interests in the Gold Coin, which loss would materially and adversely affect the financial condition and business of the Company. PLAN OF OPERATIONS The Company intends to continue operating the Gold Coin and the Toledo Palace as they are presently being operated; however, the Company has made available for sale its Woodlands property where the Toledo Palace is located. In November 1996, residents in 35 out of 64 parishes in Louisiana, including both parishes in which the Gold Coin and the Toledo Palace are located, voted to discontinue video poker effective June 30, 1999. Currently, the Company is seeking to develop or acquire interests in gaming operations at other locations so that it will generate positive cash flow by 1999; however, there can be no assurance that the Company will be able to develop or acquire any such new operations by June 1999. The Company has an agreement with Chrysolith pursuant to which Chrysolith owns, installed, operates, maintains and services the VLTs and provide on-site management services for all of the operations at both the Gold Coin and the Toledo Palace. The Company receives the net operating revenues derived from all of the businesses at both the Gold Coin and the Toledo Palace, after payment of all taxes payable to the State of Louisiana and payout of winnings from the gaming establishment, and pays a management fee to Chrysolith in an amount equal to the direct operating expenses of both facilities. IMPORTANT FACTORS TO CONSIDER ACCUMULATED DEFICIT; OPERATING LOSSES On December 31, 1996, the Company had an accumulated deficit of approximately $13.2 million and a working capital deficit of approximately $578,000. For the period from its inception through December 31, 1995, the Company incurred a net loss of approximately $482,000. For the fiscal year ended December 31, 1996, the Company incurred a net loss of approximately $12.8 million which resulted primarily from a $11.4 million accounting charge under FASB 121. The Company's ability to achieve profitability is dependent upon the successful operation of gaming establishments at the Gold Coin and the Toledo Palace and the diversification of its operations into other locations or lines of business. There can be no assurance that the Company will achieve profitability as a result of these operations or otherwise. OBLIGATION TO PRIME PROPERTIES The Company's obligation due to Prime Properties in connection with the December 1994 acquisition of the Gold Coin is evidenced by a three-year promissory note in the original principal amount of $3.0 million, which note is secured by the Company's sublease with Prime Properties for the Gold Coin premises (the "Prime Note"). As of March 26, 1997, the principal amount outstanding on the Prime Note was $835,000. Such amount matures in its entirety on December 22, 1997. If the Company defaults in its obligation under the Prime Note, it would lose all its interests in the Gold Coin, which loss would materially and adversely affect the financial condition and business of the Company. 14 TERMINATION OF LOUISIANA OPERATIONS IN 1999; NEED TO DIVERSIFY In November 1996, residents in 35 out of 64 parishes in Louisiana, including both parishes in which the Gold Coin and the Toledo Palace are located, voted to discontinue video poker effective June 30, 1999. At this time, the Company has no operations other than the Gold Coin and the Toledo Palace. Currently the Company is seeking to develop or acquire interests in gaming operations at other locations so it will have positive cash flow by 1999; however, there can be no assurance that the Company will be able to develop or acquire such new operations by that time. POSSIBLE LOSS OF SUBLEASE AND OPERATING RIGHTS TO GOLD COIN; FORFEITURE OF ALL MONIES PAID IN CONNECTION WITH GOLD COIN TRANSACTIONS A Note in the original principal amount of $3,000,000 payable to Prime Properties in equal quarterly installments through December 21, 1997 (the "Prime Note") is secured by the Company's sublease with Prime Properties for the Gold Coin premises. In the event the Company defaults on the Prime Note, Prime Properties could terminate the Company's sublease and its rights relating to the establishment license for the Gold Coin. POSSIBLE INABILITY TO MEET DEBT SERVICE; RISK OF SEVERE LIMITATION ON BUSINESS As of December 31, 1996, the principal amount of the Company's indebtedness under the Prime Note with respect to the Gold Coin was approximately $1.1 million, payable in equal quarterly installments through December 22, 1997. The Company is dependent on cash on hand and cash flow from operations (assuming continued operation of both the Gold Coin and Toledo Palace, which is not expected to continue past June 1999) to pay debt service on the Prime Note, as well as anticipated and unanticipated cash requirements. If cash on hand and cash flow from operations are insufficient to meet the debt service and other cash requirements, the Company will need to seek additional financing. There can be no assurance that the Company will be successful in obtaining additional financing or that such financing, if obtained, will be on terms favorable to the Company. If the Company defaults in its obligations under the Prime Note, it would lose its interests in the Gold Coin and the Woodlands, including the Toledo Palace, which would materially and adversely effect the business of the Company. POSSIBLE LOSS OF SUBLEASE FOR GOLD COIN DUE TO TERMINATION OF OVER-LEASE Simultaneously with the closing of the Company's initial public offering in December 1994, the Company entered into an 18-year sublease with Prime Properties for the Gold Coin premises at the 76 Truck Plaza. The sublease is subject to the terms and conditions of the lease between Prime Properties, the operator of the 76 Truck Plaza, as lessee and National Auto Truck Stops, Inc. ("National"), as lessor (the "Over-Lease"). Although National is aware of the Company's use of the Gold Coin facilities, National has not yet granted its written consent to the sublease, as required by the Over-Lease. The Over-Lease expires September 30, 1999, subject to the right of Prime Properties to extend the term for up to five successive three-year periods. Prime Properties is not contractually obligated to the Company to exercise its right to extend the Over-Lease at the end of its term or any renewal term. In addition, National has the right to terminate the Over-Lease under certain circumstances, including if Prime Properties defaults, under the terms of the Over-Lease, or if Prime Properties does not renew a franchise relationship between National and Prime Properties. The termination of the Over-Lease upon the expiration of its terms (or any renewal term), or as a result of a breach by Prime Properties or otherwise, will result in the termination of the Company's sublease for the Gold Coin gaming facility premises, and any such termination would have a materially adverse effect on the operations and the financial condition of the Company. TAXATION OF GAMING OPERATIONS Gaming operators are typically subject to significant taxes and fees in addition to federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Any material increase in these taxes or fees would adversely affect the results of operations of the Company. Under Louisiana law, approximately 32.5% of gaming revenues (after payout of winnings) generated by the Gold Coin and the Toledo Palace is payable as gaming taxes to the State of Louisiana, and there can be no assurances that tax rates, fees or other payments to the State applicable to the Company's gaming operations will not be increased in the future. 15 POSSIBLE LOSS OF ESTABLISHMENT LICENSE Effective January 1, 1996, in order for the maximum of 50 VLTs to be operated at a truck stop location in Louisiana, the truck stop must meet certain requirements relating to its operation as a truck stop, including the operation of a 24-hour restaurant, the availability of mechanic services 24 hours/7 days a week, paved parking for at least 50 18-wheeled vehicles and the sale of at least 100,000 gallons of fuel per month, of which 40,000 gallons must be diesel fuel. The Company believes that the Woodlands, and the 76 Truck Plaza at which the Gold Coin is located, currently satisfy these requirements. The failure of either location to meet the standard for maintaining a truck stop gaming establishment could cause the number of VLTs permitted to be operated at such location to be decreased or eliminated, which could have a material adverse impact on the revenue of the Company. Moreover, if Prime Properties (which operates the 76 Truck Plaza at which the Gold Coin is located) or the Company (which operates the Woodlands) loses its fuel franchise for any reason, the truck stop would no longer qualify as a site for a gaming establishment. NEED FOR ADDITIONAL FINANCING The Company believes, although there can be no assurance, that existing cash, together with anticipated cash flows from operations, and from the net proceeds from the Company's private placement in June 1996 of $4.8 million in principal amount of its Senior Bonds, will be sufficient to satisfy its liquidity and capital requirements for the next twelve months. After twelve months, the Company may require additional capital to fund operations and growth opportunities. If such additional financing is not available, this would have a materially adverse effect on the financial condition and operations of the Company. The Company may require additional financing for acquisition of other gaming businesses when and if the opportunity to acquire such businesses arises; in particular, after June 1999 when its operations in Louisiana will be required to close. The Company has no immediate plan, agreements or understandings with respect to such transactions. The Company's ability to obtain additional financing may be limited for a number of reasons, including the fact that a substantial portion of the Company's assets are subject to liens. There can be no assurance that such financing will be available on terms favorable to the Company or at all. LICENSING AND REGULATION The Company's operations will be subject to regulation by each jurisdiction in which it plans to conduct business, as well as federal laws and the laws of any foreign country in which it seeks to operate. Each of the Company's officers, directors, managers and principal stockholders, as well as persons who have more than a 5% income or profit interest in, or who exercised significant influence over the activities of, the Company will be subject to strict scrutiny and approval of the gaming commission or other regulatory body of each jurisdiction in which the Company may conduct gaming operations. The Company has not been, and cannot be, licensed in Louisiana to directly own or operate VLTs because of the residency requirements for such a license. The ownership, operations and management of the VLTs at the Gold Coin and the Toledo Palace have been undertaken by Chrysolith, a video machine operator licensed in the State of Louisiana. If Chrysolith's licenses are revoked, not renewed or are otherwise impaired, the Company would either have to enter into an agreement with another Louisiana-licensed VLT operator, or terminate gaming operations at the locations at which Chrysolith owns, operates and maintains VLTs. There can be no assurance that the Company could enter into an agreement with another Louisiana-licensed VLT operator expeditiously or on acceptable terms, if at all. In such event, and if it were unable to do so, the Company's operations and financial condition would be materially adversely affected. The Company owns 49% of the Class B membership units in Chrysolith. The failure to obtain any license for properties upon which the Company plans to operate or manage a gaming establishment in the future would have a materially adverse effect on the Company's business. Obtaining required licenses can be time consuming and costly with no assurance of success. In addition, the Company is subject to changes in the laws of the jurisdictions in which it operates, which could materially limit the Company's ability to conduct business profitably. In the event that a required license is not granted for any particular location, the Company's options would include effecting a transfer of substantially all the related gaming assets to a different location or selling its interest in the gaming operations at that location to a third party. There can be no assurance that the Company would be able to relocate gaming assets or sell its interests on acceptable terms or at all, and the inability to do so would have a materially adverse effect upon the business and prospects of the Company. 16 COMPETITION The Company faces a high degree of competition from a large number of participants in the gaming business. The Gold Coin and the Toledo Palace compete with numerous existing and proposed gaming operations in Louisiana and, to a lesser extent, adjacent portions of Mississippi, including truck stop sites which contain VLTs, comprehensive land-based and riverboat casinos, Native American gaming ventures and other forms of legalized gambling. In addition, under Louisiana law racetracks and off-track betting parlors may install an unlimited number of VLTs, and establishments with alcoholic beverage licenses, such as restaurants and bars, as well as hotels, are eligible to apply for a license to operate up to three VLTs. Many of the Company's competitors and potential competitors have greater financial and marketing resources, have significantly more experience in operating gaming facilities, operate a greater number and variety of gaming facilities, and have better sites, than the Company. The Company believes that competition in the gaming industry is based on the quality and location of gaming facilities, the effectiveness of marketing resources and customer service and satisfaction. There are four gaming operations within five miles of the Gold Coin and one gaming operation within five miles of the Toledo Palace, all of which contain 50 VLTs, as well as numerous restaurants, bars and hotels which are limited to three VLTs each. As of January 1, 1996, there were approximately 100 truck stops with VLTs and three land-based casinos on Native American reservations in Louisiana, and a significant number of gaming license applications pending in the State. In addition, the Company will likely face significant competition if it begins operations in geographical areas other than Louisiana. DEPENDENCE ON CHRYSOLITH The Company does not have, and will not be able to obtain, a license to own or operate VLTs in Louisiana because such licenses may be granted only to Louisiana residents or entities which are at least 51% owned by Louisiana residents. The Company has entered into agreements with Chrysolith pursuant to which Chrysolith operates the VLTs at the Gold Coin and at the Toledo Palace. If for any reason Chrysolith or its 51% shareholder is determined by the Louisiana Authorities to be in violation of Chrysolith's license or of Louisiana law and regulations, and Chrysolith subsequently loses its operator's license, or such license is limited or modified, the Company would need to immediately replace Chrysolith with another Louisiana licensee to operate the Toledo Palace and the Gold Coin. Any such licensed operator would then be required to own or obtain VLTs for these gaming facilities. Although the Company believes that a substitute for Chrysolith could be located, there can be no assurance that the Company could find such a replacement quickly or in a timely way, or that such a licensee would agree to operate VLTs at the Toledo Palace and the Gold Coin on terms acceptable to the Company. There can be no assurance that Chrysolith will be able to successfully operate the VLTs at the Gold Coin and Toledo Palace. If the Company were required to find a replacement for Chrysolith and were unable to do so expeditiously, its business and financial condition would be materially adversely affected. LIABILITY INSURANCE The Company currently maintains and intends to maintain general liability insurance with coverage limits of $1,000,000 per occurrence, $2,000,000 per year in the aggregate. The Company also maintains a $1,000,000 umbrella liability insurance policy (with a $10,000 self-insured retention). There can be no assurance that liability claims will not exceed the coverage limits of such policies or that such insurance will continue to be available on commercially reasonable terms or at all. There can be no assurance that such insurance will be adequate to cover unanticipated liabilities. NO DIVIDENDS The Company has not paid any dividends to date on its Common Stock, and does not expect to declare or pay any dividends in the foreseeable future. The Company intends to retain future earnings for investment in its business. POSSIBLE DELISTING AND RISK OF LOW-PRICED SECURITIES The Company's Common Stock is listed on the NASDAQ SmallCap Market System. To maintain its listing of securities, the NASDAQ SmallCap Market System requires satisfaction of certain financial tests, including the attainment of specified minimum levels of assets, income, net worth and certain minimum requirements relating to the market value of the securities to be listed (exclusive of shares owned by insiders), as well as the number of shares and 17 stockholders. There can be no assurance that the Company will be able to satisfy the foregoing requirements or certain other specified financial tests and market related criteria for continued quotation on the NASDAQ SmallCap Market System. If the Company is unable to satisfy such maintenance criteria in the future, its Common Stock may be delisted from trading on the NASDAQ SmallCap Market System. Trading in the Company's securities would thereafter be conducted in the over-the-counter market in the so-called "pink sheets" or the "Electronic Bulletin Board" of the National Association of Securities Dealers, Inc. ("NASD") and consequently an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the price, of the Company's securities. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years, (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average annual revenue of at least $6,000,000, if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. In addition, if the Company's securities are not quoted on NASDAQ, or the Company does not have $2,000,000 in net tangible assets, trading in the Common Stock would be covered by Rule 15g-9 promulgated under the Exchange Act for non-NASDAQ and non-exchange listed securities. Under such rule, broker/dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities also are exempt from this rule if the market price is at least $5.00 per share. If the Company's securities become subject to the regulations applicable to penny stocks, the market liquidity for the Company's securities could be severely affected. In such an event, the regulations on penny stocks could limit the ability of broker/dealers to sell the Company's securities and thus the ability of purchasers of the Company's securities to sell their securities in the secondary market. POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK The Company's Articles of Incorporation authorize the issuance of 2,000,000 shares of "blank check" Preferred Stock, with designations, rights and preferences determined from time to time by its Board of Directors. Accordingly, the Company's Board of Directors is empowered, without further stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the Preferred Stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. The Company has no current plans to issue any shares of Preferred Stock. However, there can be no assurance that Preferred Stock will not be issued at some time in the future. 18 ITEM 7. FINANCIAL STATEMENTS. The following items are included in this Report: FINANCIAL STATEMENTS PAGE Index to Consolidated Financial Statements F-1 Independent Auditor's Report F-2 Consolidated Balance Sheet F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Changes F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-8 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The information under the caption "Proposal for Election of Directors - Nomination - Information about Nominees and - Other Information About Nominees" contained on pages 3 and 4 of the 1997 Proxy Statement, with respect to directors of the Company, is incorporated herein by reference. The information concerning executive officers of the Company is included in this Report under Item 4A, "Executive Officers of the Company." (b) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 11 of the 1997 Proxy Statement is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION. The information under the captions "Executive Compensation" and "Proposal for Election of Directors - Directors' Compensation" contained on pages 7 and 8, and page 5, respectively, of the 1997 Proxy Statement is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information under the caption "Principal Shareholders and Beneficial Ownership of Management" contained on pages 5 and 6 of the 1997 Proxy Statement is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information under the caption "Certain Transactions" contained on pages 9 through 11 of the 1997 Proxy Statement is incorporated herein by reference. 19 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS Reference is made to the Exhibit Index hereinafter contained, at Pages E-1 through E-4 of this Report. A copy of any exhibits listed or referred to herein will be furnished at a reasonable cost to any person who was a shareholder of the Company as of March 30, 1997, upon written request from any such person. Requests should be sent to: Dominick J. Valenzano, Chief Financial Officer and Treasurer, Trans World Gaming Corp., One Penn Plaza, Suite 1503, New York, New York 10119-0002. The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-KSB pursuant to Item 13(a)(3): A. Employment Agreement dated March 6, 1996 between the Company and Stanley Kohlenberg (incorporated by reference to Exhibit 10.11 in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995 (File No. 0-25244)). B. Employment Agreement between the Company and Dominick J. Valenzano (incorporated by reference to Exhibit 10.12 in the Company's Registration Statement on Form SB-2 (File No. 33-85446-A)). C. 1993 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.13 in the Company's Registration Statement on Form SB-2 (File No. 33-85446-A)). D. Consulting Agreement dated January 1, 1997 between the Company and Stanley Kohlenberg (filed herewith). E. Employment Agreement dated January 1, 1997 between the Company and Andrew Tottenham (filed herewith). F. Employment Agreement dated February 1, 1997 between the Company and Christopher Moore (filed herewith). (b) REPORTS ON FORM 8-K The Company filed no reports on Form 8-K during the last quarter of the fiscal year ended December 31, 1996. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15 of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANS WORLD GAMING CORP. (registrant) Dated: March 31, 1997 By: /s/ Andrew Tottenham ---------------------------------------- Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below the following persons on behalf of the Registrant on March 31, 1997 in the capacities indicated. SIGNATURE AND TITLE /s/ Andrew Tottenham --------------------------------- Andrew Tottenham President, Chief Executive Officer (principal executive officer), and Director /s/ Dominick J. Valenzano ---------------------------------- Dominick J. Valenzano Chief Financial Officer, Treasurer (principal financial and accounting officer), and Director 21 TRANS WORLD GAMING CORP. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996
Item No. Item Method of Filing 3.1 Articles of Incorporation Incorporated by reference to Exhibit 3.1 contained in the registration statement on Form SB-2 (File No. 33-85446-A). 3.2 By-laws Incorporated by reference to Exhibit 3.2 contained in the registration statement on Form SB-2 (File No. 33-85446-A). 4.1 Specimen Common Stock Certificate Incorporated by reference to Exhibit 4.1 contained in the registration statement on Form SB-2 (File No. 33-85446-A). 4.2 Specimen Redeemable Common Stock Purchase Warrant Incorporated by reference to Exhibit 4.2 contained in the registration statement on Form SB-2 (File No. 33-85446-A). 4.3 Form of Warrant Agreement Incorporated by reference to Exhibit 4.3 contained in the registration statement on Form SB-2 (File No. 33-85446-A). 4.4 Confidential Private Placement Memorandum dated Filed electronically. June 30, 1999 4.5 Supplement No. 1 dated January 14, 1997 to Filed electronically. Confidential Private Placement Memorandum dated June 30, 1999 4.6 Indenture dated as of November 1, 1996 between Filed electronically. the Company and Trans World Gaming of Louisiana, Inc., as Issuer, and U.S. Trust Company of Texas, N.A., as Trustee 4.7 Form of 12% Secured Convertible Senior Bond due Filed electronically. June 30, 1999 4.8 Form of Warrant to Purchase Common Stock Dated Filed electronically. July 1, 1996 4.9 Form of Warrant for Purchase of Shares of Filed electronically. Common Stock dated January 1, 1997 4.10 Form of Non-Negotiable Promissory Note dated Filed electronically. January 1, 1997 10.1 Agreement for Exchange of Shares dated July 13, Incorporated by reference to Exhibit 10.1 1994, between the Company and the shareholders contained in the registration statement on Form SB-2 (File of Lee Young Enterprises, Inc. No. 33-85446-A).
E-1 10.2 Asset Purchase Agreement dated as of September Incorporated by reference to Exhibit 10.2 contained 21, 1994, between the Company and Chrysolith in the registration statement on Form SB-2 (File No. L.L.C. 33-85446-A). 10.3 Agreement of Sale dated as of September 21, 1994, Incorporated by reference to Exhibit 10.3 contained between the Company and Prime Properties, Inc. in the registration statement on Form SB-2 (File No. 33-85446-A). 10.4 Form of Lease between Prime Properties, Inc. and Incorporated by reference to Exhibit 10.4 contained the Company in the registration statement on Form SB-2 (File No. 33-85446-A). 10.5 Agreement dated September 21, 1994, among Incorporated by reference to Exhibit 10.5 contained Chrysolith L.L.C., Prime Properties, Inc., Monarch in the registration statement on Form SB-2 (File No. Casinos, Inc. of Louisiana ("Monarch") and the 33-85446-A). Company 10.6 Asset Purchase Agreement dated September 21, Incorporated by reference to Exhibit 10.6 contained 1994, between Chrysolith L.L.C. and Monarch in the registration statement on Form SB-2 (File No. 33-85446-A). 10.7 Lease (with option) dated May 10, 1994 among Incorporated by reference to Exhibit 10.7 contained Lula Miller, Inc. Charles A. Jones III and Kelly in the registration statement on Form SB-2 (File No. McCoy Jones, as Lessor, and Monarch, as Lessee 33-85446-A). 10.8 Offer to Purchase dated October 4, 1994, among Incorporated by reference to Exhibit 10.8 contained Trans World Gaming of Louisiana, Inc., Monarch, in the registration statement on Form SB-2 (File No. Lula Miller, Inc., Charles A. Jones III and Kelly 33-85446-A). McCoy Jones 10.9 Memorandum of Agreement dated March 18, 1994 Incorporated by reference to Exhibit 10.9 contained between the Company and Yves Gouhier and in the registration statement on Form SB-2 (File No. Camille Costard to acquire shares of Casino 33-85446-A). Cherbourg S.A., as amended (English translation, except amendment is in French) 10.10 Shareholder Agreement dated April 7, 1994, Incorporated by reference to Exhibit 10.10 contained between the Company and Michael A. Edwards, as in the registration statement on Form SB-2 (File No. the shareholders of Monarch 33-85446-A). 10.11 Employment Agreement dated March 6, 1996 Incorporated by reference to Exhibit 10.11 contained between the Company and Stanley Kohlenberg in the Form 10-KSB for the fiscal year ended December 31, 1995 (File No. 0-25244). 10.12 Employment Agreement between the Company Incorporated by reference to Exhibit 10.12 contained and Dominick J. Valenzano in the registration statement on Form SB-2 (File No. 33-85446-A). 10.13 1993 Incentive Stock Option Plan Incorporated by reference to Exhibit 10.13 contained in the registration statement on Form SB-2 (File No. 33-85446-A). 10.14 Form of 4 1/2 % Bridge Note Incorporated by reference to Exhibit 10.14 contained in the registration statement on Form SB-2 (File No.
E-2 33-85446-A). 10.15 Form of 10% Secured Bridge Note Incorporated by reference to Exhibit 10.15 contained in the registration statement on Form SB-2 (File No. 33-85446-A). 10.16 Collateral Mortgage relating to the Woodlands Incorporated by reference to Exhibit 10.16 contained Travel Plaza in the registration statement on Form SB-2 (File No. 33-85446-A). 10.17 Operating Agreement dated as of December 22, 1994 Incorporated by reference to Exhibit 10.17 contained between the Company and Chrysolith relating in the Company's Form 10-KSB for the fiscal year to the Gold Coin ended December 31, 1994. 10.18 Note in principal amount of $75,000 payable by Incorporated by reference to Exhibit 10.18 contained Monarch (and assumed by the Company) in the Company's Form 10-KSB for the fiscal year ended December 31, 1994. 10.19 Lease Agreement dated May 1, 1993 between Incorporated by reference to Exhibit 10.19 National Auto/Truck Stops, Inc. and Prime contained in the Form 10-KSB for the fiscal year Properties with respect to the 76 Plaza ended December 31, 1995 (File No. 0-25244). 10.20 Agreement and General Release dated as of March Incorporated by reference to Exhibit 10.20 contained 6, 1996 between the Company and R. K. Merkey in the Form 10-KSB for the fiscal year ended December 31, 1995 (File No. 0-25244). 10.21 Forbearance Agreement dated January 19, 1996 Incorporated by reference to Exhibit 10.21 contained between the Company and Chrysolith in the Form 10-KSB for the fiscal year ended December 31, 1995 (File No. 0-25244). 10.22 Letter Agreement dated January 30, 1996 between Incorporated by reference to Exhibit 10.22 contained the Company and Chrysolith regarding forbearance in the Form 10-KSB for the fiscal year ended payments December 31, 1995 (File No. 0-25244). 10.23 Consulting Agreement dated January 1, 1997 Filed electronically. between the Company and Stanley Kohlenberg 10.24 Employment Agreement dated January 1, 1997 Filed electronically. between the Company and Andrew Tottenham 10.25 Employment Agreement dated February 1, 1997 Filed electronically. between the Company and Christopher Moore 10.26 Cancellation Agreement dated as of October 3, Filed electronically. 1996 between the Company and Mid-City Associates 10.27 Agreement of Lease dated as of October 2, 1996 Filed electronically. between the Company and Mid-City Associates 10.28 Stock Purchase Agreement dated as of January 1, Filed electronically. 1997 among the Company, Andrew Tottenham and Robin Tottenham
E-3 16.1 Letter from Bederson & Co. (the Company's Incorporated by reference to exhibit 16.1 contained former independent public accountants) relating to in the Form 10-KSB for the fiscal year ended a change of accountants December 31, 1995 (File No. 0-25244). 21.1 Subsidiaries Incorporated by reference to Exhibit 21.1 contained in the Form 10-KSB for the fiscal year ended December 31, 1995 (File No. 0-25244). 27.1 Financial Data Schedule Filed electronically.
E-4 TRANS WORLD GAMING CORP. AND SUBSIDIARIES DECEMBER 31, 1996 TABLE OF CONTENTS Page Independent Auditor's Report F-2 Consolidated Balance Sheet at December 31, 1996 F-3 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 F-4 Consolidated Statements of Changes in Stockholders' (Deficit) for the years ended December 31, 1996 and 1995 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 F-6 Notes to Consolidated Financial Statements F-8 F-1 [LETTERHEAD] Independent Auditor's Report Board of Directors Trans World Gaming Corp. We have audited the accompanying consolidated balance sheet of Trans World Gaming Corp. and Subsidiaries (Trans World) as of December 31, 1996, and the related statements of operations, changes in stockholders' (deficit) and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Trans World Gaming Corp. and Subsidiaries at December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As more fully discussed in note 1 to the consolidated financial statements, the voters in the parishes in Louisiana where Trans World's video poker operations are located voted to eliminate video poker. As a result, Trans World must cease its video poker operations by June 30, 1999. On review of the carrying amount of the related assets, Trans World recognized a $11,383,100 charge for the impairment in their value. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the consolidated financial statements, the Company has neither established a trend of profitable operations nor a sufficient cash flow and has working capital and net capital deficiencies that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. PANNELL KERR FORSTER PC February 19, 1997 F-2 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Consolidated Balance Sheet December 31, 1996 Assets Current assets Cash $ 488,855 Accounts receivable 397,322 Inventories 56,488 Other current assets 108,913 ----------- Total current assets 1,051,578 Property held for sale 400,000 Equipment, net 35,427 Investment at equity 75,000 Deferred debt issuance costs 763,851 Other assets 25,254 ----------- Total assets $ 2,351,110 ----------- Liabilities and Stockholders' (Deficit) Current liabilities Current portion of long-term debt $ 1,152,342 Accounts payable and accrued expenses 476,913 ----------- Total current liabilities 1,629,255 ----------- Long-term debt, net of current portion 4,824,889 ----------- Commitments Stockholders' (deficit) Capital stock Preferred stock, $.001 par value per share; 2,000,000 shares authorized; none issued - Common stock, $.001 par value per share; 50,000,000 shares authorized; 2,544,286 shares issued and outstanding 2,544 Additional paid-in capital 8,599,560 Stock warrants outstanding 536,812 Accumulated (deficit) (13,241,950) ----------- Total stockholders' (deficit) (4,103,034) ----------- Total liabilities and stockholders' (deficit) $ 2,351,110 ----------- See notes to consolidated financial statements F-3 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Consolidated Statements of Operations Year Ended December 31 --------------------------- 1996 1995 ------------ ------------ Revenues Gaming revenues $ 3,892,238 $ 3,586,796 Truck stop sales 2,762,696 2,266,703 ------------ ------------ Total revenues 6,654,934 5,853,499 ------------ ------------ Costs and expenses Gaming 1,136,109 952,786 Truck stop 2,454,342 1,907,857 Selling, general and administrative 1,804,101 1,379,872 Amortization and depreciation 1,098,990 730,012 Gaming development 101,083 86,320 Impairment loss 11,383,100 - ------------ ------------ Total costs and expenses 17,977,725 5,056,847 ------------ ------------ (Loss) income before interest expense and taxes (11,322,791) 796,652 Interest expense 1,117,529 625,092 ------------ ------------ (Loss) income before Federal and State income taxes (12,440,320) 171,560 Federal and State income taxes 320,000 82,000 ------------ ------------ Net (loss) income $(12,760,320) $ 89,560 ------------ ------------ Net (loss) income per share $(5.02) .04 ------------ ------------ Outstanding shares of common stock 2,544,286 2,544,286 ------------ ------------ See notes to consolidated financial statements F-4 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' (Deficit)
Additional Stock Common Paid-in Warrants Accumulated Shares Stock Capital Outstanding (Deficit) Total --------- -------- ------------ ----------- ------------ ------------ Balance at December 31, 1994 2,544,286 $ 2,544 $ 8,599,560 $ - $ (571,190) $ 8,030,914 Net income - - - - 89,560 89,560 --------- -------- ------------ ---------- ------------ ------------ Balance at December 31, 1995 2,544,286 2,544 8,599,560 - (481,630) 8,120,474 Issuance of stock warrants - - - 536,812 - 536,812 Net (loss) - - - - (12,760,320) (12,760,320) --------- -------- ------------ ---------- ------------ ------------ Balance at December 31, 1996 2,544,286 $ 2,544 $ 8,599,560 $ 536,812 $(13,241,950) $ (4,103,034) --------- -------- ------------ ---------- ------------ ------------
See notes to consolidated financial statements F-5 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows
Year Ended December 31 ------------------------------ 1996 1995 --------------- ----------- Cash flows from operating activities Net (loss) income $(12,760,320) $ 89,560 Adjustments to reconcile net (loss) income to net cash provided by operating activities Impairment loss 11,383,100 - Amortization and depreciation 1,098,990 730,012 Deferred income tax 320,000 82,000 Amortization of debt issuance cost 436,612 - Changes in certain other accounts Accounts receivable (115,540) (131,455) Inventories (13,160) 12,194 Other current assets (53,403) (24,413) Accounts payable and accrued expenses 142,795 (238,907) ------------ ---------- Net cash provided by operating activities 439,074 518,991 ------------ ---------- Cash flows from investing activities Purchase of property and equipment (11,943) (342,784) Other assets (12,499) 28,202 ------------ ---------- Net cash (used) by investing activities (24,442) (314,582) ------------ ---------- Cash flows from financing activities Financing costs (1,027,757) - Proceeds from bridge loan 375,000 - Payment of bridge loan (375,000) - Proceeds from long-term debt 4,800,000 152,335 Payment of long-term debt (3,913,881) (953,278) ------------ ---------- Net cash (used) by financing activities (141,638) (800,943) ------------ ---------- Increase (decrease) in cash 272,994 (596,534) Cash at beginning of year 215,861 812,395 ------------ ---------- Cash at end of year $ 488,855 $ 215,861 ------------ ----------
See notes to consolidated financial statements F-6 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) Year Ended December 31 ----------------------- 1996 1995 ----------- --------- Schedule of non-cash investing and financing activities Issuance of stock warrants $ 536,812 $ - Contribution of equipment - equity investment - 75,000 Equipment purchased for note payable - 75,000 Supplemental disclosure of cash flow information Cash paid during the year for interest $ 684,461 $ 586,129 See notes to consolidated financial statements F-7 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1996 NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION Trans World Gaming Corp. (the "Company"), a Nevada corporation, is engaged in the gaming business through local gaming properties featuring video poker parlors. The Company seeks to retain some or all of the key management, and expand the operations of each gaming property acquired. The Company seeks further geographical diversification of its acquisitions in order to insulate its properties from regional economic and legislative influences. The Company's only gaming operations are two video poker parlors in Louisiana. The Gold Coin was acquired during 1994 and the Toledo Palace commenced operations in October 1995. Both are situated at truck stops. The Company's video poker operations in Louisiana are managed by Chrysolith, LLC ("Chrysolith"), a Louisiana licensed video gaming operator in which the Company owns 49% of its Class B membership units. On November 5, 1996, the voters in the parishes in Louisiana where the Company's video poker operations are located voted to eliminate video poker. As a result, the Company must cease its video poker operations by June 30, 1999. On January 7, 1997, Chrysolith, with two other major video operators in Louisiana, filed suit against the State of Louisiana for redress of violation of constitutional rights, declaring the local option gaming elections void. The court has not as yet ruled on the motion. Because of the foregoing, the Company reviewed the carrying amount of the long-lived assets, identifiable intangibles and goodwill related to those video poker parlors and the truck stops at which the video poker parlors are located. Based on a comparison of the recorded values of those assets against the expected future cash flows to be generated by the video poker parlors, the Company recorded an asset impairment charge of $10,686,656, representing the unamortized deferred license cost, deferred participant fee and goodwill. The Company is offering for sale an associated truck stop property. Upon reviewing the fair value of that property which was less than the carrying amount, an impairment writedown of $696,444 was recorded. The Company's consolidated financial statements have been prepared on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has neither established a trend of profitable operations nor a sufficient cash flow without outside financing. Furthermore, the Company has working capital and net capital deficiencies. The Company intends to continue operating the Gold Coin and the Toledo Palace as they are presently being operated. However, the Company has made available for sale its Woodlands truck stop (the site of the Toledo Palace). Because this property is collateral for existing debt, any proceeds from its sale is unlikely to be available for general corporate purposes without the approval of the lenders. Although the Company believes that existing cash and anticipated cash flow from current operations will be sufficient to satisfy its liquidity and capital requirements for 1997, it continues to explore avenues to raise additional financing through the private placement of debt securities either as part of the acquisition financing being sought (see note 9) or independently thereof. However, no assurance can be given that the Company will achieve a level of profitable operations that will generate sufficient cash flow or that the Company will be successful in obtaining additional financing. In addition to the valuation of the foregoing assets, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. F-8 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) December 31, 1996 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. CASH Cash consists of cash in banks and on hand. The Company maintains its bank accounts at several financial institutions and at times, cash on deposit exceeded the insured limits. The Company has not yet experienced any loss on its deposits. DEPRECIATION METHODS The cost of property and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed on straight-line and accelerated methods for both financial reporting and income tax purposes. Depreciation of the property ceased upon it becoming available for sale. GAMING DEVELOPMENT COSTS Gaming development costs incurred in connection with the pursuit and development of new gaming projects in various jurisdictions are expensed as incurred. INVENTORIES Inventories are stated at the lower of cost determined by the first-in, first-out method or market. Inventories consisted of truck stop fuel and retail store items. INVESTMENT CARRIED AT EQUITY This investment is carried at cost and adjusted for the Company's proportionate share of undistributed earnings or losses. INCOME TAXES The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. These differences result principally from amortization of deferred costs and the impairment loss. F-9 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) December 31, 1996 NET (LOSS) INCOME PER SHARE Net (loss) income per share for all periods is calculated by dividing the net (loss) income by the number of shares of common stock outstanding. Common stock equivalents (outstanding warrants, options and convertible debt) have been excluded from the calculation because their inclusion would be antidilutive for all periods. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments, including cash, accounts receivable, accounts payable and accrued expenses approximate fair values. See note 4 regarding fair value of long-term debt. DEFERRED DEBT ISSUANCE COSTS Deferred debt issuance costs consist of certain costs incurred in connection with the debt financing (see note 4), and are being amortized over the term of the related debt. Accumulated amortization was $146,012 at December 31, 1996. NOTE 3 - EQUIPMENT Equipment, at cost, consisted of the following: Estimated Useful Lives ----------- Machinery and equipment $ 28,326 7 years Office equipment 47,794 5-7 years Equipment acquired by capitalized lease 7,693 5 years --------- Total 83,813 Less accumulated depreciation 48,386 --------- Net equipment $ 35,427 --------- Depreciation charged to operations for the years ended December 31, 1996 and 1995 amounted to $106,834 and $69,416, respectively. F-10 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) December 31, 1996 NOTE 4 - LONG-TERM DEBT Long-term debt is summarized as follows: 12% Secured Convertible Senior Bonds due June 30, 1999. Interest only is payable semi-annually. (a) $ 4,800,000 Participation fee note, payable in connection with the acquisition of the Gold Coin. The note bears interest at 10% per annum. Principal and interest is payable in quarterly installments of $292,382 until maturity on December 22, 1997. Default under this obligation would result in a forfeiture of all rights acquired under this agreement. 1,099,934 Note payable in connection with the purchase of equipment. The note requires monthly payments of $4,922, which are applied first to interest at an annual rate of 16% and the balance to reduction of principal. The note matures May 1, 1998. 73,494 Other 3,803 ------------- Total long-term debt 5,977,231 Less current portion 1,152,342 ------------- Long-term portion $ 4,824,889 ------------- (a) The bonds are secured by the assets of the Louisiana properties. The bonds are convertible by the holder at a conversion price of $2 per share through June 30, 1997; at $2.50 per share until June 30, 1998; and, at $3.125 thereafter. The Company may redeem the bonds at 100% of the principal amount within six months following a public offering that raises not less than $6 million. Maturities of long-term debt for each year is as follows: 1997 $ 1,152,342 1998 24,889 1999 4,800,000 ------------- $ 5,977,231 ------------- A majority of the long term debt was incurred during 1996 and most of the remainder is principally due in 1997; accordingly, the carrying amount of long term debt approximates fair value. F-11 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) December 31, 1996 NOTE 5 - INCOME TAXES Components of the Company's provision for income taxes consisted of the following: For Year Ended December 31 ------------------------- 1996 1995 ----------- --------- Current Federal $ - $ - State - - ---------- --------- Total current - - ---------- --------- Deferred Federal 255,000 72,000 State 65,000 10,000 ---------- --------- Total deferred 320,000 $ 82,000 ---------- --------- Total provision for income taxes $ 320,000 $ 82,000 ---------- --------- The deferred tax asset (liability) consists of the following: December 31 ------------------------- 1996 1995 ---------- --------- Deferred tax assets Loss carryforward $ 804,200 $ 365,000 Impairment loss 5,072,200 - ---------- --------- 5,876,400 365,000 Deferred tax liabilities Amortization of deferred costs (131,700) (45,000) ---------- --------- Net deferred tax assets 5,744,700 320,000 Valuation allowance (5,744,700) - ---------- --------- Total $ - $ 320,000 ---------- --------- The Company has recorded a valuation allowance to offset the net deferred tax asset since its future utilization is uncertain. The provision for income taxes differs from the amount computed at the Federal statutory income tax rate as a result of the following: For Year Ended December 31 ---------------------------- 1996 1995 ------------ ------------ Federal tax expense (benefit) at statutory rate $(4,230,000) $ 54,000 Effect of net operating loss carryforward and valuation allowance 4,550,000 - Limitation on deductions - 15,000 Effect of State taxes - 10,000 Other - 3,000 ------------ --------- Federal and State income taxes $ 320,000 $ 82,000 ------------ --------- F-12 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) December 31, 1996 The Company has net operating loss carryforwards available for income tax reporting purposes of approximately $2,000,000 expiring in 2009 through 2011. NOTE 6 - STOCKHOLDERS' (DEFICIT) WARRANTS In 1996, the Company issued 499,875 warrants at an exercise price of $0.01 per share and 960,000 warrants at an exercise price of $1.00 per share in connection with bridge financing and the secured convertible senior bonds (see note 4), respectively. The warrants include demand registration rights and anti-dilution provisions. Information concerning warrants is summarized for 1996, as follows: Outstanding Outstanding Exercisable Price Beginning End of End of Expiration Per Share of Year Granted Year Year Date --------- --------- -------- ---------- ---------- ----------- $ 8.50 1,511,429 1,511,429 1,511,429 12/15/99 11.55 151,143 151,143 151,143 12/15/99 13.50 151,143 151,143 151,143 12/15/99 7.00 320,000 320,000 320,000 12/22/97 9.00 12,500 12,500 12,500 none 0.01 - 299,925 299,925 299,925 03/26/02 0.01 - 199,950 199,950 199,950 06/03/02 1.00 - 960,000 960,000 960,000 06/30/01 --------- --------- --------- --------- 2,146,215 1,459,875 3,606,090 3,606,090 --------- --------- --------- --------- There were no warrants exercised and no warrants expired during 1996. STOCK WARRANTS OUTSTANDING The difference in the fair value of the Company's common stock and the exercise price of the warrants issued with the 1996 debt financing at the dates the warrants were issued were deemed attributable to the warrants and has been recorded as stock warrants outstanding in the accompanying consolidated statement of changes in stockholders' (deficit). STOCK OPTION PLANS The Company has incentive and nonstatutory stock option plans under which certain key employees may purchase up to a total of 500,000 common shares of the Company. Under the incentive stock option plan, the exercise price can not be less than the fair market value of a share on the date of grant or at 110 percent of the fair market value on the date of grant, if, any employee owns more than 10 percent of the total combined voting power of all classes of outstanding stock of the Company. In the case of a nonstatutory stock option, the exercise price may be any amount determined by the Board on the date of grant, but not less than the par value of the stock subject to the option. F-13 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) December 31, 1996 On May 28, 1996, the Company amended its incentive stock option plan to provide for an automatic grant of an option to purchase 1,000 shares of common stock to non-employee directors on a quarterly basis. Information concerning stock options is summarized for 1996, as follows: Outstanding Outstanding Exercisable Option Price Beginning End of End of Per Share of Year Granted Expired Year Year ------------ ---------- -------- ------- ---------- ----------- $ 3.13 50,000 (29,000) 21,000 21,000 1.44 - 25,000 - 25,000 25,000 0.91 - 25,000 - 25,000 25,000 1.59 - 20,000 - 20,000 20,000 1.59 - 2,000 - 2,000 2,000 1.00 - 147,000 - 147,000 147,000 ---------- -------- -------- ---------- ----------- 50,000 219,000 (29,000) 240,000 240,000 ---------- -------- -------- ---------- ----------- There were no options exercised during 1996. The option price per share was equal to the market value on the date of grant. Options generally expire five years after the date of grant or earlier upon termination as defined in the plan. On January 31, 1997, the Company granted options for 25,000 common shares at an exercise price of $1.31 per share, the fair market value, and 25,000 common shares at an exercise price of $2.00 per share. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans and, accordingly, no compensation cost has been recognized because stock options granted under the plans were at exercise prices which were equal to market value at date of grant. Had compensation expense been determined as provided in SFAS 123 for stock options granted since January 1, 1995 using the Black-Sholes option-pricing model, the pro forma effect on the Company's net (loss) income and per share amounts would have been: 1996 1995 ------------ --------- Net (loss) income - as reported $(12,760,320) $ 89,560 Net (loss) - pro forma (12,951,300) (66,640) Net (loss) income per share - as reported (5.02) .04 Net (loss) per share - pro forma (5.09) (.03) The fair value of each option grant is calculated using the following weighted average assumptions: 1996 1995 ------- ------ Expected life (years) 5 5 Interest rate 6.27% 6.42% Volatility 109.96% 294.9% Dividend yield 0.0% 0.0% F-14 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) December 31, 1996 NOTE 7 - SUMMARIZED FINANCIAL INFORMATION The Company has a nonvoting 49% interest in Chrysolith and entered into an agreement with Chrysolith pursuant to which Chrysolith owns, maintains and operates the video lottery terminals at the Gold Coin and Toledo Palace properties. During 1995, the Company contributed $75,000 of equipment to Chrysolith. The Company will receive 100% of the net operating revenues (the "Net Win") derived from the Gold Coin and the Toledo Palace, after payment of all the gaming taxes payable to the State of Louisiana and payout of winnings from the gaming establishment. The Company will pay a management fee to Chrysolith in an amount equal to the direct operating expenses of the gaming establishment. A summary of the December 31, 1996 financial information of Chrysolith is as follows: Assets $ 417,810 Liabilities 342,808 Stockholders' equity 75,002 Net income for year ended December 31, 1996 2 NOTE 8 - COMMITMENTS The Company is obligated for office space located in New York City under an operating lease expiring October 31, 1999. The Company is obligated under an operating lease for the Gold Coin facilities located in Lafayette, Louisiana expiring September 30, 1999. Minimum future rentals for the remaining lease terms are as follows: 1997 $ 61,790 1998 61,790 1999 48,495 --------- Total $ 172,075 --------- Rent expense amounted to $104,280 and $93,700 for 1996 and 1995, respectively. The Company has entered into agreements with its various executives and a consultant which provide for annual remuneration plus, in most cases, participation in future benefit programs and stock option plans. The future annual remuneration is as follows: Executives Consultant ---------- ---------- 1997 $ 322,500 $ 100,000 1998 240,000 100,000 1999 240,000 50,000 2000 157,500 - 2001 150,000 - ---------- ---------- Total $1,110,000 $ 250,000 ---------- ---------- F-15 TRANS WORLD GAMING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) December 31, 1996 Remuneration expense amounted to $340,000 in 1996 and 1995. NOTE 9 - SUBSEQUENT EVENTS In February 1997, the Company signed a non-binding letter of intent to purchase for approximately US $9 million a Czech joint stock company which owns real property and its affiliates which own and operate a casino and which, based on information provided by the seller, has approvals for a second casino in the Czech Republic. In addition to the cash purchase price, 500,000 shares of the Company's common stock will be placed in escrow until the Company receives all permits and licenses required to build, access and operate a third casino. If such permits are not acquired by the Company by December 31, 1998, the seller shall have the option of either buying the 500,000 shares for US $1.5 million or waiving all further compensation. The transaction is subject to, among other things, completion of due diligence and the negotiation of a definitive agreement. The Company is seeking US $11 million to finance the acquisition and the construction of the third casino and to provide working capital. In January 1997, the Company purchased Art Marketing, Ltd. d/b/a Tottenham & Co., a United Kingdom corporation. Andrew Tottenham, who became president of the Company on January 1, 1997, was the principal stockholder and chief executive officer of the company acquired. The purchase price of approximately $645,000 was paid for by the issuance of 500,000 shares of common stock, warrants to purchase an additional 250,000 shares of common stock, which warrants are exercisable for five years at a price of $.5938 per share, and the delivery of 10% promissory notes in the aggregate principal amount of $200,000 (the "Notes") due January, 2002. Beginning in January 1998, the Notes are convertible at the option of the holder, into common stock of the Company at $1.00 per share. F-16 EX-4.4 2 CONFIDENTIAL PPM Name of Offeree: Memorandum No.____________ CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM TRANS WORLD GAMING CORP. Minimum Offering: 7 Units Minimum Investment: $500,000 (Gross Proceeds of $3,500,000) Maximum Offering: 12 Units (Gross Proceeds of $6,000,000) TRANS WORLD GAMING CORP., a Nevada corporation (the "Company"), is privately offering to selected accredited investors a minimum of 7 units, and a maximum of 12 units, each unit (the "Unit(s)") consisting of (i) one $500,000 principal amount 12% secured convertible senior bonds due June 30, 1999 (the "Bond(s)") and (ii) a warrant to purchase 100,000 shares of common stock, par value $.001 per share, of the Company (the "Common Stock") at an exercise price of $1.00 per share (the "Warrant(s)"). Interest on the Bonds will begin to accrue as of the closing of this confidential private placement and is payable by the Company semi-annually with the first payment commencing December 15, 1996. The Bonds are convertible at the option of the holder thereof at a conversion price of $5.00 per share of Common Stock. The Company may redeem the Bonds in whole but not in part at 100% of the principal amount of the Bonds plus accrued interest through the date fixed for payment commencing six months after closing of a public offering of equity securities of the Company that raises gross proceeds to the Company of at least $6,000,000. The Warrants will, unless previously exercised, expire five years after the Closing of this offering (the "Closing"). As used herein, the term "Unit" means one Debenture in the principal amount of $500,000 and one Warrant to purchase 100,000 shares of Common Stock. The Common Stock of the Company is traded over-the-counter on the NASDAQ National Market under the symbol "IBET." Neither the Units, nor the Bonds and Warrants, sold in this offering will be eligible to be traded over- the-counter on the NASDAQ National Market System and no other trading market is expected to develop for any of the Units, Bonds or Warrants. On June 26, 1996, the closing bid price of the Company's Common Stock, as reported on the NASDAQ National Market System, was $2.40675. THE UNITS, BONDS AND WARRANTS OFFERED HEREBY ARE SPECULATIVE AND SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. See "Risk Factors" beginning on page 16 for certain information prospective purchasers should consider. THESE SECURITIES ARE OFFERED PURSUANT TO EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND CERTAIN STATE SECURITIES LAWS AND THE SECURITIES WILL BE DEEMED "RESTRICTED SECURITIES" THEREUNDER. THESE SECURITIES AND THIS OFFERING HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE AUTHORITY NOR HAS THE COMMISSION OR ANY STATE AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------------------------------------- Price to Investors Commission and Fees(1) Proceeds to the Company(1)(2)(3) - --------------------------------------------------------------------------------------------------------------- Per Unit $ 500,000 $ 65,000 $ 435,000 - --------------------------------------------------------------------------------------------------------------- Total Minimum ($3,500,000) $3,500,000 $455,000 $3,045,000 - --------------------------------------------------------------------------------------------------------------- Total Maximum ($6,000,000) $6,000,000 $780,000 $5,220,000 - ---------------------------------------------------------------------------------------------------------------
SEE "NOTES TO TABLE" ON FOLLOWING PAGE. THE INFORMATION CONTAINED IN THIS MEMORANDUM IS CONFIDENTIAL, AND THE ABOVE-NAMED OFFEREE, BY ACCEPTING DELIVERY OF THIS MEMORANDUM, AGREES TO RETURN IT AND ALL EXHIBITS AND DOCUMENTS RECEIVED FROM THE COMPANY IF THE OFFEREE DOES NOT PURCHASE ANY OF THE UNITS OFFERED HEREBY. ANY REPRODUCTION OR OTHER DISTRIBUTION OF THIS MEMORANDUM, IN WHOLE OR IN PART, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY IS PROHIBITED. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. NO OFFERING LITERATURE OR ADVERTISING OF ANY KIND, OTHER THAN THIS MEMORANDUM, SHALL BE EMPLOYED IN THE OFFERING OF THE UNITS. -------------------- C. P. BAKER & COMPANY, LTD. As Placement Agent -------------------- The date of this Confidential Private Placement Memorandum is June 30, 1996 NOTES TO TABLE ON COVER PAGE (1) The Units are being offered by the Company to selected accredited investors purchasing for investment. C. P. Baker & Company, Ltd. (the "Placement Agent") has been retained to act, on a best efforts basis, as agent for the Company in connection with the private placement of the Units. The Company has agreed (i) to pay the Placement Agent a 10% commission and a 3% non-accountable expense allowance in connection with the arrangement of this financing, and (ii) to indemnify the Placement Agent against certain liabilities, including liabilities under the Securities Act of 1933, as amended. (2) A minimum of 7 Units or $3,500,000 in gross proceeds (comprised of the sale of 7 Bonds in the aggregate principal amount of $3,500,000 and 7 Warrants to purchase in the aggregate up to 700,000 shares of Common Stock), and a maximum of 12 Units or $6,000,000 in gross proceeds (comprised of the sale of 12 Bonds in the aggregate principal amount of $6,000,000 and 12 Warrants to purchase in the aggregate up to 1,200,000 shares of Common Stock), are being offered by the Company (the "Offering"). Unless the Offering is terminated by the Company, and provided that subscriptions for the minimum gross proceeds of $3,500,000 have been accepted by the Company on or prior to June 25, 1996 (the "Specified Date") (which date may be extended by mutual agreement of the Company and the Placement Agent to a date no later than July 2, 1996), but subscriptions for less than 12 Units have been accepted, the Company may elect to have an initial Closing at any time prior to the Termination Date (defined below), at which time all theretofore accepted subscriptions for Units will be accepted and Bonds will be issued by the Company in an aggregate principal amount equal to 100% of the aggregate gross proceeds and Warrants will be delivered. If subscriptions for gross proceeds of at least $3,500,000 have been accepted on or before the initial date of Closing, the Offering will terminate on the earlier of: (i) the date that gross proceeds equal to at least $6,000,000 have been received and accepted by the Company, (ii) the date determined by the Company to terminate the Offering, or (iii) July 31, 1996 (the "Termination Date"). If subscriptions for at least 7 Units and payment of $3,500,000 therefore are not received by the Specified Date, then the Offering will terminate on the Specified Date and each subscriber's funds then held in escrow will be returned to him or her without interest or deduction. See "Offering--Plan of Offering." The termination date of the offering of Units is July 31, 1996, unless extended by mutual agreement of the Placement Agent and the Company. A minimum investment of $500,000 for the purchase of one Unit is required, unless otherwise agreed by the Company. (3) Before deducting expenses payable by the Company estimated at $120,000. 2 -------------------- UNLESS THE CONTEXT CLEARLY SUGGESTS OTHERWISE, REFERENCES IN THIS MEMORANDUM TO THE ASSETS AND OPERATIONS OF THE COMPANY INCLUDE THE ASSETS AND OPERATIONS OF THE COMPANY'S WHOLLY-OWNED SUBSIDIARY, TRANS WORLD GAMING OF LOUISIANA, INC., A LOUISIANA CORPORATION ("TRANS WORLD LOUISIANA"), DURING THE PERIOD TO WHICH THE INFORMATION RELATES. -------------------- Information contained in this Memorandum contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," or "continue" or the negative thereof or other variations thereon or comparable terminology. The statements in "Risk Factors" beginning on page 14 of the Memorandum constitute cautionary statements identifying important factors, including certain risks and uncertainties, with respect to such forward-looking statements that could cause actual results to differ materially from those reflected in such forward-looking statements. -------------------- THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED. IN ADDITION, THIS MEMORANDUM CONSTITUTES AN OFFER ONLY IF A NAME AND AN IDENTIFICATION NUMBER APPEAR ON THE COVER PAGE HEREOF. THE UNITS ARE OFFERED BY THE COMPANY SUBJECT TO WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFER, WITHOUT NOTICE. THE COMPANY RESERVES THE RIGHT TO REJECT A SUBSCRIPTION, IN WHOLE OR IN PART, FOR ANY REASON. IMPORTANT NOTICES TO INVESTORS The Company urges all prospective investors to read this Confidential Memorandum carefully. If prospective investors indicate sufficient interest, the Company will schedule one or more informational meetings for prospective investors at the Company's corporate offices, or at another suitable meeting place, and the Company will notify all prospective investors of the times, dates and places of such meetings if they are scheduled. The Company encourages prospective investors to attend an informational meeting if one is held. Investors may contact Stanley Kohlenberg, the Company's President and Chief Executive Officer, if they desire additional information regarding the Company or this offering, or if they desire to verify any of the information contained or referred to in this Memorandum. Mr. Kohlenberg may be contacted during regular business hours at (212) 563-3355. Investors will be asked to acknowledge in the Subscription Agreement attached hereto as Exhibit A (the "Subscription Agreement") that they are "accredited investors" as defined under the Securities Act of 1933 and that they were given the opportunity to (a) ask questions of and receive answers from a representative of the Company, and (b) obtain additional information, and that they either did so or elected to waive such opportunity. Prospective investors will be required to sign a confidentiality agreement if they wish to inspect documents which the Company deems to be proprietary. -------------------- THIS OFFERING IS BEING MADE IN RELIANCE ON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND CERTAIN STATE SECURITIES LAWS AS AN OFFER AND SALE OF SECURITIES NOT INVOLVING A PUBLIC OFFERING. THE UNITS, NOTES AND WARRANTS MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES OR AN OPINION OF COUNSEL, ACCEPTABLE TO THE COMPANY, THAT THE TRANSFER IS 3 EXEMPT FROM REGISTRATION. PROSPECTIVE INVESTORS SHOULD ASSUME THAT THEY WILL BE REQUIRED TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE NOTES AND WARRANTS FOR AN INDEFINITE PERIOD OF TIME. -------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. -------------------- THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS MEMORANDUM. -------------------- BY ACCEPTING A COPY OF THIS CONFIDENTIAL MEMORANDUM, EACH PROSPECTIVE INVESTOR AGREES TO KEEP THE INFORMATION HEREIN CONFIDENTIAL AND NOT DISCLOSE SUCH INFORMATION TO ANY OTHER PERSON AND NOT TO USE THE INFORMATION HEREIN FOR ANY PURPOSE OTHER THAN TO EVALUATE AN INVESTMENT IN THE UNITS. -------------------- ANY SALE OF UNITS TO A RESIDENT OF THE STATE OF FLORIDA IS VOIDABLE BY THE INVESTOR EITHER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY THE INVESTOR TO THE COMPANY, THE PLACEMENT AGENT OR THE ESCROW AGENT, OR WITHIN THREE DAYS AFTER THE INVESTOR RECEIVES A COPY OF THIS CONFIDENTIAL MEMORANDUM. 4 SUMMARY OF THE COMPANY'S BUSINESS Trans World Gaming Corp. (the "Company" or "TWG") is engaged in the management of gaming establishments which feature mechanized gaming devices, such as video poker machines (the "VLTs"). Currently, the Company is focusing on developing and maximizing the profit potential of its interests in two Louisiana video poker locations acquired in December 1994. The Company's long-range objective is to become the premier management company of mechanized gaming establishments that are located domestically at local neighborhood sites and internationally at hotel or resort locations. To achieve this goal, the Company's strategy consists of: (i) identifying gaming establishments which focus primarily on a local, machine-based market and in which the mechanized gaming devices are centrally audited by a local or state governmental office (such as the Louisiana State Police Department); (ii) leasing or owning mechanized gaming machines that are user-friendly for occasional gamblers; and (iii) retaining local management following an acquisition to insure a smooth transition to the Company. Through this strategy, the Company believes it can address a specific niche in the gaming industry which addresses the local, neighborhood market as opposed to the destination, high-roller clientele. Company's management expects that near-term acquisitions will focus primarily on diversifying video poker opportunities outside the State of Louisiana. While the Company believes that there are significant opportunities in the Company's niche market inside the State of Louisiana and the Company is committed to maximizing performance at existing properties, the Company believes it must consider appropriate opportunities to expand to other markets as they arise. In Louisiana, there are currently more than 16,000 VLTs located in bars, restaurants, truck stops, racetracks and OTB parlors. As reported by the Louisiana State Police, the average daily net win of a VLT machine in a truck stop in the State of Louisiana was $87, which generated a total of approximately $152 million in franchise taxes to the State during calendar 1995. "Net win" is defined as the revenue generated by the VLTs at a location after payment of prizes and before state franchise taxes. The truck stop segment of the Louisiana VLT market generated revenue of approximately $129 per day per VLT in 100 licensed locations. This reflects approximately 4,000 VLTs which in the aggregate produced over $60 million in Louisiana state franchise tax revenue during 1995. The Company currently owns certain interests in two gaming establishments at truck stops in Louisiana, which include (i) a gaming establishment known as the Gold Nugget, located at the Lafayette 76 Auto and Truck Plaza (the "76 Truck Plaza"), a truck stop in Lafayette, Louisiana, and (ii) a new gaming establishment, the Toledo Palace, that the Company established and licensed at a truck stop known as the Woodlands Travel Plaza ("Woodlands") located in DeRidder, Louisiana, which is located approximately 120 miles from the Gold Nugget. Both the Gold Nugget and the Toledo Palace video poker parlors are licensed to operate only video lottery terminals (VLTs"), also known as "draw poker" machines. The Company owns real estate at the Woodlands, and owns the right to the profits at the Gold Nugget. The Gold Nugget gaming facility currently has 50 VLTs, the maximum permitted by law, that can be played for amounts ranging from $.25 to $2.00, and is open 24 hours a day, seven days a week. The Gold Nugget is located at a major intersection in Lafayette, Louisiana and is situated in an approximately 5,000 square foot building located adjacent to a 265 seat, 24-hour restaurant in the 76 Truck Plaza, which also contains a large convenience store and a gas station with 16 fuel pumps that sell an average of approximately 450,000 gallons of fuel each month. The average daily net win of a VLT at the Gold Nugget during January and February 1996 was $295. Maintenance of the existing customer base of the Gold Nugget is a high priority of the Company's management. The Company believes that the atmosphere within the gaming facility, the training and responsiveness of the staff, the comfort factor and security all contribute to continuing patronage by its customers. Except for the Gold Nugget Gaming Facility, all of the businesses at the 76 Plaza are managed and operated by Prime Properties, which leases the 76 Plaza 5 from National Auto Truck Stops, Inc. The portion of the 76 Plaza occupied by the Gold Nugget is subleased by Prime Properties to the Company. The VLTs at the Gold Nugget are owned, maintained and operated by Chrysolith, and the Gold Nugget is managed by the Company. The Woodlands includes a 24-hour restaurant, a convenience store and a gas station that currently sells an average of approximately 130,000 gallons of fuel per month. Woodlands is located on State Route 3236 in DeRidder, Louisiana, approximately 20 miles from the Texas border. On September 12, 1995, the Company received an establishment license for the operation of up to 50 VLTs at the Toledo Palace, and commenced operations at the Toledo Palace on October 18, 1995 with 15 video lottery machines. The average daily net win of a VLT machine at the Toledo Palace during January and February 1996 was $70. The VLTs at both locations are owned, maintained and operated by Chrysolith, L.L.C. ("Chrysolith"), a Louisiana limited liability company and a Louisiana-licensed video gaming machine operator in which 49% of the Class B membership units is owned by the Company. Louisiana law permits VLTs to be owned, maintained and operated only by a Louisiana resident or an entity that is majority-owned by a Louisiana resident. The Company receives revenue generated by VLTs at both the Gold Nugget and Toledo Palace after payment of franchise taxes by Chrysolith to the State of Louisiana and all prizes to the players. The Company then reimburses Chrysolith for all direct operating costs incurred in the operation of the VLTs. At the Woodlands truck stop, additional revenue is derived from the sale of fuel, supplies, and food normally associated with a truck stop operation. The Company was incorporated under the laws of the State of Nevada on October 20, 1993 and Trans World Louisiana was incorporated under the laws of the State of Louisiana on April 8, 1994. The Company's executive offices are located at One Penn Plaza, Suite 4303, New York, New York 10119 and its telephone number is (212) 563-3355. SUMMARY OF THE OFFERING SECURITIES BEING OFFERED: The Company is offering a minimum of 7 Units to raise gross proceeds of $3,500,000 and a maximum of 12 Units to raise gross proceeds of $6,000,000. The Units are offered in a minimum investment of $500,000, unless otherwise agreed by the Company. C.P. Baker & Company, LTD., a registered broker/dealer (the "Placement Agent"), is acting as Placement Agent in connection with the sale of the Units. The Units are restricted securities as defined under the federal securities laws. See "Terms of the Offering." BONDS: Payment of the principal of the Bonds is due June 30, 1999 (the "Maturity Date"). The 12% per annum interest on the Bonds shall begin to accrue from the date of original issuance and shall be payable semi-annually on June 15 and December 15 of each year, with the first such payment due on December 15, 1996. The Bonds will be substantially in the form appended hereto as Exhibit B. CONVERSION RIGHTS: The Bonds are convertible any time prior to maturity, unless previously redeemed, into shares of Common Stock of the Company at a conversion 6 price of $5.00 per share, subject to adjustment in certain events as described in the Bonds and the Indenture governing the Bonds. OPTION REDEMPTION: The Bonds are redeemable, in whole but not in part, at the option of the Company, at 100% of the principal amount of the Bonds plus accrued interest thereon through the date fixed for redemption, within six months following a public offering of equity securities by the Company in which gross proceeds of at least $6,000,000 is raised by the Company. SECURITY: The Company will grant to the holders of the Bonds a first priority perfected security interest in the Woodlands Travel Plaza located in DeRidder, Louisiana, including all related present and future personal, tangible and intangible assets of the Company located thereon, and a second priority perfected security interest in the subsidiary's subleasehold interest in the Gold Nugget located in Layfayette, Louisiana, including all related present and future personal, tangible and intangible assets of the Company located thereon. As soon as the first priority security interest held by Prime Properties on the subsidiary's interest in the Gold Nugget is paid off, the Company will also grant a first priority perfected security interest in the subsidiary's subleasehold interest, including all related present and future personal, tangible and intangible assets of the Company located thereon. WARRANTS: Each purchaser of a Unit will receive one Warrant to purchase 100,000 shares of the Common Stock at an exercise price of $1.00 per share. The Warrants are exercisable for a period of five years after the Closing; provided, however, that the Warrants may be exercised at any time until June 30, 2001. The Warrants will be substantially in the form appended hereto as Exhibit C. REGISTRATION RIGHTS: Holders of the Bonds and the Warrants and the shares of Common Stock issuable upon conversion of the Bonds and exercise of the Warrants are entitled to have their shares of Common Stock registered as part of the next registered public offering of the Common Stock by the Company, as permitted under rules of the Securities and Exchange Commission. If no public offering of Common Stock has occurred by December 31, 1997, then upon written request of the holders of Warrants issued in this offering and exercisable for not less than 700,000 shares of Common Stock, and on a one-time basis, the Company shall file and use its reasonable efforts to cause to be declared effective a registration statement or post-effective amendment thereto as permitted under the Securities Act of 1933, as amended covering the sale by the holder of the Warrants, or any portion thereof, Common Stock issuable upon exercise of the Warrants or any portion thereof, or both as the holder may elect. The Company will be required to maintain effectiveness of the registration statement, subject to certain suspension periods as more fully described in the Warrant. 7 USE OF PROCEEDS: Upon completion of the Offering, the Company will receive net proceeds of approximately $2,925,000 if the minimum $3,500,000 in Units are sold, and approximately $5,100,000 if the maximum $6,000,000 in Units are sold, after deducting commissions and expenses of the offering estimated to total $575,000 if the minimum is sold, and $900,000 if the maximum is sold. Expenses of the offering include legal and accounting fees in connection with this offering and "blue sky" fees and expenses. The proceeds of the offering are intended to be used to repay all outstanding indebtedness of the Company owed to Chrysolith, LLC, which was approximately $2,100,000 on June 20, 1996, to repay bridge notes in the aggregate outstanding principal amount of $220,000 to pay an outstanding vendor's lienholder on the Woodlands, to pay certain commission and expense obligations in the amount of approximately $75,000 owed to the Placement Agent or a result of prior bridge financings and for certain lease payments, working capital and other general corporate purposes. TERMS OF THE OFFERING PLAN OF OFFERING The Company is privately offering for sale to selected accredited investors up to 12 units, each Unit (the "Unit") consisting of (i) a $500,000 principal amount of 12% Secured Convertible Senior Bond due June 30, 1999 (the "Bonds") and (ii) a warrant to purchase 100,000 shares of common stock, par value $.001 per share, of the Company (the "Common Stock") at an exercise price of $1.00 per share (the "Warrants"). The Warrants are exercisable at any time after the Closing of this offering and will, unless previously exercised, expire five years after the date of Closing. C.P. Baker & Company (the "Placement Agent") has been retained by the Company to act, on a best efforts basis, as agent for the Company in connection with the arrangement of this transaction. The Company has agreed (i) to pay the Placement Agent a 10% commission and a 3% non-accountable expense allowance in connection with the arrangement of this financing, and (ii) to indemnify the Placement Agent against certain liabilities, including liabilities under the Securities Act of 1933, as amended. A minimum of 6 Units or $3,500,000 in gross proceeds (comprised of the sale of 7 Bonds in the aggregate principal amount of $3,500,000 and 7 Warrants to purchase in the aggregate up to 700,000 shares of Common Stock), and a maximum of 12 Units or $6,000,000 in gross proceeds (comprised of the sale of 12 Bonds in the aggregate principal amount of $6,000,000 and 12 Warrants to purchase in the aggregate up to 1,200,000 shares of Common Stock), is being offered by the Company (the "Offering"). Unless the Offering is terminated by the Company, and provided that subscriptions for the minimum gross proceeds of $3,500,000 have been accepted by the Company on or prior to June 25, 1996 (the "Specified Date") (which date may be extended by mutual agreement of the Company and the Placement Agent to a date no later than July 2, 1996), but subscriptions for less than 12 Units have been accepted, the Company may elect to have an initial Closing at any time prior to the Termination Date (defined below), at which time all theretofore accepted subscriptions for Units will be accepted and Bonds will be issued by the Company in an aggregate principal amount equal to 100% of the aggregate gross proceeds and Warrants will be delivered. If subscriptions for gross proceeds of at least $3,500,000 have been accepted on or before the initial date of Closing, the Offering will terminate on the earlier of: (i) the date that gross proceeds equal to $6,000,000 has been received and accepted by the Company, (ii) the date determined by 8 the Company to terminate the Offering, or (iii) July 31, 1996 (the "Termination Date"). If subscriptions for at least 7 Units and payment of $3,500,000 therefore are not received by the Specified Date, then the Offering will terminate on the Specified Date and each subscriber's funds then held in escrow will be returned to him or her without interest or deduction. See "Offering--Plan of Offering." The termination date of the offering of Units is July 31, 1996, unless extended by mutual agreement of the Placement Agent and the Company. A minimum investment of $500,000 for the purchase of one Unit is required, unless otherwise agreed by the Company. The Company's Common Stock presently is publicly traded on the NASDAQ National Market under the symbol "IBET." Neither the Bonds nor the Warrants are eligible to be traded over the counter in the NASDAQ National Market, although the shares of Common Stock subject to the Warrants will carry certain demand and "piggyback" registration rights and, upon registration, will be listed for trading on the NASDAQ National Market. See "The Warrants--Registration Rights." See "Risk Factors--National Market Listing." INVESTOR QUALIFICATIONS The Offering is directed only to those persons and entities who have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of a prospective investment in shares of Common Stock of the Company, and who are "accredited investors" as defined in Rule 501(a) of Regulation D under the Securities Act. The Company reserves the right to waive the suitability requirements set forth above in certain instances where it is believed to be in the best interests of the Company to do so and where such waiver will not, in the Company's judgment, based upon advice of legal counsel, jeopardize the exemption of the Offering from the registration requirements under federal or state securities laws. Each investor will be required to state in the Subscription Agreement and related Prospective Purchaser Questionnaire, attached hereto as Exhibit A, that the investor believes that he or she is able to bear the economic risk of investment in the Units and that he or she has provided complete and accurate information to the Company, to the extent that such information has been requested, for the purposes of the foregoing inquiry of the Company. Investors are urged to seek independent advice from their professional advisors relating to the suitability of an investment in the Units in light of their overall financial needs and with respect to the legal and tax implications of such investment. EVALUATION OF INVESTMENT The Company will determine, prior to a sale of the Units offered pursuant to this Memorandum, that each prospective investor has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment in such Units or has designated a qualified "purchaser representative" who has such knowledge and experience in financial and business matters that the investor and such purchaser representative together are capable of evaluating the merits and risks of the prospective investment in the Units. Any person intending to act as a purchaser representative for the purpose of evaluating the merits and risks of the prospective investment offered hereby is required (a) to promptly advise the Company of such representation, (b) to receive a written acknowledgment from the prospective purchaser that such person is the prospective purchaser's representative in connection with evaluating the merits and risks of an investment in the Units and to forward copies thereof to the Company, and (c) to provide the prospective purchaser with written disclosure, prior to the execution of the written acknowledgment described above, of any material 9 relationship between the purchaser representative (and his affiliates, as defined in Regulation D under the Securities Act) and the Company (and its affiliates, as so defined) that then exists, that is mutually contemplated, or that has existed at any time within the past two years, together with any compensation received or to be received as a result of such relationship, and to forward copies of such written disclosure to the Company. RESTRICTIONS ON TRANSFERABILITY OF THE UNITS, BONDS, WARRANTS AND OTHER SECURITIES The Units, Bonds and Warrants offered hereby have not been registered under the Securities Act or any applicable state securities laws, nor have the shares of Common Stock which may be purchased upon exercise of the Warrants (collectively the "Securities"). The shares of Common Stock that can be purchased by holders of the Warrants upon exercise thereof have certain demand and "piggyback" registration rights. The Company is offering the Units in reliance upon certain exemptions from registration contained in the Securities Act of 1933, as amended (the "Securities Act") and such state securities laws. As a consequence, investors may not sell, transfer, pledge or otherwise dispose of the Securities unless such transfer, pledge or disposition is subsequently registered under the Securities Act and appropriate state securities laws or exemptions from such registrations are available. Accordingly, each investor must bear the economic risk of the investment for an indefinite period of time. The Company has placed certain restrictions on the sale, transfer, pledge or other disposition of the Bonds and Warrants, including the placing of a restrictive legend on any certificate evidencing the Securities. Each purchaser must agree in writing in the Subscription Agreement that the Securities will not be sold or assigned without registration. The Company will not allow any transfer of the Securities by investors which is in circumvention of these restrictions. Other than as set forth in the Subscription Agreement, Company has no obligation to register the Securities for resale and does not intend to do so. Investors may wish to seek independent legal advice regarding the effect of these restrictions and investment representations on the transferability of the Securities offered pursuant to this Memorandum. Rule 144 under the Act is not presently available for resale of the shares of Securities offered hereby, and there can be no assurance that Rule 144 will be available to investors in the future. RESIDENCY REQUIREMENTS Investment in the Securities is limited to persons who are "accredited" investors and who are bona fide residents of the states of Texas, New York, Massachusetts and Florida or such other state or jurisdiction in which the Offering is exempt from registration or in which the Company has requested and received clearance to make sales of the Securities offered hereby. THE BONDS GENERAL The 12% Secured Convertible Senior Bonds (the "Bonds") will be limited to a minimum of $3,500,000 and maximum of $6,000,000 aggregate principal amount and will be secured as described in the Bonds and the Indenture. A form of the Bonds is attached to this Memorandum as Exhibit B. The following summaries of certain provisions of the Bonds do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Bonds, including the definition therein of certain terms. 10 ISSUANCE AND MATURITY Unless otherwise authorized by the Company, the Bonds will be issued in minimum denominations of $500,000, in the total aggregate principal amount of $3,500,000 (minimum) and $6,000,000 (maximum). Individual Bonds will be issued in principal amounts equal to the full purchase price thereof after individual Subscription Agreements are accepted by the Company and funds equal to $3,500,000, representing the total gross proceeds of the Offering, are received by the Placement Agent and deposited in an escrow account at Continental Stock Transfer and Trust Co., New York, New York, and such proceeds are disbursed from the escrow account in accordance with the instructions of the Company and Placement Agent. Regardless of when such Bond(s) are issued however, the entire principal amount of each Bond shall be payable in one balloon payment on the date that is 36 months from the date of the initial Closing. INTEREST Each Bond will bear interest at a rate of twelve percent (12%) per annum. Interest shall begin to accrue on the date of issuance of the Bond. Accrued interest is payable semi-annually on June 15 and December 15 of each year that the Bonds are outstanding with the first payment due December 15, 1996. OPTIONAL REDEMPTION BY THE COMPANY The Company may, at its option, redeem the Bonds, in whole but not in part at 100% of principal amount thereof together with interest accrued thereon through the date fixed for redemption, within six months following a public offering by the Company of Common Stock that raises not less than $6,000,000 in gross proceeds. OPTIONAL CONVERSION The Bonds are convertible at the option of the holder any time unless previously redeemed, shares of Common Stock of Company at a conversion price of $5.00 per share or 100,000 shares of Common Stock per $500,000 Unit. SECURITY The Company will grant to the holders of the Bonds a first priority perfected security interest in the Woodlands Travel Plaza located in DeRidder, Louisiana, including all related present and future personal, tangible and intangible assets of the Company located thereon, and a second priority perfected security interest in the subsidiary's subleasehold interest in the Gold Nugget located in Layfayette, Louisiana, including all related present and future personal, tangible and intangible assets of the Company located thereon. As soon as the first priority security interest held by Prime Properties on the subsidiary's interest in the Gold Nugget is paid off, the Company will also grant a first priority perfected security interest in the subsidiary's subleasehold interest, including all related present and future personal, tangible and intangible assets of the Company located thereon. 11 EVENTS OF DEFAULT; ENFORCEMENT The following events are defined in the Bonds as Events of Default: (a) default in the payment of any installment of interest on the Securities as and when the same becomes due and payable, and the continuance of such default of 30 days; or (b) default in the payment of all or any part of the principal on the Securities as and when the same shall become due and payable either at maturity, upon acceleration or redemption or otherwise; or (c) failure on the part of the Issuer duly to observe or perform any covenants or agreements on the part of the Issuer contained in the Securities, in this Indenture in the Subscription Agreement or any of the Collateral Agreements and the continuance of such failure for a period of 15 days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Event of Default" hereunder and demanding that the Issuer remedy the same, is given to the Issuer by the Trustee or to the Issuer and the Trustee by the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding; or (d) failure on the part of the Issuer to appoint a Trustee within 5 days of a written request of the holders of 25% in principal amount of the securities to appoint a Trustee; or (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Subsidiaries (or the payment of which is Guaranteed by the Issuer or any of its Subsidiaries), which default is caused by a failure to pay due principal or interest on such Indebtedness after any applicable grace period (a "Payment Default"), and the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been and is continuing a Payment Default, aggregates $150,000 or more; or (f) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Subsidiaries (or the payment of which is Guaranteed by the Issuer or any of its Subsidiaries), which default results in the acceleration of such Indebtedness prior to its express maturity and the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been and is continuing a Payment Default or the maturity of which has been so accelerated and not rescinded, aggregates $150,000 or more; or (g) failure by the Issuer or any of its Subsidiaries to pay final judgments (other than any judgment as to which a reputable insurance company has accepted coverage without a reservation of rights) aggregating in excess of $150,000, which judgments are not stayed or discharged within 15 days after the entry; or (h) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Issuer or any of its Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Issuer or any of its Subsidiaries or for any substantial part of the property of the Issuer or any of its Subsidiaries or ordering the winding up or liquidation of the affairs of the Issuer or any of its Subsidiaries and such decree or order shall remain unstayed and in effect for a period of 15 consecutive days; or 12 (i) the Issuer or any of its Subsidiaries shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Issuer or any of its Subsidiaries or for any substantial part of the property of the Issuer or any of its Subsidiaries, or the Issuer or any of its Subsidiaries shall make any general assignment for the benefit of creditors; (j) loss by the Issuer or any subsidiary of any gambling license or the legal right to operate any gaming establishment including, without limitation, those of the Gold Nugget or DeRidder locations, but not including any loss resulting from a general prohibition or revocation of gambling licenses by the Louisiana legislature; (k) indictment of any officer or key employee of the Issuer or any of its subsidiaries by any governmental authority; (l) fraud by an officer or key employee of the Issuer or any of its subsidiaries; (m) the Issuer does not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts as such debts become due; or (n) any event which, in the reasonable judgment of Securityholders of 51% in principal amount of the Securities has a material adverse effect on the condition, operations or properties (financial or otherwise) of the Issuer or any of its subsidiaries, taken as a whole. Pursuant to the terms of the Bonds, the Company agrees that it shall give notice to the Holder at his or her registered address by certified mail, of the occurrence of any Event of Default within five (5) days after such Event of Default shall have occurred. The Bonds provide that if an event of default as defined in the Bonds occurs and is continuing, the registered Holder of each Bond then outstanding may proceed to protect and enforce such Holder's right by any remedy available at law or equity. TRANSFER OF BONDS The Bonds offered hereby are not registered under the Securities Act, the securities law of any state or any similar laws in any other jurisdiction but are being offered and sold subject to an exemption from registration provided by Sections 3(b) and 4(2) of the Securities Act and applicable rules promulgated thereunder and are also being offered and sold pursuant to applicable state securities laws exemptions. Because the Bonds will not be registered under applicable securities laws, they cannot be resold unless they are subsequently registered under such acts or laws or unless an exemption from such registration is available and each Bond will contain a restrictive legend to that effect. Therefore, each investor must bear the economic risk of an investment in the Bonds for an indefinite period of time. ORIGINAL ISSUE DISCOUNT The Company believes that purchasers of the Units will acquire the Bonds with original issue discount ("OID") and as such will be subject to special tax accounting rules based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and judicial decisions thereunder as of the date hereof. Persons considering purchasing the Bonds with original issue discount should consult their own tax advisors with respect to the timing, reporting and determination of the 13 original issue discount. Further, each prospective Purchaser is advised to consult with such Purchaser's own tax advisor regarding the specific federal, state, local and foreign tax consequences of acquiring, holding and disposing the Units, the Bonds, the Warrants, and the Common Stock issuable upon conversion of the Bonds and exercise of the Notes. THE WARRANTS Each Warrant entitles the registered holder thereof (the "Warrant holder") to purchase 100,000 shares of Common Stock of the Company at a price of $1.00 per share at any time until June 30, 2001. Each Warrant shall expire five years after the Closing. A Warrant holder as such is not entitled to vote, receive dividends or exercise any of the rights of a holder of Common Stock for any purpose until the Warrant has been duly exercised. Each Warrant provides for adjustment of the exercise price and the number of shares of Common Stock purchasable upon the exercise of the Warrant to protect the Warrant holder against dilution upon the occurrence of certain events, including stock dividends, stock splits, reclassifications and mergers, consolidations or certain dispositions of assets of the Company. The shares of Common Stock issuable upon exercise of the Warrants carry certain demand and "piggyback" registration rights. If the Company proposes to register any of its securities under the Securities Act, the Company must include in such registration any such shares of Common Stock issuable upon exercise of the Warrants as such Warrant holders may request. The costs and expenses of any such registration statement (other than underwriting discounts and commissions and any legal or accounting expenses incurred directly by the requesting holders) will be borne by the Company. The Company has sufficient shares of Common Stock authorized and reserved for issuance upon exercise of the Warrants, and such shares, when issued, will be fully paid and nonassessable. To exercise a Warrant, the Warrant holder must send the original Warrant certificate to the Company, together with a notice stating the number of shares of Common Stock to be purchased and cash or a certified check or bank draft for the total exercise price of such shares. The Company will then return a certificate evidencing the number of shares of Common Stock issued upon exercise of the Warrant and a new Warrant certificate if less than all the shares covered by the exercised Warrant certificate are purchased. Warrant holders will be required to give the Company notice prior to the exercise of any Warrants and will be unable to exercise the Warrants or transfer the Warrants or the shares of Common Stock issued upon exercise of the Warrants unless such transfer or exercise is either registered under the Securities Act and applicable state securities laws or exemptions from such registration are available. See "The Offering--Restrictions on Transferability of Securities." 14 TRANSFER OF WARRANTS The Warrants offered hereby are not registered under the Securities Act, the securities law of any state or any similar laws in any other jurisdiction but are being offered and sold subject to an exemption from registration provided by Sections 3(b) and 4(2) of the Act and applicable rules promulgated thereunder and are also being offered and sold pursuant to applicable state securities laws exemptions. Because the Warrants will not be registered under applicable securities laws, they cannot be resold unless they are subsequently registered under such acts or laws or unless an exemption from such registration is available and each Warrant will contain a restrictive legend to that effect. The Company has no obligation to register the Warrants. Therefore, each investor must bear the economic risk of an investment in the Warrants for an indefinite period of time. 15 RISK FACTORS AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD NOT BE MADE BY AN INVESTOR WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS ASSOCIATED WITH THE OFFERING, AS WELL AS OTHER INFORMATION CONTAINED ELSEWHERE IN THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM BEFORE MAKING AN INVESTMENT. ACCUMULATED DEFICIT; OPERATING LOSSES. On December 31, 1995, the Company had an accumulated deficit of approximately $482,000 and a working capital deficit of approximately $3,640,000. For the period from its inception through December 31, 1994, the Company had a net loss of approximately $571,000. For the fiscal year ended December 31, 1995, the Company generated net earnings of approximately $90,000. The Company's ability to achieve continued profitability is dependent upon the successful operation of gaming establishments at the Gold Nugget and Woodlands. There can be no assurance that the Company will achieve continued profitability as a result of these operations or otherwise. POSSIBLE INABILITY TO MEET SUBSTANTIAL DEBT SERVICE; RISK OF SEVERE LIMITATION ON BUSINESS ACTIVITIES. On January 19, 1996 the Company and Chrysolith reached an agreement to extend the maturity date of the Chrysolith Note and other financial obligations owed to Chrysolith until June 30, 1996 in exchange for the Company's agreement to pay Chrysolith $15,634 per week in principle payments during the extension period. Chrysolith agreed to extend this due date until July 2, 1996. If the Company fails to repay the Chrysolith Note by July 2, 1996, or the Prime Note quarterly payment of $292,000 due on June 21, 1996, the Company could lose its interest in the Gold Nugget and lose its leasehold interest under the Prime Sublease, either of which would materially and adversely affect the business of the Company and would cause it to substantially limit or cease its business operations, or to seek protection under federal bankruptcy laws. Following completion of the Offering, the principal amount of the Company's indebtedness as of June 30, 1996 with respect to the Gold Nugget transaction will approximate $1,610,000 payable in equal quarterly installments through December 21, 1997. With respect to the Woodlands transaction, the principal amount of the Company's remaining indebtedness is $435,017 payable on December 30, 1996 with interest payable monthly at 10% (the "Woodlands Note"). A notice of assessment for failure to pay state fuel tax of approximately $70,000 due the State of Louisiana was received at the Woodlands which the Company believes relates to the prior owner's operations. The Company is not named as the recipient of the notice. The Company will be dependent on cash on hand and cash flow from operations (assuming continued operation of both the Gold Nugget and the Toledo Palace) following this Offering to pay debt service on the Prime Note, as well as anticipated and unanticipated cash requirements. If cash on hand and cash flow from operations are insufficient to meet the debt service and other cash requirements, the Company will need to seek additional financing. There can be no assurance that the Company will be successful in obtaining additional financing or that such financing, if obtained, will be on terms favorable to the Company. Furthermore, if such financing involves the sale of the Company's equity securities, there could be further significant dilution to investors in this offering. If the Company defaults in its obligations under the Prime Note and/or the Woodland Note, it would lose its interests in the Gold Nugget and Woodlands, including the Toledo Palace, which would materially and adversely effect the business of the Company. POSSIBLE LOSS OF SUBLEASE AND OPERATING RIGHTS TO GOLD NUGGET; FORFEITURE OF ALL MONIES PAID IN CONNECTION WITH GOLD NUGGET TRANSACTIONS. A Note in the original principal amount of $3,000,000 payable to Prime Properties in equal quarterly installments through December 21, 1997 (the 16 "Prime Note") is secured by the Company's sublease with Prime Properties for the Gold Nugget premises. In the event the Company defaults on the Prime Note, Prime Properties could terminate the Company's sublease and its rights relating to the establishment license for the Gold Nugget. POSSIBLE LOSS OF SUBLEASE FOR GOLD NUGGET DUE TO TERMINATION OF OVER-LEASE. Simultaneously with the closing of the Company's initial public offering in December 1994, the Company entered into an 18-year sublease with Prime Properties for the Gold Nugget premises. The sublease is subject to the terms and conditions of the lease with respect to the 76 Truck Plaza between Prime Properties, the operator of the 76 Truck Plaza, as lessee and National Auto Truck Stops, Inc. ("National"), as lessor (the "Over-Lease"). Although National is aware of the Company's use of the Gold Nugget facilities, National has not yet granted its written consent to the sublease, as required by the Over-Lease. The Over-Lease expires September 30, 1999, subject to the right of Prime Properties to extend the term for up to five successive three-year periods. Prime Properties is not contractually obligated to the Company to exercise its right to extend the Over-Lease at the end of its term or any renewal term. In addition, National Auto Truck Stops, Inc. has the right to terminate the Over-Lease under certain circumstances, including if Prime Properties defaults, under the terms of the Over-Lease, or if Prime Properties does not renew a franchise relationship between National and Prime Properties. The termination of the Over-Lease upon the expiration of its terms (or any renewal term), or as a result of a breach by Prime Properties or otherwise, will result in the termination of the Company's sublease for the Gold Nugget gaming facility premises, and any such termination would have a materially adverse effect on the operations and the financial condition of the Company. TAXATION OF GAMING OPERATIONS. The Company believes that the prospect of significant additional revenue is one of the primary reasons why jurisdictions have legalized gaming. As a result, gaming operators are typically subject to significant taxes and fees in addition to federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Any material increase in these taxes or fees would adversely affect the results of operations of the Company. Under Louisiana law, approximately 32.5% of gaming revenues (after payout of winnings) generated by the Gold Nugget and the Toledo Palace is payable as gaming taxes to the State of Louisiana. UNCERTAINTY RELATED TO PROPOSED LOUISIANA GAMING REFORM. The gaming industry in the State of Louisiana has recently received national media attention in part due to the commencement by federal authorities of an investigation of certain members of the Louisiana legislature and their association with gaming interests and the declaring of bankruptcy by Harrah's Jazz, Louisiana's only land-based casino which operated in a temporary facility in New Orleans from May 1995 to November 1995. As a result of these and other incidents, there are reports that a significant percentage of Louisiana residents are opposed to gaming in the State. Following the general election in Louisiana in November, 1995, many politicians were elected, including Governor Foster, on anti-gambling platforms. The Governor of Louisiana called a special legislative session on March 25, 1996 to determine, among other things, the future of gaming in the state. Proposals included a state-wide referendum to abolish all gaming or a local option which would decide the future of gaming parish by parish. At the close of the session on April 19, 1996, the state-wide referendum was defeated and a local option bill was passed and sent to the Governor for signature. At the November 1996 general election, residents of each of the parishes must decide whether to continue video poker and if applicable, riverboats and land based casinos. In the event that video poker is eliminated at either location, or a result of a parish referendum, operations would be required to terminate before June 1999. The Company cannot predict the likelihood of whether the Louisiana legislature will in the future adopt any new, or modify any existing, gaming statute, or how any such new or different statutes or regulations would impact TWG's operations in the State of Louisiana. 17 POSSIBLE LOSS OF ESTABLISHMENT LICENSE. Effective January 1, 1996, in order for the maximum of 50 VLTs to be operated at a truck stop location in Louisiana, the truck stop must meet certain requirements relating to its operation as a truck stop, including the operation of a 24-hour restaurant, the availability of mechanic services 24 hours/7 days a week, paved parking for at least 50 18-wheeled vehicles and the sale of at least 100,000 gallons of fuel per month, of which 40,000 gallons must be diesel fuel. The Company believes that the 76 Truck Plaza, at which the Gold Nugget is located, and Woodlands currently satisfies these requirements. The failure of either location to meet the standard for maintaining a truck stop gaming establishment could cause the number of VLTs permitted to be operated at such location to be decreased or eliminated, which could have a material adverse impact on the revenue of the Company. Moreover, if Prime Properties (which operates the 76 Truck Plaza at which the Gold Nugget is located) or the Company (which operates Woodlands) loses its fuel franchise for any reason, the truck stop would no longer qualify as a site for a gaming establishment. Nine other truck stop gaming establishments located in Louisiana (unrelated to the Company) were closed in January 1996 by the Louisiana State Police for failure to comply with these regulations. Owners of such facilities can file an appeal and continue to operate while the appeal is pending.. Following the general election in Louisiana in November, 1995, many politicians were elected, including Governor Foster, on anti-gambling platforms. The Governor of Louisiana called a special legislative session on March 25, 1996 to determine, among other things, the future of gaming in the state. Proposals included a state-wide referendum to abolish all gaming or a local option which would decide the future of gaming parish by parish. At the close of the session on April 19, 1996, the state-wide referendum was defeated and a local option bill was passed and sent to the Governor for signature. At the November 1996 general election, residents of each of the parishes must decide whether to continue video poker and if applicable, riverboats and land based casinos. In the event that video poker is eliminated at either location, or a result of a parish referendum, operations would be required to terminate before June 1999. NEED FOR ADDITIONAL FINANCING. The Company believes, although there can be no assurance, that existing cash, together with anticipated cash flows from operations and anticipated net proceeds from this Offering or a working capital line of credit, will be sufficient to satisfy its liquidity and capital requirements for the next twelve months. Twelve months after this offering, the Company may require additional capital to fund operations and growth opportunities. If such additional financing is not available, this would have a materially adverse effect on the financial condition and operations of the Company. The Company may require additional financing for acquisition of other gaming businesses when and if the opportunity to acquire such businesses arises. The Company has no immediate plan, agreements or understandings with respect to such transactions. The Company's ability to obtain additional financing may be limited for a number of reasons, including the fact that a substantial portion of the Company's assets are subject to liens. There can be no assurance that such financing will be available, if at all, on terms favorable to the Company. LICENSING AND REGULATION. The Company's operations will be subject to regulation by each jurisdiction in which it plans to conduct business, as well as Federal laws and the laws of any foreign country in which it seeks to operate. Each of the Company's officers, directors, managers and principal stockholders, as well as persons who have more than a 5% income or profit interest in, or who exercised significant influence over the activities of, the Company will be subject to strict scrutiny and approval of the gaming commission or other regulatory body of each jurisdiction in which the Company may conduct gaming operations. The Company has not been, and cannot be, licensed in Louisiana to directly own or operate VLTs because of the residency requirements for such a license. The ownership, operations and management of the VLTs at the Gold Nugget and the Toledo Palace have been undertaken by Chrysolith, a licensed video machine operator in the State of Louisiana. If Chrysolith's licenses were revoked or not renewed or otherwise impaired, the Company would either have to enter into an agreement with another 18 Louisiana-licensed VLT operator, or terminate gaming operations at the locations at which Chrysolith owns, operates and maintains VLTs. There can be no assurance that the Company could enter into an agreement with another Louisiana-licensed VLT operator expeditiously or on acceptable terms, if at all, in such event, and if it were unable to do so, the Company's operations and financial condition would be materially adversely affected. The Company owns 49% of the Class B membership units in Chrysolith. The failure to obtain any license for properties upon which the Company plans to operate or manage a gaming establishment in the future would have a materially adverse affect on the Company's business. Obtaining required licenses can be time consuming and costly with no assurance of success. In addition, the Company is subject to changes in the laws of the jurisdictions in which it operates, which could materially limit the Company's ability to conduct business profitably. In the event that a required license is not granted for any particular location, the Company's options would include effecting a transfer of substantially all the related gaming assets to a different location or selling its interest in the gaming operations at that location to a third party. There can be no assurance that the Company would be able to relocate gaming assets or sell its interests on acceptable terms or at all, and the inability to do so would have a materially adverse effect upon the business and prospects of the Company. COMPETITION. The gaming industry is highly fragmented and characterized by a high degree of competition among a large number of participants. The Gold Nugget and the Toledo Palace compete with numerous existing and proposed gaming operations in Louisiana and, to a lesser extent, adjacent portions of Mississippi, including truck stop sites which contain VLTs, comprehensive land-based and riverboat casinos, Native American gaming ventures and other forms of legalized gambling. In addition, under Louisiana law racetracks and off-track betting parlors may install an unlimited number of VLTs, and establishments with alcoholic beverage licenses, such as restaurants and bars, as well as hotels, are eligible to apply for a license to operate up to three VLTs. Many of the Company's competitors and potential competitors have greater financial and marketing resources, significantly more experience in operating gaming facilities, operate a greater number and variety of gaming facilities, and have better sites, than the Company. The Company believes that competition in the gaming industry is based on the quality and location of gaming facilities, the effectiveness of marketing resources and customer service and satisfaction. There are four gaming operations within five miles of the Gold Nugget and one gaming operation within five miles of the Toledo Palace, all of which contain 50 VLTs, exclusive of numerous restaurants, bars and hotels which are limited to three VLTs each. As of January 1, 1996, there were approximately 100 truck stops with VLTs in Louisiana. In addition, there are three land-based casinos on Native American Indian reservations in Charenton, Louisiana, which is located approximately 60 miles from the Gold Nugget, and in Marksville and Kinder, Louisiana, which are located 65 miles and 70 miles from the Toledo Palace, respectively. There also are a significant number of gaming license applications currently pending in Louisiana. In 1991, Louisiana enacted a law enabling unlimited stakes riverboat gaming on up to six gaming riverboats in any one parish (county) with a maximum of 15 for the entire state. The first of these riverboats became operational in December 1993. Louisiana has also approved land-based gaming for one location in downtown New Orleans which opened in a temporary facility in May 1995 and suspended operations in November 1995, and dockside gaming at certain locations on the Red River. Land-based and riverboat casinos operating from New Orleans dock sites may be expected to benefit from the status of New Orleans as a desirable tourist destination, business and convention center. 19 The Gold Nugget and the Toledo Palace also compete with other forms of gaming, including bingo and pull tab games, card clubs, pari-mutuel betting on horse racing and dog racing, state-sponsored lotteries, as well as other forms of wagering entertainment. PENDING LITIGATION. In March, 1995, Trans World Gaming of Louisiana, Inc., a wholly owned subsidiary of the Company, was served with a petition filed by Charles Alan Jones, III and Kelly McCoy Jones (the "Petitioners") to enforce a mortgage held by the Petitioners on the Woodlands property. The Petitioners hold a promissory note from the Company in the principal amount of $435,017 (the "Note") which is secured by a mortgage on the property. The petition seeks acceleration of the Note, with interest and attorneys' fees, and recognition of the mortgage based on a monthly interest payment that was approximately seven days late on February 7, 1995. The Company has made, and the Petitioners have accepted, monthly interest payments since then. The Company has filed an answer, but discovery has not moved forward. Petitioners have filed a motion to enforce an oral settlement allegedly made between the Company's former Chief Executive Officer and Mr. Jones, for which a hearing is scheduled on July 15, 1996. The Company's management believes it has defenses to the Petitioners' claims and that the suit is without merit. If the petition is not withdrawn or a settlement is not otherwise reached, and if the Note is accelerated as part of a judicial order, the Company will use $435,017 from the proceeds of this offering to satisfy the obligation. DEPENDENCE ON CHRYSOLITH. The Company does not have, and will not be able to obtain, a license to own or operate VLTs in Louisiana because such licenses may be granted only to Louisiana residents or entities which are at least 51% owned by Louisiana residents. The Company has entered into agreements with Chrysolith pursuant to which Chrysolith operates the VLTs at the Golden Nugget and at Toledo Palace. If for any reason Chrysolith or its 51% shareholder are determined by the Louisiana Authorities to be in violation of Chrysolith's license or of the Louisiana laws and regulations, and Chrysolith subsequently lost its operator's license, or such license was limited or modified, the Company would need to immediately replace Chrysolith with another Louisiana licensee to operate the Toledo Palace and the Gold Nugget. Any such licensed operators would then be required to own or obtain VLTs for these gaming facilities. Although the Company believes that a substitute for Chrysolith could be located, there can be no assurance that the Company could find such a replacement quickly or in a timely way, or that such a licensee would agree to operate VLTs at the Toledo Palace and the Gold Nugget gaming facilities on terms acceptable to the Company. There can be no assurance that Chrysolith will be able to successfully operate the VLTs at Gold Nugget and Toledo Palace. If the Company were required to find a replacement for Chrysolith and were unable to do so expeditiously, its business and financial condition would be materially adversely affected. LIABILITY INSURANCE. The Company currently maintains and intends to maintain general liability insurance with coverage limits of $1,000,000 per occurrence, $2,000,000 per year in the aggregate. The Company also maintains a $1,000,000 umbrella liability insurance policy (with a $10,000 self-insured retention). There can be no assurance that liability claims will not exceed the coverage limits of such policies or that such insurance will continue to be available on commercially reasonable terms at all. There can be no assurance that liability claims will not exceed the coverage limits of such policies or that such insurance will continue to be available on commercially reasonable terms at all. There can be no assurance, however, that such insurance will be adequate to cover unanticipated liabilities. NO DIVIDENDS. The Company has not paid any dividends to date on its Common Stock, and does not expect to declare or pay any dividends in the foreseeable future. The Company intends to retain future earnings for investment in its business. 20 POSSIBLE DELISTING AND RISK OF LOW-PRICED SECURITIES. The Company's Common Stock is listed on the NASDAQ National Market System. To qualify for initial quotation or listing of securities, the NASDAQ National Market required satisfaction of certain financial tests, including the attainment of specified minimum levels of assets, income, net worth and certain minimum requirements relating to the market value of the securities to be listed (exclusive of shares owned by insiders), as well as the number of shares and stockholders. However, there can be no assurance that the Company will be able to satisfy certain other specified financial tests and market related criteria required for continued quotation on the NASDAQ National Market System following the Offering. If the Company is unable to satisfy the NASDAQ National Market maintenance criteria in the future, its Common Stock may be delisted from trading on the NASDAQ National Market, and, if delisted, might be eligible to be quoted on the NASDAQ market (collectively, the NASDAQ National Market System, "NASDAQ"). If delisting from NASDAQ occurs, trading in the Company's securities would thereafter be conducted in the over-the-counter market in the so-called "pink sheets" or the "Electronic Bulletin Board" of the National Association of Securities Dealers, Inc. ("NASD") and consequently an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the price, of the Company's securities. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on NASDAQ and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years, (ii) net tangible assets of at least $5,000,000, if such issuer has bee in continuous operation for less than three years, or (iii) average annual revenue of at least $6,000,000, if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. In addition, if the Company's securities are not quoted on NASDAQ, or the Company does not have $2,000,000 in net tangible assets, trading in the Common Stock would be covered by Rule 15g-9 promulgated under the Exchange Act for non-NASDAQ and non-exchange listed securities. Under such rule, broker/dealers who recommend such securities to person other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities also are exempt from this rule if the market price is at least $5.00 per share. If the Company's securities become subject to the regulations applicable to penny stocks, the market liquidity for the Company's securities could be severely affected. In such an event, the regulations on penny stocks could limit the ability of broker/dealers to sell the Company's securities and thus the ability of purchasers of the Company's securities to sell their securities in the secondary market. POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK. The Company's Articles of Incorporation authorize the issuance of 2,000,000 shares of "blank check" Preferred Stock, with designations, rights and preferences determined from time to time by its Board of Directors. Accordingly, the Company's Board of Directors is empowered, without further stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the Preferred Stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the company. The Company has no current plans to issue any shares of Preferred Stock. However, there can be no assurance that Preferred Stock will not be issued at some time in the future. 21 RECENT DEVELOPMENTS On May 8, 1996, Mr. Andrew Tottenham was appointed to serve as a member of the Company's Board of Directors. Mr. Tottenham is the son-in-law of Mr. Kohlenberg, the Company's current Chief Executive Officer and Chairman. He presently also serves as the sole member of the Audit and Compensation Committee of the Board. USE OF PROCEEDS Upon completion of the Offering, the Company expects to receive net proceeds of approximately $2,925,000 if the minimum Units are sold, and $5,100,000 if the maximum Units are sold, after deducting commissions to the placement agent of 10% of the gross proceeds, a non-accountable expense allowance of 3% of the gross proceeds, and additional expenses of the Offering including accounting and legal fees in connection with the Offering and "Blue Sky" fees and other related expenses payable at the time of the closing of the Offering. The proceeds of the Offering will be used to retire all of the outstanding obligations to Chrysolith LLC estimated at $2,100,000 and to make a regular quarterly payment of principal and interest in the amount of $292,000 on a promissory note in the original principal amount of $3,000,000 payable to Prime Properties, Inc. (the "Prime Note"), which payment is due on June 21, 1996. The Company will also retire amounts outstanding under the 1996 Bridge Financing (presently $220,000), accelerate the maturity of the Woodlands Notes of $435,017 and use the remainder for working capital purposes which include legal and accounting fees in connection with the Company's financing efforts during January through June 1996, and for the payment of certain accounts payable (which includes amounts owing to Oppenheimer Wolff & Donnelly, the Company's legal counsel). The Company's current accounts payable at June 17, 1996 were approximately $362,000. The foregoing represents the Company's best estimate of its allocation of the net proceeds of this Offering based upon the Company's current business plans, the terms of the proposed Public Offering, and the estimates regarding its anticipated expenditures. Actual expenditures may vary substantially form these estimates, and the Company may find it necessary or advisable to use the net proceeds for other purposes. Until utilized, the net proceeds of this Offering will be invested in short-term bank certificates of deposit, interest-bearing savings accounts or other short-term interest-bearing investments. ADDITIONAL INFORMATION ABOUT THE COMPANY Attached to this Memorandum are the following exhibits: Exhibit A -- Subscription Agreement Exhibit B -- 12% Secured Convertible Senior Bond due June 30, 1999 Exhibit C -- Common Stock Purchase Warrant Exhibit D -- Company's Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 1996 Exhibit E -- Company's Proxy Statement dated April 18, 1996 Exhibit F -- Company's Annual Report on Form 10-KSB/A for the Year Ended December 31, 1995. 22 Purchasers should carefully review these documents for a discussion of the Company's business, properties, management, executive compensation, security ownership, financial statements and other information regarding the Company. In addition, the Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company pursuant to the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048; Citicorp Center, 500 West Madison Street, Suite 1400 and the John C. Kluczynski Federal Building, Chicago, Illinois 60661-2511. Copies of such material can also be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. 23 EX-4.5 3 SUPPLEMENT CONFIDENTIAL SUPPLEMENT NO. 1 TO CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM TRANS WORLD GAMING CORP. Minimum Offering: 7 Units (Gross Proceeds of $3,500,000) Minimum Investment: $500,000 Maximum Offering: 12 Units (Gross Proceeds of $6,000,000) This Supplement No. 1 is intended to update and amend that certain Confidential Private Placement Memorandum dated June 30, 1996 (the "Memorandum") of Trans World Gaming Corp., a Nevada corporation (the "Company") with respect to a minimum offering of seven Units and gross proceeds of $3,500,000 and a maximum offering of 12 Units and gross proceeds of $6,000,000 (the "Offering"), with each Unit (collectively, the "Units") consisting of (i) one $500,000 principal amount of 12% Secured Convertible Senior Bonds due June 30, 1999 (the "Bonds"), and (ii) a Warrant to purchase 100,000 shares of common stock, par value $.001 per share, of the Company (the "Common Stock") at an exercise price of $1.00 per share (the "Warrants"). 1. As of August 1, 1996, the Company had closed on the private placement of 9.6 Units, raising gross proceeds of $4,800,000, which were sold to an aggregate of six purchasers. The proceeds of such placement were used to (i) make, on June 21, 1996, a regular quarterly payment of principal and interest in the amount of $292,000 on a promissory note in the original principal amount of $3,000,000 payable to Prime Properties, Inc., (ii) retire the Company's outstanding obligations to Chrysolith LLC of approximately $2,100,000, (iii) retire outstanding obligations of approximately $220,000 under the Company's 1996 Bridge Financing, (iv) repay approximately $435,000 on a promissory note owed to mortgage holders on the Company's Woodlands property located in DeRidder, Louisiana, and (v) meet the Company's general working capital requirements. As of December 1, 1996, C.P. Baker & Company, Ltd., the placement agent for the Offering (the "Placement Agent"), advised the Company that it terminated the Offering, and the Company agreed to such termination; thus, the total gross proceeds raised by the Offering were $4,800,000. 2. At the request of holders of at least 25% in principal amount of the Bonds, the Company (with Trans World Gaming of Louisiana, Inc., its wholly owned subsidiary) has entered into an Indenture dated as of November 1, 1996 (the "Indenture") with U.S. Trust Company of Texas, N.A., as Trustee, for the equal and proportionate benefit of the Bondholders purchasing the Units. 3. On November 5, 1996, voters in Lafayette and Beauregard Parishes in Louisiana, the counties in which the Company currently has video poker operations, were among 35 of 64 Louisiana parishes that voted to eliminate video poker gaming beginning in 1999. As a result, the Company must cease its video poker operations by June 30, 1999 in both of these parishes. The Company believes that cash flow generated from existing operations (barring any extraordinary circumstances) and assuming operations continue at or above current levels, should be sufficient to cover carrying interest costs and retire existing debt over the next 24 months. Chrysolith LLC, a licensed video poker operator in Louisiana owned 49% by the Company, with two other major video poker operators in Louisiana, has filed suit against the State of Louisiana alleging violation of constitutional rights and seeking a court order declaring the local option video poker gaming elections void. The Court has taken the motions under advisement and is expected to rule on the matter on January 13, 1997. The Company is evaluating the potential impact that the results of the Louisiana elections may have under FASB 121 entitled "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." 4. A copy of the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended September 30, 1996, as filed with the Securities and Exchange Commission on November 14, 1996, which includes the Company's unaudited financial statements for the three and six months periods ended September 30, 1996, is attached hereto as Appendix A. 5. In accordance with Section 13.13 of the Indenture, the Company's Board of Directors has determined to adjust the conversion price of the Bonds as follows: December 23, 1996 to June 30, 1997 $2.00 July 1, 1997 to June 30, 1998 $2.50 July 1, 1998 to June 30, 1999 $3.125 All of the investors in the Offering are being informed of the conversion price adjustment. January 14, 1997 EX-4.6 4 IDENTURE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRANS WORLD GAMING CORP. TRANS WORLD GAMING OF LOUISIANA, INC. Issuer and U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee INDENTURE Dated as of November 1, 1996 -------------------- $4,800,000 12% Secured Convertible Senior Bonds Due 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS-REFERENCE SHEET Provisions of the Trust Indenture Act of 1939 and Indenture to be dated as of November 1, 1996 between Trans World Gaming Corp., Trans World Gaming of Louisiana, Inc. and U.S. Trust Company of Texas, N.A., not in its individual capacity but solely as trustee (the "Trustee"), providing for 12% Secured Convertible Senior Bonds Due 1999: SECTION OF THE ACT SECTION OF INDENTURE 310(a)(1), (2) and (5) . . . . . . . 6.9 310(a)(3) and (4) . . . . . . . . . Inapplicable 310(b) . . . . . . . . . . . . . . . 6.8, 6.10 and 11.4 310(c) . . . . . . . . . . . . . . . Inapplicable 311(a) . . . . . . . . . . . . . . . 6.13(a) and (c)(1) and (2) 311(b) . . . . . . . . . . . . . . . 6.13(b) 311(c) . . . . . . . . . . . . . . . Inapplicable 312(a) . . . . . . . . . . . . . . . 4.1 and 4.2(a) 312(b) . . . . . . . . . . . . . . . 4.2(a) and (b) 312(c) . . . . . . . . . . . . . . . 4.2(c) 313(a) . . . . . . . . . . . . . . . 4.4 313(b)(1) . . . . . . . . . . . . . 4.4 313(b)(2) . . . . . . . . . . . . . 4.4 313(c) . . . . . . . . . . . . . . . 4.4 and 11.4 313(d) . . . . . . . . . . . . . . . 4.4 314(a) . . . . . . . . . . . . . . . 4.3 and 11.4 314(b) . . . . . . . . . . . . . . . 14.3 314(c) . . . . . . . . . . . . . . . 11.5 314(d) . . . . . . . . . . . . . . . 14.3 314(e) . . . . . . . . . . . . . . . 11.5 314(f) . . . . . . . . . . . . . . . Inapplicable 315(a), (c) and (d) . . . . . . . . 6.1 315(b) . . . . . . . . . . . . . . . 5.11 and 11.4 315(e) . . . . . . . . . . . . . . . 5.12 316(a)(1) . . . . . . . . . . . . . 5.9 and 5.10 316(a)(2) . . . . . . . . . . . . . Inapplicable 316(a) (last sentence) . . . . . . . 7.4 316(b) . . . . . . . . . . . . . . . 5.7 317(a) . . . . . . . . . . . . . . . 5.2 317(b) . . . . . . . . . . . . . . . 3.4(a) and (b) 318(a) . . . . . . . . . . . . . . . 11.7 -i- TABLE OF CONTENTS PAGE ---- ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 1.1 Certain Terms Defined. . . . . . . . . . . . . . . . . . . 8 ARTICLE 2 ISSUE, EXECUTION, FORM AND REGISTRATION OF SECURITIES. . . . . . 13 SECTION 2.1 Authentication and Delivery of Securities. . . . . . . . . 13 SECTION 2.2 Execution of Securities. . . . . . . . . . . . . . . . . . 13 SECTION 2.3 Certificate of Authentication. . . . . . . . . . . . . . . 14 SECTION 2.4 Form, Denomination and Date of Securities; Payments of Interest in Cash and in Additional Securities. . . . . . . 14 SECTION 2.5 Registration, Transfer and Exchange. . . . . . . . . . . . 15 SECTION 2.6 Mutilated, Defaced, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 2.7 Cancellation of Securities; Destruction Thereof. . . . . . 17 SECTION 2.8 Temporary Securities . . . . . . . . . . . . . . . . . . . 17 ARTICLE 3 COVENANTS OF THE ISSUER. . . . . . . . . . . . . . . . . . . . . 17 SECTION 3.1 Payment of Principal and Interest. . . . . . . . . . . . . 17 SECTION 3.2 Offices for Payments, Etc. . . . . . . . . . . . . . . . . 18 SECTION 3.3 Appointment To Fill a Vacancy in Office of Trustee . . . . 18 SECTION 3.4 Paying Agents. . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 3.5 Officers' Certificates as to Default and as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 3.6 Maintenance of Properties, Etc.. . . . . . . . . . . . . . 19 SECTION 3.7 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 3.8 Books. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 3.9 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 3.10 Distributions . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 3.11 Disposition of Assets . . . . . . . . . . . . . . . . . . 20 SECTION 3.12 Other Indebtedness. . . . . . . . . . . . . . . . . . . . 21 SECTION 3.13 Waiver of Stay, Extension or Usury Laws . . . . . . . . . 21 ARTICLE 4 SECURITYHOLDERS' LISTS AND REPORTS BY THE ISSUER AND THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.1 Issuer To Furnish Trustee Information as to Names and Addresses of Securityholders . . . . . . . . . . . . . . . 22 SECTION 4.2 Preservation and Disclosure of Securityholders' Lists. . . 22 SECTION 4.3 Reports by the Issuer. . . . . . . . . . . . . . . . . . . 23 SECTION 4.4 Reports by the Trustee . . . . . . . . . . . . . . . . . . 24 -ii- PAGE ---- ARTICLE 5 REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 5.1 Event of Default Defined; Acceleration of Maturity; Waiver of Default. . . . . . . . . . . . . . . . . . . . . 24 SECTION 5.2 Collection of Indebtedness by Trustee; Trustee May Prove Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 5.3 Application of Proceeds. . . . . . . . . . . . . . . . . . 29 SECTION 5.4 Suits for Enforcement. . . . . . . . . . . . . . . . . . . 29 SECTION 5.5 Restoration of Rights on Abandonment of Proceedings. . . . 30 SECTION 5.6 Limitations on Suits by Securityholders. . . . . . . . . . 30 SECTION 5.7 Unconditional Right of Securityholders To Institute Certain Suits. . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 5.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default. . . . . . . . . . . . . . . . . . . . . 31 SECTION 5.9 Control by Securityholders . . . . . . . . . . . . . . . . 31 SECTION 5.10 Waiver of Past Defaults . . . . . . . . . . . . . . . . . 31 SECTION 5.11 Trustee to Give Notice of Default, But May Withhold in Certain Circumstances . . . . . . . . . . . . . . . . . . 32 SECTION 5.12 Right of Court To Require Filing of Undertaking To Pay Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 6 CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.1 Duties and Responsibilities of the Trustee; During Default; Prior to Default. . . . . . . . . . . . . . . . . 33 SECTION 6.2 Certain Rights of the Trustee. . . . . . . . . . . . . . . 34 SECTION 6.3 Trustee Not Responsible for Recitals, Disposition of Securities or Application of Proceeds Thereof. . . . . . . 35 SECTION 6.4 Trustee and Agents May Hold Securities; Collections, Etc.. . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.5 Moneys Held by Trustee . . . . . . . . . . . . . . . . . . 36 SECTION 6.6 Compensation and Indemnification of Trustee and Its Prior Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 6.7 Right of Trustee to Rely on Officers' Certificate, Etc.. . 36 SECTION 6.8 Qualification of Trustee; Conflicting Interests. . . . . . 37 SECTION 6.9 Persons Eligible for Appointment as Trustee. . . . . . . . 37 SECTION 6.10 Resignation and Removal; Appointment of Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 6.11 Acceptance of Appointment by Successor Trustee. . . . . . 38 SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business of Trustee . . . . . . . . . . . . . . . . . . . 39 SECTION 6.13 Preferential Collection of Claims Against the Issuer. . . 39 SECTION 6.14 Trust Estate May be Vested in Co-Trustee or in a Sub-Trust . . . . . . . . . . . . . . . . . . . . . . . . 39 -iii- PAGE ---- ARTICLE 7 CONCERNING THE SECURITYHOLDERS . . . . . . . . . . . . . . . . . 42 SECTION 7.1 Evidence of Action Taken by Securityholders. . . . . . . . 42 SECTION 7.2 Proof of Execution of Instruments and of Holding of Securities . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.3 Holders To Be Treated as Owners. . . . . . . . . . . . . . 42 SECTION 7.4 Securities Owned by Issuer Deemed Not Outstanding. . . . . 42 SECTION 7.5 Right of Revocation of Action Taken. . . . . . . . . . . . 43 ARTICLE 8 SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . 43 SECTION 8.1 Supplemental Indentures Without Consent of Securityholders. . . . . . . . . . . . . . . . . . . . . . 43 SECTION 8.2 Supplemental Indentures with Consent of Securityholders. . 44 SECTION 8.3 Effect of Supplemental Indenture . . . . . . . . . . . . . 45 SECTION 8.4 Documents To Be Given to Trustee . . . . . . . . . . . . . 46 SECTION 8.5 Notation on Securities in Respect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE 9 NO CONSOLIDATION, MERGER, SALE OR CONVEYANCE . . . . . . . . . . 46 ARTICLE 10 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS. . . . 46 SECTION 10.1 Satisfaction and Discharge of Indenture . . . . . . . . . 46 SECTION 10.2 Defeasance and Discharge of Indenture . . . . . . . . . . 47 SECTION 10.3 Defeasance of Certain Obligations . . . . . . . . . . . . 48 SECTION 10.4 Application by Trustee of Funds Deposited for Payment of Securities. . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.5 Repayment of Moneys Held by Paying Agent. . . . . . . . . 50 SECTION 10.6 Return of Moneys Held by Trustee and Paying Agent Unclaimed for Two Years . . . . . . . . . . . . . . . . . 50 SECTION 10.7 Reinstatement . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 11 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . 51 SECTION 11.1 Incorporators, Shareholders, Officers and Directors of Issuer Exempt from Individual Liability . . . . . . . . . 51 SECTION 11.2 Provisions of Indenture for the Sole Benefit of Parties and Securityholders . . . . . . . . . . . . . . . . . . . 51 SECTION 11.3 Successors and Assigns of Issuer Bound by Indenture . . . 51 SECTION 11.4 Notices and Demands on Issuer, Trustee and Securityholders . . . . . . . . . . . . . . . . . . . . . 51 SECTION 11.5 Compliance Certificates and Opinions of Counsel; Statements To Be Contained Therein. . . . . . . . . . . . 52 SECTION 11.6 Payments Due on Saturdays, Sundays and Holidays . . . . . 53 SECTION 11.7 Conflict of Any Provision of Indenture with Trust Indenture Act of 1939 . . . . . . . . . . . . . . . . . . 53 -iv- PAGE ---- SECTION 11.8 New York Law To Govern. . . . . . . . . . . . . . . . . . 54 SECTION 11.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 11.10 Effect of Headings . . . . . . . . . . . . . . . . . . . 54 ARTICLE 12 REDEMPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . 55 SECTION 12.1 Right of Optional Redemption; Prices. . . . . . . . . . . 55 SECTION 12.2 Notice of Redemption. . . . . . . . . . . . . . . . . . . 55 SECTION 12.3 Payment of Securities Called for Redemption . . . . . . . 56 SECTION 12.4 Exclusion of Certain Securities from Eligibility for Selection for Redemption. . . . . . . . . . . . . . . . . 56 ARTICLE 13 CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 13.1 Conversion Privilege. . . . . . . . . . . . . . . . . . . 56 SECTION 13.2 Conversion Procedure. . . . . . . . . . . . . . . . . . . 57 SECTION 13.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . 57 SECTION 13.4 Taxes on Conversion . . . . . . . . . . . . . . . . . . . 57 SECTION 13.5 TWG to Provide Stock. . . . . . . . . . . . . . . . . . . 58 SECTION 13.6 Adjustment for Change in Capital Stock. . . . . . . . . . 58 SECTION 13.7 Adjustment for Rights Issue . . . . . . . . . . . . . . . 59 SECTION 13.8 Adjustment for Other Distributions. . . . . . . . . . . . 59 SECTION 13.9 Current Market Price. . . . . . . . . . . . . . . . . . . 60 SECTION 13.10 When Adjustment May Be Deferred. . . . . . . . . . . . . 60 SECTION 13.11 When No Adjustment Required. . . . . . . . . . . . . . . 60 SECTION 13.12 Notice of Adjustment . . . . . . . . . . . . . . . . . . 60 SECTION 13.13 Voluntary Reduction. . . . . . . . . . . . . . . . . . . 61 SECTION 13.14 Notice of Certain Transactions . . . . . . . . . . . . . 61 SECTION 13.15 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 61 SECTION 13.16 Registration Rights. . . . . . . . . . . . . . . . . . . 61 SECTION 13.17 Indemnification by TWG . . . . . . . . . . . . . . . . . 62 SECTION 13.18 Indemnification by Distributing Holder . . . . . . . . . 63 SECTION 13.19 Notice . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 13.20 Right to Elect to Assume Defense . . . . . . . . . . . . 64 ARTICLE 14 SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 14.1 Pledge and Security Interest. . . . . . . . . . . . . . . 64 SECTION 14.2 Security for Obligation . . . . . . . . . . . . . . . . . 64 SECTION 14.3 Perfection of Security Interest . . . . . . . . . . . . . 64 SECTION 14.4 No Disposition of Collateral; Release of Lien of Indenture . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 14.5 Other Liens . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 14.6 Trustee Appointed Attorney-in-Fact. . . . . . . . . . . . 65 -v- PAGE ---- SECTION 14.7 Return of Collateral. . . . . . . . . . . . . . . . . . . 65 SECTION 14.8 Default Remedies. . . . . . . . . . . . . . . . . . . . . 65 SECTION 14.9 Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 14.10 Deficiency . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 14.11 Trustee's Duties . . . . . . . . . . . . . . . . . . . . 66 SECTION 14.12 Special Trustee Powers Due to Environmental Conditions . 66 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 -vi- THIS INDENTURE, dated as of November 1, 1996 between Trans World Gaming Corp, a Nevada corporation ("TWG"), and its wholly-owned subsidiary, Trans World Gaming of Louisiana, Inc., a Louisiana corporation (collectively, the "Issuer"), and U.S. Trust Company of Texas, N.A., a national banking association, not in its individual capacity but solely as trustee (the "Trustee"), W I T N E S S E T H : WHEREAS, the Issuer has duly authorized the issue of its Secured Convertible Senior Bonds Due 1999 (the "Securities"); and WHEREAS, the Securities and the Trustee's certificate of authentication shall be in substantially the following form: [FORM OF FACE OF SECURITY] THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT, AND MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACTS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED. No. $ TRANS WORLD GAMING CORP. TRANS WORLD GAMING OF LOUISIANA, INC. 12% Secured Convertible Senior Bond Due 1999 Date: June 30, 1996 Trans World Gaming Corp., a Nevada corporation ("TWG"), and its wholly-owned subsidiary, Trans World Gaming of Louisiana, Inc., a Louisiana corporation (collectively, the "Issuer"), for value received hereby promise to pay jointly and severally to , or registered assigns, the principal sum of Dollars at the Issuer's office or agency for said purpose, on June 30, 1999, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest semi-annually on December 15 and June 15 (each an "Interest Payment Date") of each year, commencing with December 15, 1996, on said principal sum in like coin or currency at 12% per annum at said office or agency from the most recent Interest Payment Date to which interest on the Securities has been paid or duly provided for unless the date hereof is a date to which interest on the Securities is paid or duly provided for, in which case from the date of this Security, or unless no interest has been paid or duly provided for on the Securities, in which case from the date of issuance. The interest so payable on any Interest Payment Date will, except as otherwise provided in the Indenture referred to on the reverse hereof, be paid to the Person in whose name this Security is registered at the close of business on December 1 or June 1, whether or not a -2- Business Day (each an "Interest Record Date") next preceding such Interest Payment Date, whether or not such day is a Business Day; PROVIDED that interest may be paid, at the option of the Issuer, by mailing a check therefor payable to the registered Holder entitled thereto at his last address as it appears on the Security register. Notwithstanding the foregoing, if the date hereof is after an Interest Record Date and before the immediately following Interest Payment Date, this Security shall bear interest from such Interest Payment Date; PROVIDED that if the Issuer shall default in the payment of interest due on such Interest Payment Date, then this Security shall bear interest at 18% per annum from the next preceding Interest Payment Date to which interest on the Securities has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Securities since the original issue date of this Security, from such date. Interest on this Security will be calculated on the basis of a 360-day year, consisting of twelve 30-day months. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof which further provisions shall for all purposes have the same effect as if set forth in this place. IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed under its corporate seal. [Seal] TRANS WORLD GAMING CORP. By: -------------------------------- By: -------------------------------- TRANS WORLD GAMING OF LOUISIANA, INC. By: -------------------------------- By: -------------------------------- -3- [FORM OF REVERSE OF SECURITY] TRANS WORLD GAMING CORP. TRANS WORLD GAMING OF LOUISIANA, INC. 12% Secured Convertible Senior Bond Due 1999 This Security is one of a duly authorized issue of debt securities of the Issuer, with an aggregate principal amount of $4,800,000, issued pursuant to an indenture dated as of November 1, 1996, (the "Indenture"), duly executed and delivered by the Issuer to U.S. Trust Company of Texas, N.A., as Trustee (herein called the "Trustee"). Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Issuer and the Holders (the words "Holders" or "Holder" meaning the registered holders or registered holder) of the Securities. The Securities are general secured obligations of the Issuer. Capitalized terms used in this Security and not defined herein shall have the meaning set forth in the Indenture. In case an Event of Default (as defined in the Indenture) shall have occurred and be continuing, the principal and interest in respect of all of the Securities then outstanding may be declared due and payable in the manner and with the effect, and subject to the conditions, provided in the Indenture. The Indenture provides that the Holders of a majority in aggregate principal amount of the Securities then outstanding, by notice to the Trustee, may on behalf of the Holders of all of the Securities, waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Securities or in respect of a covenant or provision that cannot be modified or amended without the consent of all Holders of the Securities. Any such consent or waiver by the Holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Security and any Security which may be issued in exchange or substitution therefor, whether or not any notation thereof is made upon this Security or such other Securities. The Indenture permits the Issuer and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities; PROVIDED that no such supplemental indenture shall, without the consent of each Holder affected thereby (with respect to any Securities held by a non-consenting Securityholder) (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Security or alter the provisions with respect to the redemption of the Securities, (iii) reduce the rate of or change the time for payment of interest on any Security, (iv) waive a Default or -4- Event of Default in the payment of principal of or premium, if any, or interest on the Securities (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount of the then outstanding Securities and a waiver of the payment default that resulted from such acceleration), (v) make any Security payable in money other than that stated in the Securities, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or interest on the Securities, (vii) waive a redemption payment with respect to any Security or (viii) make any change in the foregoing amendment and waiver provisions. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligations of the Issuer, which are absolute and unconditional, to pay the principal of and the interest on this Security at the place, times, and rate, and in the currency, herein prescribed. The Securities are issuable only as registered Securities without coupons. At the office or agency of the Issuer referred to on the face hereof and in the manner and subject to the limitations provided in the Indenture, Securities may be exchanged for a like aggregate principal amount of Securities of other authorized denominations. Upon due presentment for registration of transfer of this Security at the above-mentioned office or agency of the Issuer, a new Security or Securities of authorized denominations, for a like aggregate principal amount, will be issued to the transferee as provided in the Indenture. No service charge shall be made for any such transfer, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. As provided in the Indenture, the Securities may not be redeemed by the Issuer except the Issuer may redeem the Securities in whole, but not in part, within six months following a public offering by the Issuer of common stock in which the gross proceeds to the Issuer are not less than $4,800,000, upon mailing a notice of such redemption not less than 30 nor more than 60 days prior to the date fixed for redemption to the Holders of Securities to be redeemed, at a redemption price equal to 100% of the principal amount of the Securities redeemed, together with accrued and unpaid interest to the date fixed for redemption. Subject to payment by the Issuer of a sum sufficient to pay the amount due upon redemption, interest on this Security shall cease to accrue upon the date duly fixed for redemption of this Security. A holder of a Security may convert it into Common Stock of TWG at any time before the close of business on June 30, 1999. If the Security is called for redemption, the holder may convert it at any time before the close of business on the redemption date. The initial conversion price is as follows, subject to adjustment in certain events: $2.00 per share from -5- December 23, 1996 to June 30, 1997; $2.50 per share from July 1, 1997 to June 30, 1998; and $3.125 per share from July 1, 1998 to June 30, 1999. To determine the number of shares issuable upon conversion of a Security, divide the principal amount to be converted by the conversion price in effect on the conversion date. On conversion no payment or adjustment for interest will be made. TWG will deliver a check for any fractional share. To convert a Security a holder must (1) complete and sign the conversion notice on the back of the Security, (2) surrender the Security to a Conversion Agent, (3) furnish appropriate endorsements and transfer documents if required by the Registrar or Conversion Agent, and (4) pay any transfer or similar tax if required. A holder may convert a portion of a Security if the portion is $1,000 or a whole multiple of $1,000. The conversion price will be adjusted for dividends or distributions on Common Stock payable in TWG stock; subdivisions, combinations or certain reclassifications of Common Stock; distributions to all holders of Common Stock of certain rights to purchase Common Stock at less than the current market price at the time; distributions to such holders of assets or debt securities of TWG or certain rights to purchase securities of TWG (excluding cash dividends or distributions from current or retained earnings). However, no adjustment need be made if Securityholders may participate in the transaction or in certain other cases. TWG from time to time may voluntarily reduce the conversion price for a period of time. The Issuer, the Trustee and any authorized agent of the Issuer or the Trustee may deem and treat the registered Holder hereof as the absolute owner of this Security (whether or not this Security shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Issuer or the Trustee or any authorized agent of the Issuer or the Trustee), for the purpose of receiving payment of, or on account of, the principal hereof and premium, if any, and subject to the provisions on the face hereof, interest hereon and for all other purposes, and neither the Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of, premium, if any, or the interest on this Security, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer, employee or director, as such, past, present or future, of the Issuer or Trustee or of any successor corporation, either directly or through the Issuer or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). -6- This Security shall not be valid or obligatory until the certificate of authentication hereon shall have been duly signed by an authorized signatory of the Trustee acting under the Indenture. [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Securities described in the within-mentioned Indenture. Dated: U.S. Trust Company of Texas, N.A. , as Trustee By: -------------------------------- Authorized Signatory -7- ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to: - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint _________________________________________ agent to transfer this Security on the books of Issuer. The agent may substitute another to act for him. CONVERSION NOTICE To convert this Security into Common Stock of TWG, check the box: / / To convert only part of this Security, state the amount: $______________ If you want the stock certificate made out in another person's name, fill in the form below: - -------------------------------------------------------------------------------- (insert other person's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type other person's name, address and zip code) -8- Date: ------------------------- ----------------------------------- Your Signature ----------------------------------- Signature Guaranty ----------------------------------- Notice: Signature must be guaranteed by an "Eligible Guarantor Institution" as defined by Securities Exchange Act Rule 17Ad-15. (Sign exactly as your name appears on the other side of this Security) NOW, THEREFORE: In consideration of the premises and the purchases of the Securities by the Holders thereof, the Issuer and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders from time to time of the Securities as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 CERTAIN TERMS DEFINED. The following terms (except as otherwise expressly provided or unless the context otherwise clearly requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939 or the definitions of which in the Securities Act of 1933, as amended, are referred to in the Trust Indenture Act of 1939 (except as herein otherwise expressly provided or unless the context otherwise requires) have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of this Indenture. The words "HEREIN," "HEREOF" and "HEREUNDER" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. The terms defined in this Article include the plural as well as the singular. "ACCELERATION DATE" has the meaning specified in Section 5.1. "ACCELERATION NOTICE" has the meaning specified in Section 5.1. "APPLICANTS" has the meaning specified in Section 4.2. -9- "BOARD OF DIRECTORS" means the Board of Directors of the Issuer or any committee of such Board duly authorized to act hereunder. "BUSINESS DAY" means a day which in the city (or in any of the cities, if more than one) where amounts are payable in respect of the Securities, as specified on the face of the form of Security recited above, or in the city in which the Corporate Trust Office of the Trustee is located, is neither a legal holiday nor a day on which banking institutions are required or authorized by law or regulation to close. "CAPITAL STOCK" means any and all shares, interests, participations, rights or other equivalents (however designated) or corporate stock, whether common or preferred, including, without limitation, partnership interests. "COLLATERAL AGREEMENTS" means any agreements executed by the Issuer which are intended to create a Lien on any Collateral, including without limitation, those certain Multiple Indebtedness Mortgages executed by Issuer on July 1, 1996, and that certain Commercial Security Agreement executed by Issuer on July 1, 1996. "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" has the meaning specified in Section 13.1 "CONVERSION AGENT" means the office or agency where securities may be presented for conversion. "CORPORATE TRUST OFFICE" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date as of which this Indenture is dated, located at 2001 Ross Avenue, Dallas, TX 75201-2936, Attention: Corporate Trust Department. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "EVENT OF DEFAULT" means any event or condition specified as such in Section 5.1 which shall have continued for the period of time, if any, therein designated. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, as the same are in effect on the Issue Date. -10- "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness, and "Guaranteed" has a correlative meaning. "HOLDER," "SECURITYHOLDER" or any other similar term means the registered holder of any Security. "INCUR" means to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become liable with respect to. "INDEBTEDNESS" means, with respect to any Person, without duplication, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or representing the balance deferred and unpaid of the purchase price of any property (including pursuant to capital leases), except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and also includes, to the extent not otherwise included, the Guarantee of items that would be included within this definition and all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability, PROVIDED that if the obligations so secured have not been assumed in full by such Person or are otherwise not such Person's legal liability in full, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the fair market value of the assets or property securing such Lien. Notwithstanding the foregoing, the term "Indebtedness" shall not include deferred compensation arrangements that are not evidenced by bonds, notes, debentures or similar instruments. "INDENTURE" means this instrument as originally executed and delivered or, if amended or supplemented as herein provided, as so amended or supplemented. "INTEREST RECORD DATE" has the meaning specified in Section 2.4. "ISSUE DATE" means the date on which the Securities are originally issued under this Indenture. "ISSUER" means Trans World Gaming Corp, a Nevada corporation, and its wholly-owned subsidiary, Trans World Gaming of Louisiana, Inc., and, subject to Article Nine, their successors and assigns, and to the extent required by Sections 310 to 317 of the Trust Indenture Act of 1939, any other obligor on the Securities. "JUNIOR INDEBTEDNESS" means any Indebtedness of the Issuer, whether outstanding at the date hereof or incurred thereafter, that is subordinate in right of payment, either pursuant to its terms or by operation of law, to the Securities, which Indebtedness provides for a fixed date when the principal thereof (disregarding any mandatory redemptions or pre-payments required in respect thereof) is due and payable which is on or after the final maturity of the Securities. "KEY EMPLOYEE" means persons such as production managers or sales managers, who are not executive officers but who make or are expected to make significant contributions to the business of the Issuer. "LIEN" means, with respect to any asset, any mortgage; including without limitation any multiple indebtedness mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the Board of Directors or the President or any Vice President (whether or not designated by a number or numbers or a word or words added before or after the title "Vice President") and by the Treasurer or the Secretary or any Assistant Treasurer or Secretary of the Issuer and delivered to the Trustee. Each such certificate shall include the statements provided for in Section 11.5. "OPINION OF COUNSEL" means an opinion in writing signed by legal counsel who may be an employee of or counsel to the Issuer or who may be other counsel satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 11.5, if and to the extent required hereby. "OUTSTANDING," when used with reference to Securities, means, subject to the provisions of Sections 6.8 and 7.4, as of any particular time, all Securities authenticated and delivered by the Trustee under this Indenture, except: (a) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for the payment or redemption (i) of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Issuer) or shall have been set aside, segregated and held in trust by the Issuer (if the Issuer shall act as paying agent) or (ii) of which moneys and/or Government Securities as contemplated by Section 10.2 in the necessary amount have been theretofore deposited with the Trustee (or -12- another trustee satisfying the requirements of Section 6.9) in trust for the Holders of such Securities in accordance with Section 10.2 and the conditions set forth therein have been satisfied; PROVIDED that if such Securities are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as herein provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Securities in substitution for which other Securities shall have been authenticated and delivered, or which shall have been paid, pursuant to the terms of Section 2.6 (unless proof satisfactory to the Trustee is presented that any of such Securities is held by a Person in whose hands such Security is a legal, valid and binding obligation of the Issuer). "PAYMENT DEFAULT" has the meaning specified in Section 5.1. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PRINCIPAL" wherever used with reference to the Securities or any Security or any portion thereof, shall be deemed to include the amount of the Security plus, when appropriate, the premium, if any. "PROPERTY" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included on the most recent consolidated balance sheet of such Person in accordance with GAAP. "RECORD DATE" has the meaning specified in Section 2.4. "RESPONSIBLE OFFICER" when used with respect to the Trustee means any officer in its Corporate Trust Office, or any other assistant officer of the Trustee in its Corporate Trust Office customarily performing functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "SECURITY" or "SECURITIES" (except as otherwise provided in Section 6.8) means any of the 12% Secured Convertible Senior Bonds Due 1999 authenticated and delivered under this Indenture. "SECURITIES ACT" means the Securities Act of 1933, as amended. -13- "SUBSCRIPTION AGREEMENT" means the subscription agreement dated as of July 1, 1996, by and among Trans World Gaming Corp., a Nevada corporation, Trans World Gaming of Louisiana, Inc., a Louisiana corporation, and the Securityholders. "SUBSIDIARY" means any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof. "TIA" or "TRUST INDENTURE ACT OF 1939," except as otherwise provided in Sections 8.1 and 8.2, means the Trust Indenture Act of 1939 as in force at the date of this Indenture. "TRUSTEE" means the entity identified as "Trustee" in the first paragraph hereof and, subject to the provisions of Article Six, shall also include any successor trustee. ARTICLE 2 ISSUE, EXECUTION, FORM AND REGISTRATION OF SECURITIES SECTION 2.1 AUTHENTICATION AND DELIVERY OF SECURITIES. Securities in an aggregate principal amount not in excess of $4,800,000 (except as otherwise provided in Section 2.6) may be executed by the Issuer and delivered to the Trustee for authentication, and a responsible officer of the Trustee shall thereupon authenticate and deliver said Securities to the Issuer or upon the written order of the Issuer, signed by both (a) the Chairman of the Board of Directors or any Vice Chairman of the Board of Directors, or its President or any Vice President (whether or not designated by a number or numbers or a word or words added before or after the title "Vice President") and (b) by its Treasurer or Secretary or any Assistant Treasurer or Secretary without any further action by the Issuer. SECTION 2.2 EXECUTION OF SECURITIES. The Securities shall be signed on behalf of the Issuer by both (a) its Chairman of the Board of Directors or any Vice Chairman of the Board of Directors or its President or any Vice President (whether or not designated by a number or numbers or a word or words added before or after the title "Vice President") and (b) by its Treasurer or any Assistant Treasurer or its Secretary or any Assistant Secretary, under its corporate seal which may, but need not, be attested. Such signatures may be the manual or facsimile signatures of the present or any future such officers. The seal of the Issuer may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or -14- enforceability of any Security which has been duly authenticated and delivered by the Trustee. In case any such officer of the Issuer who shall have signed any of the Securities shall cease to be such officer before the Security so signed shall be authenticated and delivered by the Trustee or disposed of by the Issuer, such Security nevertheless may be authenticated and delivered or disposed of as though the Person who signed such Security had not ceased to be such officer of the Issuer; and any Security may be signed on behalf of the Issuer by such Persons as, at the actual date of the execution of such Security, shall be the proper officers of the Issuer, although at the date of the execution and delivery of this Indenture any such Person was not such officer. SECTION 2.3 CERTIFICATE OF AUTHENTICATION. Only such Securities as shall bear thereon a certificate of authentication substantially in the form hereinabove recited, executed by the Trustee by manual signature of one of its authorized signatories, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee upon any Security executed by the Issuer shall be conclusive evidence that the Security so authenticated has been duly authenticated and delivered hereunder and that the Holder is entitled to the benefits of this Indenture. SECTION 2.4 FORM, DENOMINATION AND DATE OF SECURITIES; PAYMENTS OF INTEREST IN CASH AND IN ADDITIONAL SECURITIES. The Securities and the Trustee's certificates of authentication shall be substantially in the form recited above. The Securities shall be issuable as registered securities without coupons and in denominations provided for in the form of Security above recited. The Securities shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plans as the officers of the Issuer executing the same may determine with the approval of the Trustee. Any of the Securities may be issued with appropriate insertions, omissions, substitutions and variations, and may have imprinted or otherwise reproduced thereon such legend or legends, not inconsistent with the provisions of this Indenture, as may be required to comply with any law or with any rules or regulations pursuant thereto, or with the rules of any securities market in which the Securities are admitted to trading, or to conform to general usage. Each Security shall be dated the date of its authentication, shall bear interest from the applicable date and shall be payable on the dates specified on the face of the form of Security recited above. The Person in whose name any Security is registered at the close of business on any Interest Record Date with respect to any Interest Payment Date shall be entitled to receive the interest, if any, payable on such Interest Payment Date notwithstanding any transfer or exchange of such Security subsequent to the Interest Record Date and prior to such Interest Payment Date, except if and to the extent the Issuer shall default in the payment of the interest due on such Interest Payment Date, in which case such defaulted interest shall be paid to the Persons in whose names outstanding Securities are registered at the close of -15- business on a subsequent record date (which shall be not less than five business days prior to the date of payment of such defaulted interest) established after arrangements for payment reasonably satisfactory to the Trustee have been made by the Issuer by notice given by mail by or on behalf of the Issuer to the Holders of Securities not less than 15 days preceding such subsequent record date. The term "Interest Record Date" as used with respect to any Interest Payment Date (except a date for payment of defaulted interest) shall mean the 15th day of the month next preceding the month in which such interest payment date falls, whether or not such Interest Record Date is a Business Day. SECTION 2.5 REGISTRATION, TRANSFER AND EXCHANGE. The Issuer will keep at each office or agency to be maintained for the purpose as provided in Section 3.2 a register or registers in which, subject to such reasonable regulations as it may prescribe, it will register, and will register the transfer of, Securities as in this Article provided. Such register shall be in written form in the English language or in any other form capable of being converted into such form within a reasonable time. At all reasonable times such register or registers shall be open for inspection by the Trustee. Upon due presentation for registration of transfer of any Security at each such office or agency, the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Security or Securities in authorized denominations for a like aggregate principal amount. Any Security or Securities may be exchanged for a Security or Securities in other authorized denominations, in an equal aggregate principal amount. Securities to be exchanged shall be surrendered at each office or agency to be maintained by the Issuer for the purpose as provided in Section 3.2, and the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefor the Security or Securities which the Securityholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. All Securities presented for registration of transfer, exchange, redemption or payment shall (if so required by the Issuer or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Issuer and the Trustee duly executed by, the Holder or his attorney duly authorized in writing. The Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Securities. No service charge shall be made for any such transaction. -16- The Issuer shall not be required to exchange or register a transfer of (a) any Securities for a period of 15 days next preceding the first mailing of notice of redemption of Securities to be redeemed or (b) any Securities selected, called or being called for redemption. All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. SECTION 2.6 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN SECURITIES. In case any temporary or definitive Security shall become mutilated, defaced or be apparently destroyed, lost or stolen, the Issuer in its discretion may execute, and upon the written request of an officer of the Issuer, the Trustee shall authenticate and deliver, a new Security bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated or defaced Security, or in lieu of or in substitution for the Security so apparently destroyed, lost or stolen. In every case the applicant for a substitute Security shall furnish to the Issuer and to the Trustee and any agent of the Issuer or the Trustee such security or indemnity as may be required by them to indemnify and defend and to save each of them harmless and, in every case of destruction, loss or theft, evidence to their satisfaction of the apparent destruction, loss or theft of such Security and of the ownership thereof. Upon the issuance of any substitute Security, the Issuer may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Security which has matured or is about to mature shall become mutilated or defaced or be apparently destroyed, lost or stolen, the Issuer may, instead of issuing a substitute Security, pay or authorize the payment of the same with written direction to the Trustee (without surrender thereof except in the case of a mutilated or defaced Security), if the applicant for such payment shall furnish to the Issuer and to the Trustee and any agent of the Issuer or the Trustee such security or indemnity as any of them may require to save each of them harmless from all risks, however remote, and in every case of apparent destruction, loss or theft the applicant shall also furnish to the Issuer and the Trustee and any agent of the Issuer or the Trustee evidence to their satisfaction of the apparent destruction, loss or theft of such Security and of the ownership thereof. Every substitute Security issued pursuant to the provisions of this Section 2.6 by virtue of the fact that any Security is apparently destroyed, lost or stolen shall constitute an additional contractual obligation of the Issuer, whether or not the apparently destroyed, lost or stolen Security shall be at any time enforceable by anyone and shall be entitled to all the benefits of (but shall be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities duly authenticated and delivered hereunder. All Securities shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, defaced, or apparently destroyed, lost or stolen -17- Securities and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.7 CANCELLATION OF SECURITIES; DESTRUCTION THEREOF. All Securities surrendered for payment, redemption, registration of transfer or exchange, if surrendered to the Issuer or any agent of the Issuer or the Trustee, shall be delivered to the Trustee for cancellation or, if surrendered to the Trustee, shall be cancelled by it; and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy cancelled Securities held by it and deliver a certificate of destruction to the Issuer from time to time. If the Issuer shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are cancelled to the Trustee for cancellation. SECTION 2.8 TEMPORARY SECURITIES. Pending the preparation of definitive Securities, the Issuer may execute and the Trustee shall authenticate and deliver temporary Securities (printed, lithographed, typewritten or otherwise reproduced, in each case in form satisfactory to the Trustee). Temporary Securities shall be issuable as registered securities without coupons, of any authorized denomination, and substantially in the form of the definitive Securities but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Issuer with the concurrence of the Trustee. Temporary Securities may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Security shall be executed by the Issuer and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Securities. Without unreasonable delay the Issuer shall execute and shall furnish definitive Securities and thereupon temporary Securities may be surrendered in exchange therefor without charge at each office or agency to be maintained by the Issuer for the purpose pursuant to Section 3.2, and the Trustee shall authenticate and deliver in exchange for such temporary Securities a like aggregate principal amount of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall be entitled to the same benefits under this Indenture as definitive Securities. ARTICLE 3 COVENANTS OF THE ISSUER SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST. The Issuer covenants and agrees that it will duly and punctually pay or cause to be paid the principal of, and interest on, each of the Securities at the place or places, at the respective times and in the manner provided in the Securities. An installment of principal or interest shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date sums and/or, insofar as then permitted pursuant to Section 2.4, Additional Securities designated for and sufficient to pay the installment. -18- SECTION 3.2 OFFICES FOR PAYMENTS, ETC. So long as any of the Securities remain outstanding, the Issuer will maintain at such place in the City of New York and at such other place, if any, as may be designated by the Issuer, the following: (a) an office or agency where the Securities may be presented for registration of transfer, for exchange and for conversion as in this Indenture provided and (b) an office or agency where notices and demands to or upon the Issuer in respect of the Securities or of this Indenture may be served. The Issuer will initially maintain such offices or agencies with the corporate secretary at the Issuer's principal place of business. The Issuer will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. In case the Issuer shall fail to maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the Corporate Trust Office. SECTION 3.3 APPOINTMENT TO FILL A VACANCY IN OFFICE OF TRUSTEE. The Issuer, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 3.4 PAYING AGENTS. Whenever the Issuer shall appoint a paying agent other than the Trustee or itself, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 3.4: (a) that it will hold all sums received by it as such agent for the payment of the principal of or interest on the Securities (whether such sums have been paid to it by the Issuer or by any other obligor on the Securities) in trust for the benefit of the Holders of the Securities or of the Trustee; and (b) that it will give the Trustee notice of any failure by the Issuer (or by any other obligor on the Securities) to make any payment of the principal of or interest on the Securities when the same shall be due and payable. The Issuer will, at least one Business Day prior to each due date of the principal of or interest on the Securities, deposit with the paying agent a sum which is in immediately available funds on the due date sufficient to pay such principal or interest and (unless such paying agent is the Trustee) the Issuer will promptly notify the Trustee of any failure to take such action. If the Issuer shall act as its own paying agent, it will, on or before each due date of the principal of or interest on the Securities, set aside, segregate and hold in trust for the benefit of the Holders of the Securities a sum sufficient to pay such principal or interest so becoming due. The Issuer, or paying agent which is not the Trustee, will promptly notify the Trustee in writing of any failure to take such action. -19- Notwithstanding anything in this Section 3.4 to the contrary, the Issuer may at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Issuer or any paying agent hereunder, as required by this Section 3.4, such sums to be held by the Trustee upon the trusts herein contained. Notwithstanding anything in this Section 3.4 to the contrary, the agreement to hold sums in trust as provided in this Section 3.4 is subject to the provisions of Sections 10.4 and 10.5. The Issuer initially appoints Trans World Gaming Corp. as paying agent. SECTION 3.5 OFFICERS' CERTIFICATES AS TO DEFAULT AND AS TO COMPLIANCE. The Issuer will, so long as any of the Securities are outstanding: (a) deliver to the Trustee, forthwith upon becoming aware of any default or defaults in the performance of any covenant, agreement or condition contained in this Indenture (including notice of any event which with the giving of notice, lapse of time or both would become an Event of Default under Section 5.1 hereof), an Officers' Certificate specifying such default or defaults; and (b) deliver to the Trustee within 90 days after the end of each fiscal year of the Issuer beginning with the fiscal year ending December 31, 1996, an Officers' Certificate, satisfying the requirements of TIA Section 314(a)(4), to the effect that: (i) a diligent review of the activities of the Issuer and its Subsidiaries during such year and of performance under this Indenture has been made under such officers' supervision, and (ii) to the best of such officers' knowledge, based on such review, the Issuer has fulfilled all its obligations under this Indenture throughout such year, or if there has been a default in the fulfillment of any such obligation, specifying each such default known to them and the nature and status thereof. SECTION 3.6 MAINTENANCE OF PROPERTIES, ETC. The Issuer shall, and shall cause each of its Subsidiaries to, maintain its material properties and assets in working order and condition and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto, all as in the judgment of the Issuer may be necessary so that the business carried on in connection therewith may be conducted at all usual and ordinary times. The Issuer shall, and shall cause each of its Subsidiaries to, maintain with insurers that the Issuer believes in good faith to be financially sound and reputable such -20- insurance as may be required by law and such other insurance, to such extent and against such hazards and liabilities, as it in good faith determines is customarily maintained by companies similarly situated with like properties. The Issuer shall, and shall cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises, except to the extent permitted by this Indenture and except in such cases where the Board of Directors determines in good faith that failure to do so would not have a material adverse effect on the business, earnings, properties, assets, financial condition or results of operation of the Issuer and its Subsidiaries taken as a whole. The Issuer shall, and shall cause each of its Subsidiaries to, comply in all material respects with all statutes, laws, ordinances, or government rules and regulations to which it is subject. The Issuer shall, and shall cause each of its Subsidiaries to, pay prior to delinquency all taxes, assessments and governmental levies except as contested in good faith and by appropriate proceedings. SECTION 3.7 INDEBTEDNESS. Issuer will pay punctually and discharge when due and payable any indebtedness heretofore or hereafter incurred or assumed by it and discharge, perform and observe the covenants, provisions and conditions to be discharged, performed and observed on the part of Issuer in connection therewith, or in connection with any agreement or other instrument relating thereto. SECTION 3.8 BOOKS. Issuer will keep at all times proper books of record and account in which full, true and correct entries will be made of its transactions in accordance with Generally Accepted Accounting Principles. SECTION 3.9 GUARANTEES. Issuer will not guarantee on a basis senior in right of payment to the Securities, directly or indirectly, any obligation or indebtedness of any other Person. Nothing herein shall be construed to permit the issuance of any indebtedness that would be secured by the Collateral granted to the Holders. SECTION 3.10 DISTRIBUTIONS. Issuer will not declare or pay, or set apart any funds for the payment of, any dividend on any shares of capital stock by reduction of capital surplus or otherwise, or make any distribution in respect of shares of capital stock or redeem, repurchase, or effect any other sale, or exchange, upon any of its capital stock. SECTION 3.11 DISPOSITION OF ASSETS. Issuer will not sell, assign, lease, transfer or otherwise dispose of, to any third party, in any transaction or series of transactions, all or any portion of its properties or assets, except for sales, assignments, leases, transfers, or -21- dispositions at fair market value, of properties or assets, where such net proceeds are utilized by the Issuer to invest in its existing business. SECTION 3.12 OTHER INDEBTEDNESS. Issuer will not incur, create, assume or at any time become liable, contingently or otherwise for any borrowed or other indebtedness that is senior in right of payment to the Securities. Nothing herein shall be construed to permit the issuance of any indebtedness that would be secured by the Collateral granted to the Holders. SECTION 3.13 WAIVER OF STAY, EXTENSION OR USURY LAWS. The Issuer covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim, and shall resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive the Issuer from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Issuer hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee but shall suffer and permit the execution of every such power as though no such law had been enacted. All agreements between Issuer and Holders, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand or acceleration of the final maturity date of the Securities or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to Holders exceed the maximum amount permissible under the laws of the State of New York (hereinafter the "Applicable Law"). If, from any circumstance whatsoever, interest would otherwise be payable to the Holders in excess of the maximum amount permissible under Applicable Law, the interest payable to the Holders shall be reduced to the maximum amount permissible under Applicable Law, and if from any circumstance the Holders shall ever receive anything of value deemed interest by the Applicable Law in excess of the maximum amount permissible under the Applicable Law, an amount equal to the excessive interest shall be applied to the reduction of the principal hereof and not to the payment of interest, or if such excessive amount of interest exceeds the unpaid principal balance of principal hereof, such excess shall be refunded to Issuer. All interest paid or agreed to be paid to the Holders shall, to the extent permitted by the Applicable Law, be amortized, prorated, allocated and spread throughout the full period (including any renewal or extension) until payment in full of the principal so that the interest hereon for such full period shall not exceed the maximum amount permissible under the Applicable Law. The Holders expressly disavow any intent to contract for, charge or receive interest in an amount which exceeds the maximum amount permissible under the Applicable Law. This paragraph shall control agreements between the Issuer and the Holders. -22- ARTICLE 4 SECURITYHOLDERS' LISTS AND REPORTS BY THE ISSUER AND THE TRUSTEE SECTION 4.1 ISSUER TO FURNISH TRUSTEE INFORMATION AS TO NAMES AND ADDRESSES OF SECURITYHOLDERS. The Issuer covenants and agrees that it will furnish or cause to be furnished to the Trustee a list in such form as the Trustee may reasonably require of the names and addresses of the Holders of the Securities: (a) semi-annually and not more than 15 days after each record date for the payment of interest on the Securities, as hereinabove specified, as of such record date; and (b) at such other times as the Trustee may request in writing, within 30 days after receipt by the Issuer of any such request as of a date not more than 15 days prior to the time such information is furnished; PROVIDED that if and so long as the Trustee shall be the Security registrar, such list shall not be required to be furnished. SECTION 4.2 PRESERVATION AND DISCLOSURE OF SECURITYHOLDERS' LISTS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the Holders of Securities contained in the most recent list furnished to it as provided in Section 4.1 or maintained by the Trustee in its capacity as Security registrar, if so acting. The Trustee may destroy any list furnished to it as provided in Section 4.1 upon receipt of a new list so furnished. (b) If Holder(s) of three or more Securities (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities with respect to their rights under this Indenture or under the Securities and it is accompanied by a copy of the form of proxy or other communication which such applicants purpose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either: (i) afford to such applicants (at such applicants' expense) access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.2, or (ii) inform such applicants as to the approximate number of Holders of Securities whose names and addresses appear in the information preserved -23- at the time by the Trustee, in accordance with the provisions of subsection (a) of this Section 4.2, and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford to such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.2 a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Securities or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met, and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender. (c) Each and every Holder of the Securities, by receiving and holding the same, agrees with the Issuer and the Trustee that neither the Issuer nor the Trustee nor any agent of the Issuer or the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with the provisions of subsection (b) of this Section 4.2, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b) and that such disclosure shall not be deemed to be a violation of any existing law or of any law hereafter enacted which does not specifically refer to TIA Section 3.12. SECTION 4.3 REPORTS BY THE ISSUER. The Issuer covenants: (a) to file with the Commission, and within 15 days after the Issuer files the same with the Commission, file with the Trustee, and mail or furnish copies to the Trustee and cause the Trustee to mail to the Holders at their addresses as set forth in the register of the Securities, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the -24- Issuer may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act or which the Issuer would be required to file with the Commission if the Issuer then had a class of securities registered under the Exchange Act; (b) to file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents, and reports with respect to compliance by the Issuer with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations; (c) to cause its annual report to securityholders and any quarterly or other financial reports furnished to its securityholders generally to be filed with the Trustee and mailed, no later than the date such materials are mailed or made available to the Issuer's Securityholders to the Holders at their addresses as set forth in the register of Securities; and (d) to comply with the other provisions of Section 314(a) of the Trust Indenture Act of 1939. SECTION 4.4 REPORTS BY THE TRUSTEE. To the extent required by TIA Section 313(a), on May 15 of each year, for so long as any Securities are outstanding hereunder, the Trustee shall transmit by mail as provided below to the Securityholders, as hereinafter in this Section 4.4 provided, a brief report dated as of such date that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b), (c) and (d). A copy of such report at the time of its mailing to Securityholders shall be filed with the Commission, if required, and each stock exchange, if any, on which the Securities are listed and a copy shall be provided to the Issuer. The Issuer shall promptly notify the Trustee if the Securities become listed on any stock exchange and the Trustee shall comply with TIA Section 313(d). ARTICLE 5 REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT SECTION 5.1 EVENT OF DEFAULT DEFINED; ACCELERATION OF MATURITY; WAIVER OF DEFAULT. In case one or more of the following Events of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: -25- (a) default in the payment of any installment of interest on the Securities as and when the same becomes due and payable, and the continuance of such default for 15 days; or (b) default in the payment of all or any part of the principal on the Securities as and when the same shall become due and payable either at maturity, upon acceleration or redemption or otherwise; or (c) failure on the part of the Issuer duly to observe or perform any covenants or agreements on the part of the Issuer contained in the Securities, in this Indenture in the Subscription Agreement or any of the Collateral Agreements and the continuance of such failure for a period of 15 days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Event of Default" hereunder and demanding that the Issuer remedy the same, is given to the Issuer by the Trustee or to the Issuer and the Trustee by the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding; or (d) failure on the part of the Issuer to appoint a Trustee within 5 days of a written request of the holders of 25% in principal amount of the securities to appoint a Trustee; or (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Subsidiaries (or the payment of which is Guaranteed by the Issuer or any of its Subsidiaries), which default is caused by a failure to pay due principal or interest on such Indebtedness after any applicable grace period (a "Payment Default"), and the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been and is continuing a Payment Default, aggregates $150,000 or more; or (f) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Subsidiaries (or the payment of which is Guaranteed by the Issuer or any of its Subsidiaries), which default results in the acceleration of such Indebtedness prior to its express maturity and the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been and is continuing a Payment Default or the maturity of which has been so accelerated and not rescinded, aggregates $150,000 or more; or (g) failure by the Issuer or any of its Subsidiaries to pay final judgments (other than any judgment as to which a reputable insurance company has accepted -26- coverage without a reservation of rights) aggregating in excess of $150,000, which judgments are not stayed or discharged within 15 days after their entry; or (h) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Issuer or any of its Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Issuer or any of its Subsidiaries or for any substantial part of the property of the Issuer or any of its Subsidiaries or ordering the winding up or liquidation of the affairs of the Issuer or any of its Subsidiaries and such decree or order shall remain unstayed and in effect for a period of 15 consecutive days; or (i) the Issuer or any of its Subsidiaries shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Issuer or any of its Subsidiaries or for any substantial part of the property of the Issuer or any of its Subsidiaries, or the Issuer or any of its Subsidiaries shall make any general assignment for the benefit of creditors; (j) loss by the Issuer or any subsidiary of any gambling license or the legal right to operate any gaming establishment including, without limitation, those of the Gold Nugget or DeRidder locations, but not including any loss resulting from a general prohibition or revocation of gambling licenses by the Louisiana legislature; (k) indictment of any officer or Key Employee of the Issuer or any of its subsidiaries by any governmental authority; (l) fraud by an officer or Key Employee of the Issuer or any of its subsidiaries; (m) the Issuer does not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts as such debts become due; or (n) any event which, in the reasonable judgment of Securityholders of 25% in principal amount of the Securities has a material adverse effect on the condition, operations, prospects or properties (financial or otherwise) of the Issuer or any of its subsidiaries, taken as a whole. then, and in each and every such case (other than an Event of Default specified in clause (h) or (i) above relating to the Issuer), unless the principal of all of the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 50% in -27- aggregate principal amount of the Securities then outstanding hereunder, by notice in writing to the Issuer (and to the Trustee if given by Securityholders) (the "Acceleration Notice"), may declare all the Securities and the accrued interest thereon to be due and payable immediately (the "Acceleration Date"). If an Event of Default specified in clause (h) or (i) above relating to the Issuer occurs, all the Securities and the accrued interest thereon shall be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. SECTION 5.2 COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE MAY PROVE INDEBTEDNESS. The Issuer covenants that (a) in case default shall be made in the payment of any installment of interest on any of the Securities when such interest shall have become due and payable, and such default shall have continued for a period of 15 days, or (b) in case default shall be made in the payment of all or any part of the principal of any of the Securities when the same shall have become due and payable, whether upon maturity or upon any redemption or by declaration or otherwise -- then upon demand by the Trustee the Issuer will pay to the Trustee for the benefit of the Holders of the Securities the whole amount that then shall have become due and payable on all such Securities for principal or interest, as the case may be (with interest to the date of such payment upon the overdue principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest at the rate borne by the Securities); and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including such amounts as shall be due the Trustee and each predecessor Trustee under Section 6.6. Until such demand is made by the Trustee, the Issuer may pay the principal of and interest on the Securities to the registered Holders, whether or not the Securities be overdue. In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceeding at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Issuer or other obligor upon the Securities and collect in the manner provided by law out of the Property of the Issuer or other obligor upon the Securities, wherever situated, the moneys adjudged or decreed to be payable. In case there shall be pending proceedings relative to the Issuer or any other obligor upon the Securities under Title 11 of the United States Code or any other applicable Federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or the property of the Issuer or such other obligor, or in case of any judicial proceedings relative to the Issuer or other obligor -28- upon the Securities, or to the creditors or property of the Issuer or such other obligor, the Trustee, irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 5.2, shall be entitled and empowered, by intervention in such proceedings or otherwise: (a) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Securities, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Securityholders allowed in any judicial proceedings relative to the Issuer or other obligor upon the Securities, or to the creditors or Property of the Issuer or such other obligor; (b) unless prohibited by applicable law and regulations, to vote on behalf of the Holders of the Securities in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or Person performing similar functions in comparable proceedings; and (c) to collect and receive any moneys or other Property payable or deliverable on any such claims, and to distribute all amounts received with respect to the claims of the Securityholders and of the Trustee on their behalf; and any trustee, receiver, or liquidator, custodian or other similar official is hereby authorized by each of the Securityholders to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to the Securityholders, to pay to the Trustee such amounts as shall be due the Trustee, and each predecessor Trustee under Section 6.6. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Securityholder any plan or reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person. All rights of action and of asserting claims under this Indenture, or under any of the Securities, may be enforced by the Trustee without the possession of any of the Securities or the production thereof on any trial or other proceedings relative thereto, and any such action or proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the -29- expenses, disbursements and compensation of the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been sought. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders of the Securities, and it shall not be necessary to make any Holders of the Securities parties to any such proceedings. SECTION 5.3 APPLICATION OF PROCEEDS. Any moneys collected by the Trustee pursuant to this Article shall be applied in the following order at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal or interest, upon presentation of the several Securities and stamping (or otherwise noting) thereon the payment, or issuing Securities in reduced principal amounts in exchange for the presented Securities if only partially paid, or upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and each predecessor Trustee under Section 6.6; SECOND: In case the principal of the Securities shall not have become and be then due and payable, to the payment of interest in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the rate borne by the Securities, such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; THIRD: In case the principal of the Securities shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities for principal and interest, with interest upon the overdue principal, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest at the rate borne by the Securities; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities, then to the payment of such principal and interest, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Security over any other Security, ratably to the aggregate of such principal and accrued and unpaid interest; and FOURTH: To the payment of the remainder, if any, to the Issuer or any other Person lawfully entitled thereto. SECTION 5.4 SUITS FOR ENFORCEMENT. In case an Event of Default has occurred, has not been waived and is continuing, the Trustee may in its discretion proceed to protect -30- and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. SECTION 5.5 RESTORATION OF RIGHTS ON ABANDONMENT OF PROCEEDINGS. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, then and in every such case the Issuer and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Issuer, the Trustee and the Securityholders shall continue as though no such proceedings had been taken. SECTION 5.6 LIMITATIONS ON SUITS BY SECURITYHOLDERS. No Holder shall have any right by virtue or by availing of any provision of this Indenture to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Indenture, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy hereunder, unless such Holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of not less than 25% in aggregate principal amount of the Securities then outstanding shall have made written request upon the Trustee to institute such action or proceeding in its own name as trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee for 30 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action or proceedings and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 5.9; it being understood and intended, and being expressly covenanted by the taker and Holder of every Security with every other taker and Holder and the Trustee, that no one or more Holders of Securities shall have any right in any manner whatever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other Holder of Securities, or to obtain or seek to obtain priority over or preference to any other such Holder or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all Holders of Securities. For the protection and enforcement of the provisions of this Section 5.6, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 5.7 UNCONDITIONAL RIGHT OF SECURITYHOLDERS TO INSTITUTE CERTAIN SUITS. Notwithstanding any other provision in this Indenture and any provision of any Security, the right of any Holder to receive payment of the principal of and interest on such Security on or after the respective due dates expressed in such Security, or to institute suit for the -31- enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 5.8 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF DEFAULT. Except as provided in Section 2.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or thereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. No delay or omission of the Trustee or of any Holder to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and subject to Section 5.6, every power and remedy given by this Indenture or by law to the Trustee or to the Securityholders may be exercised from time to time, as often as shall be deemed expedient, by the Trustee or by the Securityholders. SECTION 5.9 CONTROL BY SECURITYHOLDERS. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee by this Indenture; PROVIDED that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture; PROVIDED, FURTHER, that the Trustee is provided with reasonable indemnification by the Holders prior to taking such action; and PROVIDED, FURTHER, that (subject to the provisions of Section 6.1) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, shall determine that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by its board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee shall determine that the action or proceeding so directed would involve the Trustee in any financial or other liability or if the Trustee in good faith shall so determine that the actions or forbearances specified in or pursuant to such direction shall be unduly prejudicial to the interests of Holders of the Securities not joining in the giving of said direction, it being understood that (subject to Section 6.1) the Trustee shall have no duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Holders. Nothing in this Indenture shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction by Securityholders. SECTION 5.10 WAIVER OF PAST DEFAULTS. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding, by notice to the Issuer -32- and the Trustee, may on behalf of all Holders, upon providing the Trustee with reasonable indemnity with respect to any action that might be taken by the Holders not so consenting, waive any default or Event of Default hereunder and its consequences under this Indenture including acceleration, except a default in the payment of principal of or interest on any of the Securities. In the case of any such waiver, the Issuer, the Trustee and the Holders of the Securities shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Upon any such waiver, such default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured, and not to have occurred for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 5.11 TRUSTEE TO GIVE NOTICE OF DEFAULT, BUT MAY WITHHOLD IN CERTAIN CIRCUMSTANCES. The Trustee shall transmit to the Securityholders, as the names and addresses of such Holders appear on the registry books and as may be otherwise be required by TIA Section 315(b), notice by mail of all defaults actually known to a Responsible Officer of the Trustee, such notice to be transmitted within 90 days after the occurrence thereof, unless such defaults shall have been cured before the giving of such notice (the term "default" or "defaults" for the purposes of this Section 5.11 being hereby defined to mean any event or condition which is, or with notice or lapse of time or both would become, an Event of Default); PROVIDED that, except in the case of default in the payment of the principal of or interest on any of the Securities, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Securityholders. SECTION 5.12 RIGHT OF COURT TO REQUIRE FILING OF UNDERTAKING TO PAY COSTS. All parties to this Indenture agree, and each Holder by its acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.12 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder or group of Securityholders holding in the aggregate more than 10% in aggregate principal amount of the Securities outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of or interest on any Security on or after the due date expressed in such Security. -33- ARTICLE 6 CONCERNING THE TRUSTEE SECTION 6.1 DUTIES AND RESPONSIBILITIES OF THE TRUSTEE; DURING DEFAULT; PRIOR TO DEFAULT. The Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (a) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default which may have occurred: (i) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such statements, certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Securities at the time outstanding relating to the time, method and place of conducting any proceeding for -34- any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; (d) the Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Trustee obtains written notice of such default; and (e) whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.1. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial or other liability in the performance of any of its duties or in the exercise of any of its rights or powers, if repayment of such funds or adequate indemnity against such liability is not assured to the reasonable satisfaction of the Trustee. SECTION 6.2 CERTAIN RIGHTS OF THE TRUSTEE. Subject to Section 6.1: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, Officers' Certificate or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Issuer mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed), and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Issuer; (c) the Trustee may consult with counsel and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security and/or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby; -35- (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture; (f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, coupon, security, or other paper or document unless requested in writing so to do by the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding; PROVIDED that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such examination shall be paid by the Issuer or, if paid by the Trustee or any predecessor trustee, shall be repaid by the Issuer upon demand; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, custodians or nominees not regularly in its employ and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent, attorney, custodian or nominee appointed with due care by it hereunder. SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITION OF SECURITIES OR APPLICATION OF PROCEEDS THEREOF. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Issuer of any of the Securities or of the proceeds thereof. The Trustee shall not be accountable or responsible for any information, statement or recital in any prospectus, private offering memorandum or any other disclosure material prepared or distributed in connection with the distribution of the Securities. SECTION 6.4 TRUSTEE AND AGENTS MAY HOLD SECURITIES; COLLECTIONS, ETC. The Trustee or any agent of the Issuer or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not the Trustee or such agent and, subject to Sections 6.8 and 6.13, if operative, may otherwise deal with the Issuer and receive, collect, hold and retain collections from the Issuer with the same rights it would have if it were not the Trustee or such agent. -36- SECTION 6.5 MONEYS HELD BY TRUSTEE. Subject to the provisions of Section 10.6 hereof, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by mandatory provisions of law. Neither the Trustee nor any agent of the Issuer or the Trustee shall be under any liability for interest on any moneys received by it hereunder. SECTION 6.6 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR CLAIM. The Issuer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Issuer covenants and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, (including, without limitation, expenses incurred in connection with notices and other communications to Holders) disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Issuer also covenants to indemnify the Trustee, and each predecessor trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Issuer under this Section 6.6 to compensate and indemnify the Trustee and each predecessor trustee and to pay or reimburse the Trustee and each predecessor trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. Such additional indebtedness shall be a senior claim to that of the Securities upon all Property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities, and the Securities are hereby subordinated to such senior claim. The Trustee and Issuer shall enter into a Fee Agreement acceptable to the Trustee and Issuer. SECTION 6.7 RIGHT OF TRUSTEE TO RELY ON OFFICERS' CERTIFICATE, ETC. Subject to Section 6.1, whenever in the administration of the trusts of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such certificate, in the absence of bad faith on the part of the Trustee, shall be full warrant and protection to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof. -37- SECTION 6.8 QUALIFICATION OF TRUSTEE; CONFLICTING INTERESTS. The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Issuer are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. The provisions of TIA Section 310 shall apply to the Issuer, as obligor of the Securities. SECTION 6.9 PERSONS ELIGIBLE FOR APPOINTMENT AS TRUSTEE. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or of any State or territory or of the District of Columbia having a combined capital and surplus of at least $50,000,000 (or being a member of a bank holding system with an aggregate combined capital and surplus), and which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by Federal, State, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 6.9, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Issuer nor any Person directly or indirectly controlling, controlled by or under common control with the Issuer may serve as Trustee hereunder. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.9, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.10. SECTION 6.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE. The Trustee may resign at any time by so notifying the Issuer in writing, such resignation to be effective upon the appointment of a successor Trustee. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the Issuer's consent which consent shall not be unreasonably withheld. The Issuer may remove the Trustee if: (a) the Trustee fails to comply with Section 6.8 or 6.9; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Issuer shall promptly appoint a successor Trustee that is reasonably acceptable -38- to the Holders of a majority in principal amount of the Securities. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Issuer. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuer. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee (subject to the senior claim provided in Section 6.6 and upon being paid the compensation due to it in Section 6.6), the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the Holders of at least 25% in principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 6.8, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 6.10, the Issuer's obligations under Section 6.6 shall continue for the benefit of the retiring Trustee. SECTION 6.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE. Any successor trustee appointed as provided in Section 6.10 shall execute and deliver to the Issuer and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Issuer or of the successor trustee, the trustee ceasing to act shall upon being paid the amounts due it under Section 6.6 pay over to the successor trustee all moneys at the time held by it hereunder and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor trustee, the Issuer shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a prior claim upon all Property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 6.6. No successor trustee shall accept appointment as provided in this Section 6.11 unless at the time of such acceptance such successor trustee shall be qualified under the pro- -39- visions of Section 6.8 and eligible under the provisions of Section 6.9. No Trustee under this Indenture shall be personally liable for any action or omission of any successor trustee. SECTION 6.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF TRUSTEE. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, PROVIDED that such corporation shall be qualified under the provisions of Section 6.8 and eligible under the provisions of Section 6.9, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee and deliver such Securities so authenticated; and, in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificate shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee to authenticate Securities in the name of any predecessor Trustee shall have; PROVIDED that the right to adopt the certificate of authentication of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 6.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUER. The Trustee shall comply with TIA Section 311(a) and (b). SECTION 6.14 TRUST ESTATE MAY BE VESTED IN CO-TRUSTEE OR IN A SUB- TRUST. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction denying or restricting of the right of banking corporations or associations to transact business as Trustee in such jurisdiction. Accordingly, at any time or times and for the purpose of meeting any legal requirements of any jurisdiction, (i) a sub-trust ("Sub-Trust") may be created as provided herein pursuant to the terms of which the Settlors of the Sub-Trust may appoint an individual or financial institution to serve as a trustee thereunder (Sub-Trustee"), and (ii) the Trustee shall have the power to appoint, and the Issuer shall for such purpose join with the Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more persons or entities approved by the Trustee either to act as co-trustee or co-trustees, jointly with the Trustee, of all or any part of the property subject to the trust created by this Indenture. If the appointment of a co-trustee is not sufficient to allow the Trustee to avoid violating any law of the state jurisdiction denying or restricting the Trustee's right to transact -40- business as Trustee in such jurisdiction or to exercise any of its remedies contained herein or any Collateral Document, then the Trustee may execute, and the Issuer shall for such purpose join with the Trustee, an instrument permitted by applicable law creating a Sub-trust for all or a portion of the Trust Estate, including collateral securing the Securities. Initially, the Issuer and the Trustee shall enter into an Act of Revocable Donation and Trust in the form attached hereto as Exhibit ___. Pursuant to such instrument, the Issuer and the Trustee shall be the Settlors and John C. Stolhmann shall serve as the initial trustee ("sub-trustee") pursuant to the terms thereof. The Sub-trustee shall be entitled to the same rights, privileges, and immunities (but not the obligations) of the Trustee contained in Sections 6.1, 6.2, 6.3, 6.5 and 6.7 of this Indenture, in addition to the rights, privileges and immunities contained in the Sub-trust. Further, the Issuer shall indemnify the Sub-trustee to the same extent as provided in Section 6.6 of this Indenture. The Trustee shall be accountable to the Securityholders for the acts and omissions of the Sub-trustee in accordance with the standard of care provided in Section 6.1 hereof, subject to limitations thereon set forth in subsections (a) through (e) thereof, but only so long as the Sub-trustee is an Affiliate of the Trustee. The Sub-trust shall be governed by the terms thereof. The following provisions relate only to the situation in which a co- trustee is appointed pursuant to the terms hereof and not to the Sub-trust. Every co-trustee or separate trustee shall, to the extent permitted by law, be appointed subject to the following terms: (a) The Bonds shall be authenticated and delivered, and all rights, powers, trusts, duties and obligations hereby conferred upon the Trustee in respect to the custody, control and management of moneys, papers, securities and other personal property shall be exercised, solely by the Trustee. (b) All rights, powers, trusts, duties and obligations conferred or imposed upon the trustees shall be conferred or imposed upon and exercised or performed by the Trustee, or by the Trustee and such co-trustee or co-trustees or separate trustee or separate trustees jointly, as shall be provided in the instrument appointing such co-trustee or co-trustees or separate trustee or separate trustees, except to the extent that, under the law of any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such act or acts shall be performed by such co-trustee or co- trustees or separate trustee or separate trustees. -41- (c) Any request in writing by the Trustee to any co-trustee or separate trustee to take or to refrain from taking any action hereunder shall be sufficient warrant for the taking, or the refraining from taking, of such action by such co-trustee or separate trustee. (d) Any co-trustee or separate trustee may, to the extent permitted by law, delegate to the Trustee the exercise of any right, power, trust, duty or obligation, discretionary or otherwise. (e) The Trustee at any time, by any instrument in writing, with the concurrence of the Issuer, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case an Event of Default shall have occurred and be continuing, the Trustee shall have power to accept the resignation of, or remove, any such co-trustees or separate trustee without the concurrence of the Issuer. Upon the request of the Trustee, the Issuer shall join with the Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. (f) No trustee hereunder shall be personally liable by reason of any act or omission of other trustee hereunder, nor will the act or omission of any trustee hereunder be imputed to any other trustee. (g) Any demand, request, direction, appointment, removal, notice, consent, waiver or other action in writing delivered to the Trustee shall be deemed to have been delivered to each such co-trustee or separate trustee. (h) Any moneys, papers, securities or other items of personal property received by any such co-trustee or separate trustee hereunder shall forthwith, so far as may be permitted by law, be turned over to the Trustee. Upon the acceptance in writing of such appointment by any such co- trustee or separate trustee, it or he or she shall be vested jointly with the Trustee (except insofar as local law makes it necessary for any such co-trustee or separate trustee to act alone) with such title to the property subject to the trust created by this Indenture or any part thereof, and with such rights, powers, duties or obligations, as shall be specified in the instrument of appointment subject to all the terms hereof. Every such acceptance shall be filed with the Trustee. To the extent permitted by law, any co-trustee or separate trustee may, at any time by an instrument in writing, constitute the Trustee its or his or her attorney-in-fact and agent, with full power and authority to do all acts and things and to exercise all discretion on its or his or her behalf and in its or his or her own name. In case any co-trustee or separate trustee shall die, become incapable of acting, resign or be removed, the title to the pledged property, and all rights, powers, trusts, duties and obligations of said co-trustee or separate trustee shall, so far as permitted by law, vest -42- in and be exercised by the Trustee unless and until a successor co-trustee or separate trustee shall be appointed in the manner herein provided. ARTICLE 7 CONCERNING THE SECURITYHOLDERS SECTION 7.1 EVIDENCE OF ACTION TAKEN BY SECURITYHOLDERS. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Securityholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in Person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee. Proof of execution of any instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Sections 6.1 and 6.2) conclusive in favor of the Trustee and the Issuer if made in the manner provided in this Article. SECTION 7.2 PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF SECURITIES. Subject to Sections 6.1 and 6.2, the execution of any instrument by a Securityholder or his agent or proxy may be proved in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holdings of Securities shall be proved by the Security register or by a certificate of the registrar thereof. SECTION 7.3 HOLDERS TO BE TREATED AS OWNERS. The Issuer, the Trustee and any agent of the Issuer or the Trustee may deem and treat the Person in whose name any Security shall be registered upon the Security register as the absolute owner of such Security (whether or not such Security shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of and, subject to the provisions of this Indenture, interest on such Security and for all other purposes; and neither the Issuer nor the Trustee nor any agent of the Issuer or the Trustee shall be affected by any notice to the contrary. All such payments so made to any such Person, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Security. SECTION 7.4 SECURITIES OWNED BY ISSUER DEEMED NOT OUTSTANDING. In determining whether the Holders of the requisite aggregate principal amount of Securities have concurred in any direction, consent or waiver under this Indenture, Securities which are owned by the Issuer or any other obligor on the Securities or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any other obligor on the Securities shall be disregarded and deemed not to be outstanding for the purpose of any such determination, except that for the purpose of deter- -43- mining whether the Trustee shall be protected in relying on any such direction, consent or waiver only Securities which the Responsible Officer actually knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Issuer or any other obligor upon the Securities or any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any other obligor of the Securities. In case of a dispute as to such right, the advice of counsel shall be full protection in respect of any decision made by the Trustee in accordance with such advice. Upon request of the Trustee, the Issuer shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Securities, if any, known by the Issuer to be owned or held by or for the account of any of the above described Persons; and, subject to Section 6.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth. SECTION 7.5 RIGHT OF REVOCATION OF ACTION TAKEN. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.1, of the taking of any action by the Holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action, any Holder of a Security the serial number of which is shown by the evidence to be included among the serial numbers of the Securities the Holders of which have consented to such action may, by filing written notice at the Corporate Trust Office and upon proof of holding as provided in this Article, revoke such action so far as concerns such Security. Except as aforesaid, any such action taken by the Holder of any Security shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Security and of any Securities issued in exchange or substitution therefor, irrespective of whether or not any notation in regard thereto is made upon any such Security. Any action taken by the Holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action shall be conclusively binding upon the Issuer, the Trustee and the Holders of all the Securities. ARTICLE 8 SUPPLEMENTAL INDENTURES SECTION 8.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF SECURITYHOLDERS. The Issuer, when authorized by a resolution of its Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act of 1939 as in force at the date of the execution thereof) for one or more of the following purposes: (a) to cure any ambiguity, defect or inconsistency; -44- (b) to provide for uncertificated Securities in addition to or in place of certificated Securities; (c) to provide for the assumption of the Issuer's obligations hereunder to the Holders in the case of a merger or consolidation pursuant to Article Nine hereof; (d) to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights hereunder of any Holder; or (e) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act. The Trustee is hereby authorized to join in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 8.1 may be executed without the consent of the Holders of any of the Securities at the time outstanding, notwithstanding any of the provisions of Section 8.2. SECTION 8.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS. With the consent (evidenced as provided in Article Seven) of the Holders of not less than a majority in aggregate principal amount of the Securities at the time outstanding (including consents obtained in connection with a tender offer or exchange offer for the Securities), the Issuer, when authorized by a resolution of the Board of Directors, and the Trustee may, from time to time and at any time, enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act of 1939 as in force at the date of execution thereof) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Securities; PROVIDED that no such supplemental indenture shall, without the consent of each Holder affected thereby (with respect to any Securities held by a non-consenting Securityholder), (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Security or alter the provisions with respect to the redemption of the Securities, (iii) reduce the rate of or change the time for payment of interest on any Security, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount of the then outstanding Securities and a waiver of the payment default that -45- resulted from such acceleration), (v) make any Security payable in money other than that stated in the Securities, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or interest on the Securities, (vii) waive a redemption payment with respect to any Security or (viii) make any change in the foregoing amendment and waiver provisions. The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any indenture supplemental hereto. If a record date is fixed, then those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such supplemental indenture or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. Upon the request of the Issuer accompanied by a copy of a resolution of the Board of Directors certified by the Secretary or an Assistant Secretary of the Issuer authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of the required Securityholders and other documents, if any, required by Section 7.1, the Trustee shall join with the Issuer in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Securityholders under this Section 8.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Issuer and the Trustee of any supplemental indenture pursuant to the provisions of this Section 8.2, the Issuer shall mail a notice thereof by first-class mail to the Holders of Securities at their addresses as they shall appear on the registry books of the Issuer, setting forth in general terms the substance of such supplemental indenture. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 8.3 EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Issuer and the Holders of Securities shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. -46- SECTION 8.4 DOCUMENTS TO BE GIVEN TO TRUSTEE. In connection with the execution and delivery of any supplemental indenture pursuant to this Article Eight, the Trustee shall receive an Officers' Certificate and an Opinion of Counsel and, subject to the provisions of Sections 6.1 and 6.2, may rely thereon as conclusive evidence that any such supplemental indenture complies with the applicable provisions of this Indenture. The Opinion of Counsel delivered pursuant to this Section 8.4 shall include a statement that the execution, delivery and performance of such supplemental indenture by the Issuer shall not result in a breach or violation of, or constitute a default under, this Indenture. Subject to Section 6.1, the Trustee may conclusively rely on an Opinion of Counsel with respect to the effect a supplemental indenture will have on a Holder under Section 8.1(d). SECTION 8.5 NOTATION ON SECURITIES IN RESPECT OF SUPPLEMENTAL INDENTURES. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article may bear a notation in form approved by the Trustee as to any matter provided for by such supplemental indenture or as to any action taken at any such meeting. If the Issuer or the Trustee shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Issuer, authenticated by the Trustee and delivered in exchange for the Securities then outstanding. ARTICLE 9 NO CONSOLIDATION, MERGER, SALE OR CONVEYANCE The Issuer shall not consolidate with, or merge with or into (whether or not the Issuer is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets as an entirety in one or more related transactions to, another corporation, person or entity. For purposes of this Article 9, the transfer (by lease, assignment, sale or otherwise), in a single transaction or series of transactions), of all or substantially all of the properties or assets of one or more Subsidiaries of the Issuer, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Issuer, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Issuer. ARTICLE 10 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall cease to be of further effect as to all outstanding Securities (except as to (A) rights of registration of transfer and exchange, and the Issuer's right of optional redemption, -47- (B) substitution of apparently mutilated, defaced, destroyed, lost or stolen Securities, (C) rights of Holders to receive payments of principal thereof and interest thereon, (D) the rights, obligations and immunities of the Trustee hereunder and (E) the rights of the Securityholders as beneficiaries hereof with respect to the property so deposited with the Trustee under the provisions of this Section 10.1) when (a) all outstanding Securities, except lost, stolen or destroyed Securities which shall have been replaced or paid as provided in Section 2.6, have been delivered to the Trustee for cancellation or (b) the Issuer shall have paid or caused to be paid the principal of and interest on the Securities outstanding hereunder, as and when the same shall have become due and payable, or (c) (i) the Securities not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption under arrangements satisfactory to the Trustee upon the giving of notice of redemption, and (ii) the Issuer shall have irrevocably deposited or caused to be deposited with the Trustee, as trust funds, (A) money in an amount or (B) Government Securities which through the payment of interest and principal will provide, no later than one day before the due date of payments in respect of the Securities, money in an amount or (C) a combination thereof, any one of options (A), (B) or (C) being sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay the principal of and interest on the outstanding Securities to the date of maturity or redemption, as the case may be. The Trustee, on demand of the Issuer accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Issuer, shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture. The Issuer agrees to reimburse the Trustee for any costs or expenses (including the reasonable fees of its counsel) thereafter reasonably and properly incurred, to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Securities and to indemnify the trust referred to in Section 10.2(a) for any tax liability and pay any expenses of such trust not otherwise provided for pursuant to such Section. SECTION 10.2 DEFEASANCE AND DISCHARGE OF INDENTURE. Subject to the Securityholders' right to convert, the Issuer shall be deemed to have paid and discharged the entire Indebtedness on all the outstanding Securities on the 91st day after the date of the deposit referred to in subparagraph (a) hereof, and the provisions of this Indenture, as it relates to such outstanding Securities, shall no longer be in effect (and the Trustee, at the expense of the Issuer, shall execute proper instruments acknowledging the same), except as to: (1) rights of registration of transfer and exchange, and the Issuer's right of optional redemption, (2) substitution of apparently mutilated, defaced, destroyed, lost or stolen Securities, (3) rights of Holders to receive payments of principal thereof and interest thereon, (4) the rights, obligations and immunities of the Trustee hereunder and (5) the rights of the Securityholders as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them; PROVIDED that all of the following conditions shall have been satisfied: -48- (a) the Issuer has deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 6.9) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities, (i) money in an amount or (ii) Government Securities which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the due date of any payment referred to below money in an amount, or (iii) a combination thereof, any one of options (i), (ii) or (iii) being sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of and each installment of principal and interest on the outstanding Securities as of the maturity date of such principal or installment of interest; (b) such deposit shall not cause the Trustee to have a conflicting interest as defined in the Trust Indenture Act of 1939; (c) such deposit shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Issuer is a party or by which it is bound; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date; (e) the Issuer has delivered to the Trustee an Opinion of Counsel to the effect that (i) the Holders of the Securities shall not recognize income, gain or loss for Federal income tax purposes as a result of such deposits, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, (ii) the creation of the trust will not violate the Investment Company Act of 1940, as amended, and (iii) Holders of the Securities will have a valid, first priority lien on the trust funds; and (f) the Issuer has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this provision have been complied with. SECTION 10.3 DEFEASANCE OF CERTAIN OBLIGATIONS. Subject to the Securityholders' right to convert, the Issuer may omit to comply with any term, provision or condition set forth in Sections 3.5 to 3.13 inclusive, and will not be subject to the Events of -49- Default described under clauses (d), (e) and (f) of Section 5.1 hereof, with respect to the Securities, if all of the following conditions have been satisfied: (a) the Issuer has deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 6.9) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities, (i) money in an amount, or (ii) Government Securities which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the due date of any payment referred to below money in an amount, or (iii) a combination thereof, any one of options (i), (ii) or (iii) being sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of and each installment of principal and interest on the outstanding Securities on the maturity date of such principal or installment of principal or interest; (b) such deposit shall not cause the Trustee to have a conflicting interest as defined in the Trust Indenture Act of 1939; (c) such deposit shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Issuer is a party or by which it is bound; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (e) the Issuer has delivered to the Trustee an Opinion of Counsel to the effect that (i) the Holders of the Securities shall not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance of certain obligations and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred, (ii) the creation of the trust will not violate the Investment Company Act of 1940, as amended, and (iii) Holders of the Securities will have a valid, first-priority lien on the trust funds; and (f) the Issuer has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the defeasance contemplated by this Section 10.3 have been complied with. SECTION 10.4 APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT OF SECURITIES. Subject to Section 10.6, all moneys and Governmental Securities deposited with -50- the Trustee pursuant to Sections 10.1, 10.2 and 10.3 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Issuer acting as paying agent), to the Holders of the particular Securities for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money and Government Securities need not be segregated from other funds except to the extent required by law. SECTION 10.5 REPAYMENT OF MONEYS HELD BY PAYING AGENT. In connection with the satisfaction and discharge of this Indenture all moneys and Government Securities then held by any paying agent under the provisions of this Indenture shall, upon demand of the Issuer, be repaid to the Issuer or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys and Government Securities . SECTION 10.6 RETURN OF MONEYS HELD BY TRUSTEE AND PAYING AGENT UNCLAIMED FOR TWO YEARS. Any moneys and Government Securities deposited with or paid to the Trustee or any paying agent for the payment of the principal of or interest on any Security and not applied but remaining unclaimed for two years after the date upon which such principal or interest shall have become due and payable shall, upon the written request of the Issuer and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Issuer by the Trustee or such paying agent, and the Holder of such Security shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Issuer for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such moneys and Government Securities shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such paying agent before being required to make any such repayments may, at the expense of the Issuer, cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, the City of New York, notice that such money remains unclaimed and that after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. In the event any Securities are not presented for payment when due, either at maturity or at the date fixed for redemption thereof or otherwise, if funds sufficient to pay such Securities shall have been made available to the Trustee or Paying Agent for the benefit of the Holders thereof, all liability of the Issuer to the Holders for payment of such Securities shall terminate and be completely discharged. The Trustee shall hold such segregated funds, without liability for interest thereon, for the benefit of the Holders, who shall thereafter be restricted exclusively to such funds for the satisfaction of any claim of whatever nature on their part under this Indenture or relating to such Securities. SECTION 10.7 REINSTATEMENT. If the Trustee or paying agent is unable to apply any moneys or Government Securities in accordance with this Article Ten by reason -51- of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuer's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article Ten until such time as the Trustee or paying agent is permitted to apply all such moneys or Government Securities in accordance with this Article; PROVIDED, HOWEVER, that if the Issuer has made any payment of principal of or interest on any Securities because of the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Securities to receive such payment from the moneys or Government Securities held by the Trustee or paying agent. ARTICLE 11 MISCELLANEOUS PROVISIONS SECTION 11.1 INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS OF ISSUER EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or upon any obligation, covenant or agreement contained in this Indenture, or in any Security, or because of any indebtedness evidenced thereby, shall be had against any incorporator, as such, or against any past, present or future stockholder, officer, employee, director, or creditor, as such, of the Issuer or the Trustee or any subsidiary of the Issuer or any successor of the Issuer or the Trustee or any such subsidiary, whether directly or through the Issuer or any subsidiary of the Issuer or any successor of the Issuer or any such subsidiary, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of the Securities by the Holders thereof and as part of the consideration for the issue of the Securities. SECTION 11.2 PROVISIONS OF INDENTURE FOR THE SOLE BENEFIT OF PARTIES AND SECURITYHOLDERS. Nothing in this Indenture or in the Securities, express or implied, shall give or be construed to give to any Person, firm or corporation, other than the parties hereto and their successors and the Holders of the Securities, any legal or equitable right, remedy or claim under this Indenture or under any covenant or provision herein contained. SECTION 11.3 SUCCESSORS AND ASSIGNS OF ISSUER BOUND BY INDENTURE. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Issuer shall bind its successors and assigns, whether so expressed or not. SECTION 11.4 NOTICES AND DEMANDS ON ISSUER, TRUSTEE AND SECURITYHOLDERS. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the Holders of Securities to or on the Issuer shall be given or served by (i) delivery in Person, (ii) telecopy (confirmed by copy sent by first-class mail) or (iii) certified or registered mail, return receipt requested (except as otherwise specifically provided herein), in each case addressed (until another address of the Issuer is -52- filed by the Issuer with the Trustee) to Trans World Gaming Corp., One Penn Plaza, Suite 4303, New York, NY 10119, Attention: President (Telecopy No.: (212) 563-3380). Any notice, direction, request or demand by the Issuer or any Securityholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or served by one of the methods described in the first sentence of this Section 11.4, addressed to the Corporate Trust Office (Telecopy No.: 212-754-1303). Where this Indenture provides for notice to Holders, including any notice delivered in connection with TIA Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder entitled thereto, at his last address as it appears in the Security register. Any notice which is delivered, telecopied (and confirmed by mail) or mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the addressee receives such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impracticable to mail notice or confirm by mail telecopy notice to the Issuer and Securityholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. SECTION 11.5 COMPLIANCE CERTIFICATES AND OPINIONS OF COUNSEL; STATEMENTS TO BE CONTAINED THEREIN. Upon an application or demand by the Issuer to the Trustee to take any action under any of the provisions of this Indenture, the Issuer shall furnish to the Trustee (i) an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with and (iii) if appropriate, an Accountants' Certificate stating that in the opinion of such accountants all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (a) a statement that the Person making such certificate or opinion has read -53- such covenant or condition, (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based, (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Any certificate, statement or opinion of an officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of counsel may be based, insofar as it relates to factual matters and information which is in the possession of the Issuer, upon the certificate, statement or opinion of or representations by an officer or officers of the Issuer, unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of an officer of the Issuer or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants in the employ of the Issuer unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate or opinion of any independent firm of public accountants filed with the Trustee shall contain a statement that such firm is independent. SECTION 11.6 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. If the date of maturity of interest on or principal of the Securities or the date fixed for redemption of any Security shall not be a Business Day, then payment of interest or principal need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period after such date. SECTION 11.7 CONFLICT OF ANY PROVISION OF INDENTURE WITH TRUST INDENTURE ACT OF 1939. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included herein by any of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939, such required provision shall control. -54- SECTION 11.8 NEW YORK LAW TO GOVERN. THIS INDENTURE AND EACH SECURITY SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN CHOICE OF LAW RULES) OF SAID STATE. THE ISSUER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SECURITIES AND THE ISSUER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES FEDERAL OR NEW YORK STATE COURT. THE ISSUER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDINGS IN SUCH RESPECTIVE JURISDICTIONS. THE ISSUER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY COURT IN OR OF THE STATE OF NEW YORK BY THE DELIVERY OF COPIES OF SUCH PROCESS TO THE ISSUER, AT ITS ADDRESS SPECIFIED IN SECTION 11.4 HEREOF OR BY CERTIFIED MAIL DIRECT TO SUCH ADDRESS. WHENEVER POSSIBLE EACH PROVISION OF THIS INDENTURE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS INDENTURE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS INDENTURE. WHENEVER IN THIS NOTE REFERENCE IS MADE TO THE ISSUER OR A HOLDER, SUCH REFERENCE SHALL BE DEEMED TO INCLUDE, AS APPLICABLE, A REFERENCE TO THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. THE PROVISIONS OF THIS INDENTURE SHALL BE BINDING UPON AND SHALL INURE TO THE BENEFIT OF SUCH SUCCESSOR AND ASSIGNS. THE ISSUER'S SUCCESSORS AND ASSIGNS SHALL INCLUDE, WITHOUT LIMITATION, A RECEIVER, TRUSTEE OR DEBTOR IN POSSESSION FOR THE ISSUER. SECTION 11.9 COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 11.10 EFFECT OF HEADINGS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. -55- ARTICLE 12 REDEMPTION OF SECURITIES SECTION 12.1 RIGHT OF OPTIONAL REDEMPTION; PRICES. Subject to the terms and conditions of this Indenture, the Issuer at its option may redeem all, but not part of, the Securities upon payment of the redemption price as set forth in the terms of the Security, together with accrued and unpaid interest to the date fixed for redemption (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). SECTION 12.2 NOTICE OF REDEMPTION. Notice of redemption to the Holders of Securities to be redeemed as a whole shall be given by mailing notice of such redemption by first-class mail, postage prepaid, at least 30 and not more than 60 days prior to the date fixed for redemption to such Holders of Securities at their last addresses as they shall appear upon the registry books. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. Failure to give notice by mail, or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part, shall not affect the validity of the proceedings for the redemption of any other Security. The notice of redemption to each such Holder shall specify the principal amount of each Security held by such Holder to be redeemed, the date fixed for redemption, the redemption price, the place or places of payment, that payment will be made upon presentation and surrender of such Securities, that interest accrued to the date fixed for redemption to the extent provided in Section 12.1 will be paid as specified in said notice, that on and after said date interest thereon will cease to accrue. The notice of redemption of Securities to be redeemed shall be given by the Issuer or, at the Issuer's request, by the Trustee in the name and at the expense of the Issuer. The Issuer shall notify the Trustee of such redemption at least 15 days prior to the date the notice of redemption is to be sent to the Holders and shall specify in such notice whether the Trustee is to give such notice. At least one Business Day prior to the redemption date specified in the notice of redemption given as provided in this Section 12.2, the Issuer will deposit with the Trustee or with one or more paying agents (or, if the Issuer is acting as paying agent, set aside, segregate and hold in trust as provided in Section 3.4) in immediately available funds an amount of money sufficient to redeem in immediately available funds on the redemption date all the Securities so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption to the extent provided in Section 12.1. -56- SECTION 12.3 PAYMENT OF SECURITIES CALLED FOR REDEMPTION. If notice of redemption has been given as above provided, the Securities shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after said date (unless the Issuer shall default in the payment of such Securities at the redemption price, together with interest accrued to said date to the extent provided in Section 12.1) interest on the Securities or portions of Securities so called for redemption shall cease to accrue and, except as provided in Sections 6.5 and 10.6, such Securities shall cease from and after the date fixed for redemption to be entitled to any benefit or security under this Indenture, and the Holders thereof shall have no right in respect of such Securities except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption to the extent provided in Section 12.1. On presentation and surrender of such Securities at a place of payment specified in said notice, said Securities shall be paid and redeemed by the Issuer at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption; PROVIDED that any semi-annual payment of interest becoming due on the date fixed for redemption shall be payable to the Holders of such Securities registered as such on the relevant record date subject to the terms and provisions of Section 2.4 hereof. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate borne by the Security. SECTION 12.4 EXCLUSION OF CERTAIN SECURITIES FROM ELIGIBILITY FOR SELECTION FOR REDEMPTION. Securities shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in an Officer's Certificate and delivered to the Trustee at least 40 days prior to the last date on which notice of redemption may be given as being owned of record and beneficially by, and not pledged or hypothecated by, (a) the Issuer or (b) an entity specifically identified in such written statement as directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer. ARTICLE 13 CONVERSION SECTION 13.1 CONVERSION PRIVILEGE. A holder of a Security may convert it into Common Stock at any time during the period stated in the Securities. The number of shares issuable upon conversion of a Security is determined as follows: Divide the principal amount to be converted by the conversion price in effect on the conversion date. Round the result to the nearest 1/100th of a share. The initial conversion price is stated in the Securities. The conversion price is subject to adjustment. -57- A Holder may convert a portion of a Security if the portion is $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of it. "Common Stock" means Common Stock of the TWG as it exists on the date of this Indenture as originally signed. SECTION 13.2 CONVERSION PROCEDURE. To convert a Security a Holder must satisfy the requirements in the Securities. The date on which the Holder satisfies all those requirements is the conversion date. As soon as practical, TWG shall deliver through the Conversion Agent a certificate for the number of full shares of Common Stock issuable upon the conversion and a check for any fractional share. The person in whose name the certificate is registered shall be treated as a stockholder of record on and after the conversion date. No payment or adjustment will be made for accrued interest on a converted Security. If a Holder converts more than one Security at the same time, the number of full shares issuable upon the conversion shall be based on the total principal amount of the Securities converted. Upon surrender of a Security that is converted in part, the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unconverted portion of the Security surrendered. If the last day on which a Security may be converted is a Legal Holiday in a place where a Conversion Agent is located, the Security may be surrendered to that Conversion Agent on the next succeeding day that is not a Legal Holiday. SECTION 13.3 FRACTIONAL SHARES. TWG will not issue a fractional share of Common Stock upon conversion of a Security. Instead TWG will deliver its check for the current market value of the fractional share. The current market value of a fraction of a share is determined as follows: Multiply the current market price of a full share by the fraction. Round the result to the nearest cent. The current market price of a share of Common Stock is the Quoted Price of the Common Stock on the last trading day prior to the conversion date. In the absence of such a quotation, TWG shall determine the current market price on the basis of such quotations as it considers appropriate. SECTION 13.4 TAXES ON CONVERSION. If a Holder of a Security converts it, TWG shall pay any documentary, stamp or similar issue or transfer tax due on the issue of -58- shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the shares are issued in a name other than the Holder's name. SECTION 13.5 TWG TO PROVIDE STOCK. TWG shall reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of the Securities. All shares of Common Stock which may be issued upon conversion of the Securities shall be fully paid and non-assessable. TWG will endeavor to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities and will endeavor to list such shares on each national securities exchange on which the Common Stock is listed. SECTION 13.6 ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If TWG: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides its outstanding shares of Common Stock into a greater number of shares; (3) combines its outstanding shares of Common Stock into a smaller number of shares; (4) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (5) issues by reclassification of its Common Stock any shares of its capital stock, then the conversion privilege and the conversion price in effect immediately prior to such action shall be adjusted so that the Holder of a Security thereafter converted may receive the number of shares of capital stock of TWG which he would have owned immediately following such action if he had converted the Security immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment a Holder of a Security upon conversion of it may receive shares of two or more classes of capital stock of TWG, TWG shall determine the allocation of the adjusted conversion price between the classes of capital stock. After such allocation, -59- the conversion privilege and the conversion price of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Article. SECTION 13.7 ADJUSTMENT FOR RIGHTS ISSUE. If TWG distributes any rights or warrants to all holders of its Common Stock entitling them for a period expiring within 60 days after the record date mentioned below to purchase shares of Common Stock at a price per share less than the current market price per share on that record date, the conversion price shall be adjusted in accordance with the formula: N X P ----- O + M C' = C X ----- O + N where: C' = the adjusted conversion price. C = the current conversion price. O = the number of shares of Common Stock outstanding on the record date. N = the number of additional shares of Common Stock offered. P = the offering price per share of the additional shares. M = the current market price per share of Common Stock on the record date. The adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights or warrants. SECTION 13.8 ADJUSTMENT FOR OTHER DISTRIBUTIONS. If TWG distributes to all holders of its Common Stock any of its assets or debt securities or any rights or warrants to purchase securities of TWG, the conversion price shall be adjusted in accordance with the formula: N - F C' = C X ----- M where: C' = the adjusted conversion price. C = the current conversion price. M = the current market price per share of Common Stock on the record date mentioned below. -60- F = the fair market value on the record date of the assets, securities, rights or warrants applicable to one share of Common Stock. TWG shall determine the fair market value. The adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. This Section does not apply to rights or warrants referred to in Section 13.7. SECTION 13.9 CURRENT MARKET PRICE. In Sections 13.7 and 13.8 the current market price per share of Common Stock on any date is the average of the Quoted Prices of the Common Stock for 30 consecutive trading days commencing 45 trading days after the date in question. In the absence of one or more such quotations, TWG shall determine the current market price on the basis of such quotations as it considers appropriate. SECTION 13.10 WHEN ADJUSTMENT MAY BE DEFERRED. No adjustment in the conversion price need be made unless the adjustment would require an increase or decrease of at least 1% in the conversion price. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. SECTION 13.11 WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for a transaction referred to in Section 13.6, 13.7 or 13.8 if Securityholders are to participate in the transaction on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. No adjustment need be made for rights to purchase Common Stock pursuant to a TWG plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or no par value of the Common Stock. To the extent the Securities become convertible into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash. SECTION 13.12 NOTICE OF ADJUSTMENT. Whenever the conversion price is adjusted, TWG shall promptly mail to Securityholders a notice of the adjustment. TWG shall file with the Trustee a certificate from TWG's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct. -61- SECTION 13.13 VOLUNTARY REDUCTION. TWG from time to time may reduce the conversion price by any amount for any period of time if the period is at least 20 days and if the reduction is irrevocable during the period. Whenever the conversion price is reduced, TWG shall mail to Securityholders a notice of the reduction. TWG shall mail the notice at least 15 days before the date the reduced conversion price takes effect. The notice shall state the reduced conversion price and the period it will be in effect. A reduction of the conversion price does not change or adjust the conversion price otherwise in effect for purposes of Sections 13.6 through 13.8. SECTION 13.14 NOTICE OF CERTAIN TRANSACTIONS. If: (1) TWG takes any action that would require an adjustment in the conversion price pursuant to Section 13.6, 13.7 or 13.8 and if TWG does not let Securityholders participate pursuant to Section 13.11; (2) TWG takes any action that would require a supplemental indenture pursuant to Section 13.15; or (3) there is a liquidation or dissolution of TWG, TWG shall mail to Securityholders a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. TWG shall mail the notice at least 15 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction. SECTION 13.15 TRUSTEE'S DISCLAIMER. The Trustee has no duty to determine when an adjustment under this Article should be made, how it would be made or what it should be. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for TWG's failure to comply with this Article. Each Conversion Agent other than TWG shall have the same protection under this Section as the Trustee. SECTION 13.16 REGISTRATION RIGHTS. The Securityholders shall have the right to have the shares of Common Stock underlying the Securities registered as part of the next public offering of the Common Stock. If no Common Stock offering has occurred by December 31, 1997, then upon the written request of the holders of a majority in the principal amount of the Securities outstanding, and on a one-time basis, TWG shall file and use its best efforts to cause to be declared effective by the Securities and Exchange Commission a registration statement or post-effective amendment thereto as permitted under the Securities -62- Act, covering the sale by the Securityholder of the Common Stock issuable upon conversion of the Securities or any portion hereof (the "Registerable Securities"). TWG shall supply prospectuses in order to facilitate the public sale or other disposition of the Registerable Securities, use its best efforts to register and qualify any of the Registerable Securities for sale in such states as such Securityholder reasonably designates and do any and all other acts and things which may be necessary to enable such Securityholder to consummate the public sale of the Registerable Securities, and furnish indemnification in the manner provided in Section 13.17. The Securityholders shall furnish information reasonably requested by TWG in accordance with such post-effective amendments or registration statements, including its intentions with respect thereto, and shall furnish indemnification as set forth in Section 13.18. TWG will maintain such registration statement or post-effective amendment current and effective under the Securities Act until the maturity date of the Securities, June 30, 1999; PROVIDED, HOWEVER, that upon 15 days' advance written notice to the Securityholders TWG may suspend the availability of such registration statement or post-effective amendment for not more than three periods of three months each (a "Suspension Period"), PROVIDED FURTHER, HOWEVER, that no Suspension Period may commence sooner than three months after the termination of any other Suspension Period and there may be no more than two three month Suspension Periods in any twelve month time period. TWG shall bear the entire cost and expense of any registration of securities under Section 13.16 hereof. Notwithstanding the foregoing, any Securityholder whose Registerable Securities are included in any such registration statement pursuant to this Section 13.16 shall, however, bear the fees of any counsel retained by him and any transfer taxes or underwriting discounts or commissions applicable to the Registerable Securities sold by him pursuant thereto. SECTION 13.17 INDEMNIFICATION BY TWG. Whenever pursuant to Section 13.16 a registration statement relating to any Registerable Securities is filed under the Securities Act, amended or supplemented, TWG will indemnify and hold harmless each Securityholder of the Registerable Securities covered by such registration statement, amendment or supplement (such holder hereinafter referred to as the "Distributing Holder"), each person, if any, who controls (within the meaning of the Act) the Distributing Holder, and each officer, employee, partner or agent of the Distributing Holder, and each underwriter (within the meaning of the Securities Act) of such securities and each person, if any, who controls (within the meaning of the Securities Act) any such underwriter and each officer, employee, agent or partner of such underwriter against any losses, claims, damages or liabilities, joint or several, to which the Distributing Holder, any such underwriter or any other person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement or alleged untrue statement of any material fact contained in any such registration statement or any preliminary prospectus or final prospectus constituting a part thereof or any amendment or supplement thereto, or arise out of or are based upon the omission to state -63- therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse the Distributing Holder and each such underwriter or such other person for any legal or other expenses reasonably incurred by the Distributing Holder, or underwriter or such other person, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that TWG will not be liable in any such case (i) to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder, any other Distributing Holder or any such underwriter for use in the preparation thereof, and (ii) such losses, claims, damages or liabilities arise out of or are based upon any actual or alleged untrue statement or omission made in or from any preliminary prospectus, but corrected in the final prospectus, as amended or supplemented. SECTION 13.18 INDEMNIFICATION BY DISTRIBUTING HOLDER. Whenever pursuant to Section 13.16 a registration statement relating to the Registerable Securities is filed under the Securities Act, or is amended or supplemented, the Distributing Holder will indemnify and hold harmless TWG, each of its directors, each of its officers who have signed said registration statement and such amendments and supplements thereto, and each person, if any, who controls the TWG (within the meaning of the Securities Act) against any losses, claims, damages or liabilities to which the TWG or any such director, officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in any such registration statement or any preliminary prospectus or final prospectus constituting a part thereof, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent that such untrue statement or alleged untrue statement or omission was made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder for use in the preparation thereof; and will reimburse TWG or any such director, officer or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. SECTION 13.19 NOTICE. Promptly after receipt by an indemnified party under Section 13.17 or Section 13.18 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party, give the indemnifying party notice of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under Section 13.17 or Section 13.18. -64- SECTION 13.20 RIGHT TO ELECT TO ASSUME DEFENSE. In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnified part to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under Section 13.17 or Section 13.18 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. ARTICLE 14 SECURITY SECTION 14.1 PLEDGE AND SECURITY INTEREST. "Collateral" means all property, including, without limitation, fee and leasehold interests in real property, of the Issuer subject to the Lien of the Collateral Agreements. Pursuant to the terms of the Collateral Agreements, the Issuer has granted to the Trustee Liens on the Collateral for the benefit of holders of the Securities. All references herein to the "Security Interest" and to the "Lien of this Indenture" shall be deemed to mean and refer to the Liens granted to the Trustee pursuant to the terms of the Collateral Agreements. SECTION 14.2 SECURITY FOR OBLIGATION. The Security Interest secures among other things the payment and performance of all obligations of the Issuer now or hereafter existing under the Securities, the Collateral Agreements or this Indenture, including without limitation the prompt payment when due (whether by acceleration or otherwise) of the principal of or interest on the Securities (all such obligations of the Issuer being herein called the "Obligations"). SECTION 14.3 PERFECTION OF SECURITY INTEREST. (a) The Issuer shall cause this Indenture, the Collateral Agreements, financing statements, continuation statements, notifications of secured transactions and other instruments with respect to the Collateral to be promptly executed, recorded, registered and filed and to be kept recorded, registered and filed in such manner and in such places as may be required by law, and take all such other actions as may be required, in order to make effective the Security Interest in all personal property constituting part of the Collateral as a perfected security interest and in all real property constituting part of the Collateral as a mortgage lien effective as to third parties, and shall pay all taxes and fees incidental thereto. -65- (b) The Issuer shall comply with the provisions of TIA Section 314(b) and (d). For purposes of TIA Section 314(d) and any certificate or opinion to be provided to the Trustee thereunder by any engineer, appraiser or other expert, no release of Collateral from the Lien of this Indenture which is permitted by Section 14.4 or any other provision of this Indenture will be deemed to impair the security under this Indenture in contravention of the provisions hereof. SECTION 14.4 NO DISPOSITION OF COLLATERAL; RELEASE OF LIEN OF INDENTURE. The Issuer or any Subsidiary may not sell or otherwise dispose of Collateral. SECTION 14.5 OTHER LIENS. The Issuer will not create or permit to exist any Lien upon or with respect to any of the Collateral, except for any Liens permitted by the terms hereof or of the Collateral Agreements. SECTION 14.6 TRUSTEE APPOINTED ATTORNEY-IN-FACT. The Trustee shall take any action required or permitted to be taken by the Trustee under the Collateral Agreements if directed in writing to do so by the Holders of at least 50% in aggregate principal amount of the Securities then outstanding; provided, however, that no action shall be taken which, in the Opinion of Counsel, impairs the enforceability, priority or perfection of the Lien of this Indenture as to the Collateral then subject thereto, unless directed by all Holders. SECTION 14.7 RETURN OF COLLATERAL. Upon the payment in full of the obligations or upon satisfaction and discharge of this Indenture in accordance with Article 10 (and the Trustee receiving written confirmation thereof satisfactory to the Trustee), the Trustee, subject to the terms of the Collateral Agreements, shall forthwith take all necessary action to return any Collateral in the Trustee's possession to the Issuer or its Subsidiaries, as the case may be, and release the Liens thereon and Security Interests therein. SECTION 14.8 DEFAULT REMEDIES. The Trustee shall have the rights set forth in the Collateral Agreements to exercise the remedies to realize upon the collateral set forth in the Collateral Agreements. SECTION 14.9 PROCEEDS. The proceeds of any sale or other disposition of the Collateral received by the Trustee pursuant to the terms of the Collateral Agreements shall be applied by the Trustee: First: to the payment of the costs and expenses of such sale, including a reasonable compensation to the Trustee, and its agents, attorneys and counsel, and of all charges, expenses, liabilities and advances incurred or made by the Trustee under this Indenture; Second: to the reimbursement of the Trustee for any sum advanced by the Trustee to the Issuer in order to preserve the Collateral together with interest at the rate -66- charged publicly announced by Citibank, N.A. from time to time in New York, New York as its reference rate; and Third: as provided in Section 5.3. SECTION 14.10 DEFICIENCY. The Issuer shall remain liable for any unfulfilled obligations, together with interest thereon, in accordance with and subject to the provisions of the Securities and this Indenture. SECTION 14.11 TRUSTEE'S DUTIES. The powers conferred upon the Trustee by this Article 14 are solely to protect its interest and the interest of the Holders in the Collateral and shall not impose any duty upon the Trustee to exercise any such powers except as expressly provided in this Indenture or in the Collateral Agreements. The Trustee shall be under no duty to the Issuer whatsoever to make or give any presentment, demand for performance, notice of nonperformance, protest, notice of protest, notice of dishonor, or other notice or demand in connection with any Collateral or the Obligations, or to take any steps necessary to preserve any rights against prior parties except as expressly provided in this Indenture or in the Collateral Agreements. The Trustee shall not be liable to the Issuer for failure to collect or realize upon any or all of the obligations or Collateral, or for any delay in so doing, nor shall the Trustee be under any duty to the Issuer to take any action whatsoever with regard thereto. The Trustee shall have no duty to the Issuer to comply with any recording, filing, or other legal requirements necessary to establish or maintain the validity, priority or enforceability of, or the Trustee's rights in or to, any of the Collateral. SECTION 14.12 SPECIAL TRUSTEE POWERS DUE TO ENVIRONMENTAL CONDITIONS. The Trustee shall have the power to settle or compromise at any time any and all claims against the Trust Estate or the Trustee (either in its corporate capacity, or in the personal capacity of the individuals serving as trust officers on behalf of the Trustee), which may be asserted by any governmental body or private party involving the alleged violation of any applicable Environmental Laws affecting the Collateral or any other property held in trust with respect to or in connection with the Collateral. Notwithstanding any provision in this subparagraph to the contrary, the Trustee may not settle or compromise any claim against the Trust Estate or the Trustee which may result in any liability being asserted against Issuer without Issuer having had a reasonable opportunity to resolve the alleged violation, which reasonable opportunity shall not exceed 60 days from the date on which Issuer shall have been notified of such alleged violation by a governmental body or a private party; provided, however, in the event that Issuer shall be in default under the Indenture or under the Collateral Agreements, then it shall have none of the rights afforded to it in this paragraph. The Trustee shall not be personally liable to the Holders or any other Person for any decrease in value of the Collateral by reason of the Trustee's compliance with any Applicable Environmental Laws (as defined in the Collateral Agreements), specifically including any reporting requirement under such law. Neither the acceptance by the Trustee -67- of property nor failure by the Trustee to inspect property shall be deemed to create any interference as to whether or not there is or may be any liability under any applicable Environmental Laws with respect to such property. Notwithstanding anything in this Indenture or the Collateral Agreements to the contrary, the Trustee shall not be required to initiate foreclosure proceedings with respect to the Collateral, and shall not otherwise be required to acquire possession of, or take other action with respect to the Collateral which could cause the Trustee to be considered an "owner" or "operator" within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, or any other law dealing with the environmental matters or hazardous substances, unless the Trustee has sufficient comfort, based on previous determinations by experts on which it can rely, including environmental report, that: (a) there are no circumstances present at the Collateral relating to the use, management or disposal of any hazardous substances, hazardous materials, hazardous wastes or petroleum-based materials for which investigation, testing, monitoring, contaminant, clean up or remedial action could be required under any environmental laws, or that if any such materials are present for which such action could be required, that it would be nevertheless in the best economic interest of the Trustee and the Holders to take such actions with respect to the Collateral; (b) if the Trustee has determined that it would be in the best economic interest of the Trustee and the Holders, the Trustee must be satisfied that they will suffer no unreimbursed liabilities and will be adequately reimbursed for all liabilities, expenses and costs from available funds in Trustee's possession and control; and (c) if the Trustee has determined that it would be in the best economic interest of the Trustee and the Holders to take any such action and its aforementioned liabilities, expenses and costs are adequately reimbursed, the Trustee has so notified the Holders and has not received, within 30 days of such notification, instructions from owners of fifty percent (50%) or more in principal amount of the then outstanding Securities directing it not to take such action. If the foregoing conditions are not satisfied and the Trustee is not willing to waive such conditions and initiate foreclosure proceedings, then the Trustee shall take such actions as are reasonably necessary or appropriate in order to facilitate the appointment of a co-trustee, being a person or entity designated by the Holders of a majority in principal amount of the Securities then outstanding and to assign to such person or entity (subject, however, to the trusts created pursuant to the Indenture) the beneficial interest under the Collateral Agreements which secures the obligations under the Indenture, for the limited purpose of conducting a foreclosure of such Collateral Agreements and receiving and holding any title to real property obtained as a result of such foreclosure. Persons or entities -68- appointed as co-trustees or agents of the Trustee pursuant to this Section shall not be required to meet the criteria of Section 6.9 of this Indenture, or any other criteria, in order to serve as such. -69- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and, where appropriate, their respective corporate seals to be hereunto affixed and attested, all as of , 1996. TRANS WORLD GAMING CORP. By: --------------------------------------- By: --------------------------------------- TRANS WORLD GAMING OF LOUISIANA, INC. By: --------------------------------------- By: --------------------------------------- [CORPORATE SEAL] Attest: By: ----------------------- U.S. TRUST COMPANY OF TEXAS, N.A. , as Trustee By: --------------------------------------- ------------------------------------------- (Name and Title) [CORPORATE SEAL] Attest: By: ----------------------- EX-4.7 5 12% SECURE CONV SEC BOND THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT, AND MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACTS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED. No. $ TRANS WORLD GAMING CORP. TRANS WORLD GAMING OF LOUISIANA, INC. 12% Secured Convertible Senior Bond Due 1999 Date: June 30, 1996 Trans World Gaming Corp., a Nevada corporation ("TWG"), and its wholly-owned subsidiary, Trans World Gaming of Louisiana, Inc., a Louisiana corporation (collectively, the "Issuer"), for value received hereby promises to pay jointly and severally to , or registered assigns, the principal sum of Dollars at the Issuer's office or agency for said purpose, on June 30, 1999, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest semi-annually on December 15 and June 15 (each an "Interest Payment Date") of each year, commencing with December 15, 1996, on said principal sum in like coin or currency at 12% per annum at said office or agency from the most recent Interest Payment Date to which interest on the Securities has been paid or duly provided for unless the date hereof is a date to which interest on the Securities is paid or duly provided for, in which case from the date of this Security, or unless no interest has been paid or duly provided for on the Securities, in which case from the date of issuance. The interest so payable on any Interest Payment Date will, except as otherwise provided in the Indenture referred to on the reverse hereof, be paid to the Person in whose name this Security is registered at the close of business on December 1 or June 1, whether or not a Business Day (each an "Interest Record Date") next preceding such Interest Payment Date, whether or not such day is a Business Day; PROVIDED that interest may be paid, at the option of the Issuer, by mailing a check therefor payable to the registered Holder entitled thereto at his last address as it appears on the Security register. Notwithstanding the foregoing, if the date hereof is after an Interest Record Date and before the immediately following Interest Payment Date, this Security shall bear interest from such Interest Payment Date; PROVIDED that if the Issuer shall default in the payment of interest due on such Interest Payment Date, then this Security shall bear interest at 18% per annum from the next preceding Interest Payment Date to which interest on the Securities has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Securities since the original issue date of this Security, from such date. Interest on this Security will be calculated on the basis of a 360-day year, consisting of twelve 30-day months. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof which further provisions shall for all purposes have the same effect as if set forth in this place. IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed under its corporate seal. [Seal] TRANS WORLD GAMING CORP. By: ------------------------------------------------ Stanley Kohlenberg President and Chief Executive Officer By: ------------------------------------------------ TRANS WORLD GAMING OF LOUISIANA, INC. By: ------------------------------------------------ Stanley Kohlenberg President and Chief Executive Officer By: ------------------------------------------------ -2- [REVERSE OF SECURITY] TRANS WORLD GAMING CORP. TRANS WORLD GAMING OF LOUISIANA, INC. 12% Secured Convertible Senior Bond Due 1999 Date: June 30, 1996 This Security is one of a duly authorized issue of debt securities of the Issuer, with an aggregate principal amount of $4,800,000, issued pursuant to an indenture dated as of November 1, 1996 (the "Indenture"), duly executed and delivered by the Issuer to U.S. Trust Company of Texas, N.A., as Trustee (herein called the "Trustee"). Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Issuer and the Holders (the words "Holders" or "Holder" meaning the registered holders or registered holder) of the Securities. The Securities are general secured obligations of the Issuer. Capitalized terms used in this Security and not defined herein shall have the meaning set forth in the Indenture. In case an Event of Default (as defined in the Indenture) shall have occurred and be continuing, the principal and interest in respect of all of the Securities then outstanding may be declared due and payable in the manner and with the effect, and subject to the conditions, provided in the Indenture. The Indenture provides that the Holders of a majority in aggregate principal amount of the Securities then outstanding, by notice to the Trustee, may on behalf of the Holders of all of the Securities, waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Securities or in respect of a covenant or provision that cannot be modified or amended without the consent of all Holders of the Securities. Any such consent or waiver by the Holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Security and any Security which may be issued in exchange or substitution therefor, whether or not any notation thereof is made upon this Security or such other Securities. The Indenture permits the Issuer and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities; provided that no such supplemental indenture shall, without the consent of each Holder affected thereby (with respect to any Securities held by a non-consenting Securityholder) (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Security or alter the provisions with respect to the redemption of the Securities, (iii) reduce the rate of or change the time for payment of interest on any Security, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount of the then outstanding Securities and a waiver of the payment default that resulted from such acceleration), (v) make any Security payable in money other than that stated in the Securities, (vi) make any change in the provisions of the Indenture relating to -3- waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or interest on the Securities, (vii) waive a redemption payment with respect to any Security or (viii) make any change in the foregoing amendment and waiver provisions. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligations of the Issuer, which are absolute and unconditional, to pay the principal of and the interest on this Security at the place, times, and rate, and in the currency, herein prescribed. The Securities are issuable only as registered Securities without coupons. At the office or agency of the Issuer referred to on the face hereof and in the manner and subject to the limitations provided in the Indenture, Securities may be exchanged for a like aggregate principal amount of Securities of other authorized denominations. Upon due presentment for registration of transfer of this Security at the above-mentioned office or agency of the Issuer, a new Security or Securities of authorized denominations, for a like aggregate principal amount, will be issued to the transferee as provided in the Indenture. No service charge shall be made for any such transfer, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. As provided in the Indenture, the Securities may not be redeemed by the Issuer except the Issuer may redeem the Securities in whole, but not in part, within six months following a public offering by the Issuer of common stock in which the gross proceeds to the Issuer are not less than $4,800,000, upon mailing a notice of such redemption not less than 30 nor more than 60 days prior to the date fixed for redemption to the Holders of Securities to be redeemed, at a redemption price equal to 100% of the principal amount of the Securities redeemed, together with accrued and unpaid interest to the date fixed for redemption. Subject to payment by the Issuer of a sum sufficient to pay the amount due upon redemption, interest on this Security shall cease to accrue upon the date duly fixed for redemption of this Security. A holder of a Security may convert it into Common Stock of TWG at any time before the close of business on June 30, 1999. If the Security is called for redemption, the holder may convert it at any time before the close of business on the redemption date. The initial conversion price is as follows, subject to adjustment in certain events: $2.00 per share from December 23, 1996 to June 30, 1997; $2.50 per share from July 1, 1997 to June 30, 1998; and $3.125 from July 1, 1998 to June 30, 1999. To determine the number of shares issuable upon conversion of a Security, divide the principal amount to be converted by the conversion price in effect on the conversion date. On conversion no payment or adjustment for interest will be made. TWG will deliver a check for any fractional share. To convert a Security a holder must (1) complete and sign the conversion notice on the back of the Security, (2) surrender the Security to a Conversion Agent, (3) furnish appropriate endorsements and transfer documents if required by the Registrar or Conversion -4- Agent, and (4) pay any transfer or similar tax if required. A holder may convert a portion of a Security if the portion is $1,000 or a whole multiple of $1,000. The conversion price will be adjusted for dividends or distributions on Common Stock payable in TWG stock; subdivisions, combinations or certain reclassifications of Common Stock; distributions to all holders of Common Stock of certain rights to purchase Common Stock at less than the current market price at the time; distributions to such holders of assets or debt securities of TWG or certain rights to purchase securities of TWG (excluding cash dividends or distributions from current or retained earnings). However, no adjustment need be made if Securityholders may participate in the transaction or in certain other cases. TWG from time to time may voluntarily reduce the conversion price for a period of time. The Issuer, the Trustee and any authorized agent of the Issuer or the Trustee may deem and treat the registered Holder hereof as the absolute owner of this Security (whether or not this Security shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Issuer or the Trustee or any authorized agent of the Issuer or the Trustee), for the purpose of receiving payment of, or on account of, the principal hereof and premium, if any, and subject to the provisions on the face hereof, interest hereon and for all other purposes, and neither the Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of, premium, if any, or the interest on this Security, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer, employee or director, as such, past, present or future, of the Issuer or the Trustee or of any successor corporation, either directly or through the Issuer or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). This Security shall not be valid or obligatory until the certificate of authentication hereon shall have been duly signed by an authorized signatory of the Trustee acting under the Indenture. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities described in the within-mentioned Indenture. Dated: U.S. Trust Company of Texas, N.A., as Trustee By: ------------------------------------------------ Authorized Signatory -5- ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to: - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint _________________________________________ agent to transfer this Security on the books of the Issuer. The agent may substitute another to act for him. CONVERSION NOTICE To convert this Security into Common Stock of TWG, check the box: / / To convert only part of this Security, state the amount: $__________________ If you want the stock certificate made out in another person's name, fill in the form below: - -------------------------------------------------------------------------------- (insert other person's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type other person's name, address and zip code) -6- Date: ---------------------------------------- -------------------------- Your Signature ---------------------------------------- (Sign exactly as your name appears on the other side of this Security) Signature Guaranty ---------------------------------------- Notice: Signature must be guaranteed by an "Eligible Guarantor Institution" as defined by Securities Exchange Act Rule 17Ad-15. -7- EX-4.8 6 WARRANT TO PURCHASE THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT, AND MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACTS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE COMMON STOCK TRANS WORLD GAMING CORP. (a Nevada corporation) Dated: July 1, 1996 THIS CERTIFIES that ___________________ (together with its assigns, the "Holder") is entitled to purchase from Trans World Gaming Corp., a Nevada corporation ("Company") up to ___________ shares of the Company's common stock, par value $.001 per share (the "Common Stock"), at a purchase price of $1.00 per share of Common Stock (the "Warrant Price"), subject to adjustment as hereafter provided. This Warrant is issued pursuant to a Subscription Agreement dated July 1, 1996 (the "Subscription Agreement"), among the Company, Trans World Gaming of Louisiana, Inc., the Holder and certain other subscribers. 1. EXERCISE OF THE WARRANT. The rights represented by this Warrant may be exercised at any time on or before 5:00 p.m., New York time, on June 30, 2001, in whole or in part, by (i) the surrender of this Warrant (with the purchase form at the end of hereof properly executed) at the principal executive office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company); (ii) payment to the Company of the Warrant Price then in effect for the number of shares of Common Stock specified in the above-mentioned purchase form together with applicable stock transfer taxes, if any; and (iii) delivery to the Company of a duly executed agreement signed by the person(s) designated in the purchase form to the effect that such person(s) agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c) and (d) of Paragraph 6 hereof. This Warrant shall be deemed to have been exercised, in whole or in part to the extent specified, immediately prior to the close of business on the date this Warrant is surrendered and payment is made in accordance with the foregoing provisions of this Paragraph 1, and the person or persons in whose name or names the certificates for the Securities shall be issuable upon such exercise shall become the Holder or Holders of record of such Common Stock at that time and date. The Common Stock so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) business days, after the rights represented by this Warrant shall have been so exercised. 2. TRANSFER. This Warrant may be assigned in whole or in part by the Holder by (i) completing and executing the form of assignment at the end hereof and (ii) surrendering this Warrant with such duly completed and executed assignment form for cancellation, accompanied by funds sufficient to pay any transfer tax, at the office or agency of the Company referred to in Paragraph 1 hereof; whereupon the Company shall issue, in the name or names specified by the Holder (including the Holder) a new Warrant or Warrants of like tenor and representing in the aggregate rights to purchase the same number of shares of Common Stock as are then purchasable hereunder. 3. COVENANTS OF THE COMPANY. (a) The Company covenants and agrees that all Common Stock and Common Stock issuable upon exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and no personal liability will attach to the holder thereof by reason of being such a holder, other than as set forth herein. (b) The Company covenants and agrees that during the period within which this Warrant may be exercised, the Company will at all times have 2 authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. (c) The Company covenants and agrees that for so long as the Common Stock shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrant to be listed on or quoted by The NASDAQ National Market System or on the NASDAQ Stock Market and the Boston Stock Exchange. 4. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. 5. REGISTRATION. (a) The Holder shall have the right to have the shares of Common Stock underlying this Warrant registered as part of the next public offering of the Common Stock. If no Common Stock offering has occurred by December 31, 1997, then upon the written request of the holders of Warrants issued on the date hereof and exercisable for not less than 600,000 shares of Common Stock (as such number may be adjusted under Paragraph 7), and on a one-time basis, the Company shall file and use its best efforts to cause to be declared effective by the Securities and Exchange Commission a registration statement or post-effective amendment thereto as permitted under the Securities Act of 1933, as amended (the "Act"), covering the sale by the Holder of (i) this Warrant or any portion hereof, (ii) the Common Stock issuable upon exercise of this Warrant or any portion hereof, or (iii) both, as the Holder may elect (the "Registerable Securities"). The Company shall supply prospectuses in order to facilitate the public sale or other disposition of the Registerable Securities, use its best efforts to register and qualify any of the Registerable Securities for sale in such states as such Holder reasonably designates and do any and all other acts and things which may be necessary to enable such Holder to consummate the public sale of the Registerable Securities, and furnish indemnification in the manner provided in Paragraph 6 hereof. The Holder shall furnish information reasonably requested by the Company in accordance with such post-effective amendments or registration statements, including its intentions with respect thereto, and shall furnish indemnification as set forth in Paragraph 6. (b) The Company will maintain such registration statement or post-effective amendment current and effective under the Act until the expiration of the exercisability of this Warrant; PROVIDED, HOWEVER, that upon fifteen days' advance written notice to the Holder the Company may suspend the availability of such 3 registration statement or post-effective amendment for not more than three periods of three months each (a "Suspension Period"), PROVIDED FURTHER, HOWEVER, that no Suspension Period may commence sooner than three months after the termination of any other Suspension Period, and there may be no more than two three month Suspension Periods in any twelve month time period. (c) The Company shall bear the entire cost and expense of any registration of securities under Paragraph 5 hereof. Notwithstanding the foregoing, any Holder whose Registerable Securities are included in any such registration statement pursuant to this Paragraph 5 shall, however, bear the fees of any counsel retained by him and any transfer taxes or underwriting discounts or commissions applicable to the Registerable Securities sold by him pursuant thereto. 6. INDEMNIFICATION. (a) Whenever pursuant to Paragraph 5 a registration statement relating to any Registerable Securities is filed under the Act, amended or supplemented, the Company will indemnify and hold harmless each Holder of the Registerable Securities covered by such registration statement, amendment or supplement (such holder hereinafter referred to as the "Distributing Holder"), each person, if any, who controls (within the meaning of the Act) the Distributing Holder, and each officer, employee, partner or agent of the Distributing Holder, and each underwriter (within the meaning of the Act) of such securities and each person, if any, who controls (within the meaning of the Act) any such underwriter and each officer, employee, agent or partner of such underwriter against any losses, claims, damages or liabilities, joint or several, to which the Distributing Holder, any such underwriter or any other person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement or alleged untrue statement of any material fact contained in any such registration statement or any preliminary prospectus or final prospectus constituting a part thereof or any amendment or supplement thereto, or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse the Distributing Holder and each such underwriter or such other person for any legal or other expenses reasonably incurred by the Distributing Holder, or underwriter or such other person, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case (i) to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder, any other Distributing Holder or any such underwriter for use in the preparation thereof, and (ii) such losses, claims, damages or liabilities arise out of or are based upon any actual or alleged untrue 4 statement or omission made in or from any preliminary prospectus, but corrected in the final prospectus, as amended or supplemented. (b) Whenever pursuant to Paragraph 5 a registration statement relating to the Registerable Securities is filed under the Act, or is amended or supplemented, the Distributing Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed said registration statement and such amendments and supplements thereto, and each person, if any, who controls the Company (within the meaning of the Act) against any losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in any such registration statement or any preliminary prospectus or final prospectus constituting a part thereof, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent that such untrue statement or alleged untrue statement or omission was made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder for use in the preparation thereof; and will reimburse the Company or any such director, officer or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. (c) Promptly after receipt by an indemnified party under this Paragraph 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party, give the indemnifying party notice of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Paragraph 6. (d) In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnified part to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Paragraph 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. 7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SECURITIES. 5 (a) The Warrant Price shall be subject to adjustment from time to time as follows: (i) In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution the Warrant Price in effect immediately prior to such dividend or distribution shall forthwith be reduced to a price determined by dividing: (a) an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Warrant Price in effect immediately prior to such dividend or distribution, by (b) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For the purposes of any computation to be made in accordance with the provisions of this clause (i), the following provisions shall be applicable: Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution. (ii) In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Warrant Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination to the nearest one cent. Any such adjustment shall become effective at the time such subdivision or combination shall become effective. (iii) Within a reasonable time after the close of each quarterly fiscal period of the Company during which the Warrant Price has been adjusted as herein provided, the Company shall: (a) Deliver to the Holder a certificate signed by the President or Vice President of the Company and by the Treasurer or Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, showing in detail the facts requiring all such adjustments occurring during such period and the Warrant Price after each such adjustment. (b) Notwithstanding anything contained herein to the contrary, no adjustment of the Warrant Price shall be made if the amount of such adjustment shall be less than $.01, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and 6 together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to not less than $.01. (b) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend payable in Common Stock or by a subdivision of the outstanding Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of this Section by reason of such dividend or subdivision, the number of shares of Common Stock issuable upon the exercise of the Warrant shall be increased in proportion to such increase in outstanding shares. In the event that the number of shares of Common Stock outstanding is decreased by a combination of the outstanding Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of this Section by reason of such combination, the number of shares of Common Stock issuable upon the exercise of the Warrant shall be decreased in proportion to such decrease in the outstanding shares of Common Stock. (c) In case of any reorganization or reclassification of the outstanding Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination), or in case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding Common Stock), or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the holder of the Warrant then outstanding shall thereafter have the right to purchase the kind and amount of shares of Common Stock and other securities and property receivable upon such reorganization, reclassification, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which the holder of the Warrant shall then be entitled to purchase; such adjustments shall apply with respect to all such changes occurring between the date of this Warrant Agreement and the date of exercise of the Warrant. (d) Subject to the provisions of this Section, in case the Company shall, at any time prior to the exercise of the Warrant, make any distribution of its assets to holders of its Common Stock as a liquidating or a partial liquidating dividend, then if the holder of the Warrant exercises his Warrant after the record date for the determination of those holders of Common Stock entitled to such distribution of assets as a liquidating or partial liquidating dividend, he shall be entitled to receive for the Warrant Price per Warrant, in addition to each share of Common Stock, the amount of such distribution (or, at the option of the Company, a sum equal to the value of any such assets at the time of such distribution as determined by the Board of Directors of the Company in good faith), which would have been payable to the holder had he been the holder of record of the Common Stock receivable upon exercise of his Warrant on the record date for the determination of those entitled to such distribution. 7 (e) In case of the dissolution, liquidation or winding-up of the Company, all rights under the Warrant shall terminate on a date fixed by the Company, such date to be no earlier than ten (10) days prior to the effectiveness of such dissolution, liquidation or winding-up and not later than five (5) days prior to such effectiveness. Notice of such termination of purchase rights shall be given to the last registered holder of this Warrant, as the same shall appear on the books of the Company, by registered mail at least thirty (30) days prior to such termination date. (f) In case the Company shall, at any time prior to the expiration of this Warrant and prior to the exercise thereof, offer to the holders of its Common Stock any rights to subscribe for additional shares of any class of the Company, then the Company shall give written notice thereof to the last registered holder thereof not less than thirty (30) days prior to the date on which the books of the Company are closed or a record date is fixed for the determination of the stockholders entitled to such subscription rights. Such notice shall specify the date as to which the books shall be closed or record date fixed with respect to such offer of subscription and the right of the holder thereof to participate in such offer of subscription shall terminate if this Warrant shall not be exercised on or before the date of such closing of the books or such record date. (g) Any adjustment pursuant to the aforesaid provision shall be made on the basis of the number of shares of Common Stock which the holder thereof would have been entitled to acquire by the exercise of the Warrant immediately prior to the event giving rise to such adjustment. (h) Irrespective of any adjustments in the Warrant Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants previously or thereafter issued may continue to express the same price and number and kind of shares as are stated in this Warrant. (i) The Company may retain a firm of independent public accountants (who may be any such firm regularly employed by the Company) to make any computation required under this Section. (j) If at any time, as a result of an adjustment made pursuant to this Paragraph 7, the Holder of this Warrant shall become entitled to purchase any securities other than shares of Common Stock, thereafter the number of such securities so purchasable upon exercise of each Warrant and the Warrant Price for such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock. 8. FRACTIONAL SHARES. 8 The Company shall not be required to issue fractions of shares of Common Shares on the exercise of this Warrant; provided, however, that if a Holder exercises all the Warrants held of record by such Holder, the fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares. 9. MISCELLANEOUS. (a) This Warrant shall be governed by and in accordance with the laws of the State of New York. (b) All notices, requests, consents and other communications hereunder shall be made in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (i) if to a Holder, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, One Penn Plaza, New York, NY 10119. (c) All the covenants and provisions of this Warrant by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. (d) Nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the registered Holder or Holders, any legal or equitable right, for the sole and exclusive benefit of the Company and the Holder or Holders. 9 IN WITNESS WHEREOF, Trans World Gaming Corp. has caused this Warrant to be signed by its duly authorized officer and this Warrant to be dated July 1, 1996. TRANS WORLD GAMING CORP. By: ---------------------------- Stanley Kohlenberg President and Chief Executive Officer 10 EX-4.9 7 WARRANT FOR PURCHASE WARRANT FOR PURCHASE OF SHARES OF COMMON STOCK OF TRANS WORLD GAMING CORP. January 1, 1997 For value received, Andrew Tottenham, or his registered assigns (the "Holder"), is entitled to purchase from Trans World Gaming Corp., a Nevada corporation (the "Company"), at any time during the five (5) year period commencing on the date hereof and in accordance with the terms hereof, 187,500 fully paid and nonassessable shares of the Company's Common Stock, par value $.001 per share, which Common Stock is unregistered but has certain "piggyback" registration rights as set forth herein (such class of stock being hereinafter referred to as the "Common Stock" and such Common Stock as may be acquired upon exercise hereof being hereinafter referred to as the "Warrant Stock"), at the price of $.5938 per share. This Warrant is subject to the following provisions, terms and conditions: 1. The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as to a fractional share of Common Stock), by written notice of exercise delivered to the Company accompanied by the surrender of this Warrant (properly endorsed if required) at the principal office of the Company and upon payment to it, by cash, certified check or bank draft, of the warrant exercise price for such shares. The Company agrees that the Warrant Stock so purchased shall be and is deemed to be issued as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Warrant Stock as aforesaid. Certificates for the shares of Warrant Stock so purchased shall be delivered to the Holder within 15 days after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of shares of Warrant Stock, if any, with respect to which this Warrant has not been exercised shall also be delivered to the Holder within such time. Notwithstanding the foregoing, however, the Company shall not be required to deliver any certificates for shares of Warrant Stock, except in accordance with the provisions and subject to the limitations of Section 4 below. 2. The Company covenants and agrees that all shares of Warrant Stock that may be issued upon the exercise of this Warrant will, upon issuance, be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that until expiration of this Warrant, the Company will at all times have authorized, and reserved for the purpose of issuance or transfer upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. 3. The foregoing provisions are, however, subject to the following: (a) The Warrant exercise price may be subject to adjustment from time to time as hereinafter provided. Upon each adjustment of the Warrant exercise price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Warrant exercise price resulting from such adjustment, the number of shares obtained by multiplying the Warrant exercise price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant exercise price resulting from such adjustment. (b) In case the Company shall at any time subdivide the outstanding Common Stock into a greater number of shares or declare a dividend payable in Common Stock, the Warrant exercise price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding Common Stock shall be combined into a smaller number of shares, the Warrant exercise price in effect immediately prior to such combination shall be proportionately increased. (c) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets ("substituted property") with respect to or in exchange for such Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the Holder shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such substituted property as would have been issued or delivered to the Holder if he had exercised this Warrant and had received upon exercise of this Warrant the Common Stock prior to such reorganization, reclassification, consolidation, merger or sale. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed to the Holder at the last address of the Holder appearing on the books of the Company, the obligation to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase. (d) Upon any adjustment of the Warrant exercise price, the Company shall give written notice thereof, by first-class mail, postage prepaid, addressed to the Holder at the address of the Holder as shown on the books of the Company, which notice shall state the Warrant exercise price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (e) No fractional shares of Common Stock shall be issued upon the exercise of this Warrant, but, instead of any fraction of a share which would otherwise be issuable, the 2 Company shall pay a cash adjustment (which may be effected as a reduction of the amount to be paid by the Holder hereof upon such exercise) in respect of such fraction in an amount equal to the same fraction of the $.5938 price per share (as adjusted, if applicable) of Common Stock as of the date of the written notice of exercise required by paragraph 1 above. 4. If at any time commencing on the date hereof and ending on the seventh anniversary hereof the Company shall determine to proceed with the actual preparation and filing of a registration statement under the Securities Act of 1933 (the "Act") which (x) covers only shares of Common Stock to be sold by shareholders of the Company and does not include any shares to be sold by the Company, and (y) is not distributed by or through an underwriter, the Company will send to the Holder of this Warrant or of Warrant Stock written notice of such determination and shall use its best efforts to effect the registration under the Act, if such registration is permissible, of such shares of Warrant Stock as may be specified by written notice from the Holder delivered to the Company within 15 days after such notice is given (which notice shall be deemed to have been given upon the deposit thereof in first-class U.S. mail, postage pre-paid, addressed to the Holder at the address of the Holder as shown on the books of the Company); provided, however that: (i) the Company shall not be required to include any such shares of Warrant Stock in any such registration for any Holder who is able to sell the Warrant Stock owned by such Holder during a three-month period beginning on the date such notice is received by such holder, pursuant to Rule 144 under the Securities Act of 1933 (or any similar rule or regulation); (ii) the Company shall not be required to give such notice with respect to, or to include such Warrant Stock in, any such registration where any holder or holders of its securities whose securities will be covered by the registration statement have contractual rights to exclude any other shareholder of the Company from participating as a selling shareholder in the offering covered by the registration statement; (iii) the Company shall not be required to include in any such registration any shares of Common Stock previously duly registered under the Act; and (iv) the Company may, in its sole discretion, withdraw any such registration statement and abandon the proposed offering in which such Holder had requested to participate. The Holder shall only be entitled to notice of and participate in one registration statement pursuant to this Section 4. The costs and expenses of such offering, including but not limited to legal fees, special audit fees, printing expenses, filing fees, fees and expenses relating to qualifications under state securities or blue sky laws and the premiums for insurance, if any, incurred by the Company in connection with any registration made pursuant to this Section 4 shall be borne entirely by the Company; provided, however, that any Holders participating in such registration shall bear the fees and expenses of their own counsel or accountants in connection with any such registration. Upon the exercise of registration rights pursuant to this Section 4, the Holder agrees to supply the Company with such information as may be required by the Company to register or qualify such shares of Common Stock as is set forth in this Section 4. 5. This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company. 6. The Holder, by acceptance hereof, represents and warrants that (a) he is acquiring this Warrant for his own account for investment purposes only and not with a view to its resale or distribution and (b) he has no present intention to resell or otherwise dispose of all or any part of this Warrant. Other than pursuant to registration under federal and state securities laws or an 3 exemption from such registration, the availability of which the Company shall determine in its sole discretion, and subject to this Section 6, (y) the Company will not accept the exercise of this Warrant or issue certificates for shares of Warrant Stock and (z) neither this Warrant nor any shares of Warrant Stock may be sold, pledged, assigned or otherwise disposed of (whether voluntarily or involuntarily). The Company may condition such issuance or sale, pledge, assignment or other disposition on the receipt from the party to whom this Warrant is to be so transferred or to whom Warrant Stock is to be issued or so transferred of any representations and agreements requested by the Company in order to permit such issuance or transfer to be made pursuant to exemptions from registration under federal and applicable state securities laws. Each certificate representing the Warrant (or any part thereof) and any shares of Warrant Stock shall be stamped with appropriate legends setting forth these restrictions on transferability. The Holder, by acceptance hereof, agrees to give written notice to the Company before exercising or transferring this Warrant or transferring any shares of Warrant Stock of the Holder's intention to do so, describing briefly the manner of any proposed exercise or transfer. Within thirty (30) days after receiving such written notice, the Company shall notify the Holder as to whether such exercise or transfer may be effected. 7. This Warrant shall be transferable only on the books of the Company by the Holder in person, or by duly authorized attorney, on surrender of the Warrant, properly assigned. 8. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer and to be dated as of the date set forth above. TRANS WORLD GAMING CORP. By: ------------------------------- Dominick Valenzano Chief Financial Officer RESTRICTION ON TRANSFER THIS WARRANT OR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE RESOLD OR TRANSFERRED UNLESS SUCH RESALE OR TRANSFER IS EXEMPTED FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS ("LAWS"), AND THE COMPANY RECEIVES, PRIOR TO RESALE OR TRANSFER, WRITTEN REPRESENTATIONS OF THE HOLDER AND PROPOSED TRANSFEREE SATISFACTORY TO THE COMPANY REGARDING SUCH TRANSFER OR, AT THE ELECTION OF THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT THE PROPOSED TRANSFER OF THIS WARRANT OR OF SUCH SHARES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR QUALIFICATION 4 UNDER THE LAWS, OR THE RESALE OR TRANSFER OF THIS WARRANT OR OF SUCH SHARES IS REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE LAWS. 5 EX-4.10 8 PROMISSORY NOTE NON-NEGOTIABLE PROMISSORY NOTE $150,000.00 January 1, 1997 New York, New York FOR VALUE RECEIVED, the undersigned, TRANS WORLD GAMING CORP. ("Maker"), agrees and promises to pay to the order of ANDREW TOTTENHAM ("Holder") at 3 Garfield Mews, London SW11 5PL, United Kingdom, or at such place as Holder may from time to time hereafter designate in writing, the sum of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00), with interest at the rate of 10% per annum payable on January 1, 2002. At the option of Holder, interest may be payable in cash on July 1 and January 1 of each year or added to principal in the event that Holder determines to exercise the right of conversion as provided below. Holder shall provide written notice at least 30 days prior to each such interest due date if he elects to make such interest payment. Beginning January 1, 1998, at the option of Holder, this Note shall be convertible into shares of common stock of Maker, par value $.001 per share, at a conversion price of $1.00 per share. Such convertibility feature will vest at a rate of 20% per year for each year after the date of this Note; provided, however, that if Maker completes a registered public offering of its common stock during the term of this Note, this Note shall immediately become 100% vested and fully convertible. To determine the number of shares issuable as Holder's interest in the convertibility feature of this Note vests over time, the principal amount plus any accrued interest to date to be converted will be divided by the conversion price in effect on the conversion date. Upon conversion, no payment or adjustment for interest will be made. Maker will deliver a check to Holder for any fractional share. To convert this Note into shares of Maker's $.001 par value common stock, Holder must (1) complete and sign a conversion notice substantially in the form attached hereto, (2) surrender this Note to Maker, and (3) pay any transfer or similar tax if required. Upon surrender of this Note (or any Subsequent Note, as hereinafter defined) by Holder to Maker in connection with the exercise of Holder's conversion rights hereunder, Maker shall execute and deliver a replacement note (a "Subsequent Note") setting forth the new principal amount, if any, outstanding after such conversion. Maker shall have no privilege to prepay this Note, in full or in part, at any time. The undersigned severally waives presentment for payment, notice of nonpayment and of protest, and agrees to any extension of time of payment and partial payments before, at or after maturity, and if this Note or interest thereon is not paid when due or suit is brought, agrees to pay all reasonable costs of collection, including attorneys' fees, and also waives all exemptions in case suit is filed. This Note shall be governed by, and construed in accordance with the laws of the State of New York. The parties irrevocably submit to the exclusive jurisdiction of any state or federal court located in New York County, New York. TRANS WORLD GAMING CORP. By: ____________________________ Name: ____________________________ Title: ___________________________ EX-10.23 9 CONSULTING AGREEMENT CONSULTING AGREEMENT This CONSULTING AGREEMENT (the "Agreement") is entered into as of this 1st day of January, 1997 between TRANS WORLD GAMING CORP., a Nevada corporation (the "Company") and Mr. Stanley Kohlenberg (the "Consultant"). RECITALS A. The Company is involved in the ownership, management, and development of businesses in the gaming industry on a worldwide basis. B. Company desires to be assured of the assistance of Consultant in order to avail itself of Consultant's experience, skills, abilities, background and knowledge, and is therefore willing to engage the Consultant upon the terms and conditions herein contained. C. Consultant represents that he has expertise, experience and contacts in the gaming industry, and is familiar with the operational and regulatory conditions of that industry and is willing to be engaged and retained by the Company upon said terms and conditions herein contained. NOW, THEREFORE, in consideration of the recitals and the covenants and conditions hereinafter set forth the Consultant and Company agree as follows: 1. CONSULTING SERVICES (a) Company hereby retains Consultant to advise the Company on the financing of its worldwide gaming operations, the identification and evaluation of business opportunities, including, but not limited to acquisitions and various other gaming matters. Consultant agrees that all gaming opportunities of which Consultant becomes aware during the term of this Agreement will be referred to the Company first and on a first right-of-refusal basis. (b) Consultant agrees that all of Consultant's work hereunder shall be considered property of the Company and that all ownership rights and copyrights or trade secret pertaining to such work shall be and remain the property of the Company. Company may, in its discretion, assign any rights in any of the foregoing to the Consultant on a transaction by transaction basis. (c) At the pleasure and direction of the Company, Consultant shall serve as a member of the Company's board of directors and as chairman thereof. 2. TERMINATION OF EMPLOYMENT CONTRACT Company and Consultant hereby agree that, effective December 31, 1996, the Employment Contract between Company and Consultant dated as of March 6, 1996 is hereby terminated and without any further force or effect. Consultant shall, effective December 31, 1996, resign from his positions as President and Chief Executive Officer of the Company, and shall no longer be obligated to perform the duties set forth in the Employment Contract. 3. RELATIONSHIP OF THE PARTIES This Agreement shall not constitute an employer/employee relationship. It is the intention of each party that Consultant shall be an independent contractor and not an employee of the Company. Subject to the express provisions herein, the manner and means utilized by Consultant in performance of his services hereunder shall be under the sole control of Consultant. All compensation paid to Consultant hereunder shall constitute earnings to Consultant. Company shall not withhold any amounts therefrom for Federal, State and local income taxes from Consultant's compensation, or such employee contributions under the Federal Insurance Contribution Act (Social Security) or any other similar Federal or State law applicable to employers and employees. In the fulfillment of his obligations hereunder, Consultant shall have no authority to create any obligations for the Company, bind the Company to any contracts or other obligations, or commit the Company in any manner either verbally or in writing without the prior written authority of the Company. 4. TERM OF THE AGREEMENT The term of this Agreement will be twenty-seven (27) months commencing January 1, 1997, and continuing through March 31, 1999; provided that the foregoing clause notwithstanding, this Agreement may be terminated at any time by either party for any reason on thirty (30) days prior written notice. 5. COMPENSATION OF CONSULTANT Company hereby agrees to compensate Consultant as follows: (a) Company shall pay Consultant five thousand dollars ($5,000.00) per month payable on or before the fifteenth (15th) day of each month, such amount representing the entire obligation of the Company to the Consultant. Consultant shall be required to work no more than the equivalent of eight (8) days in a calendar month. (b) As additional compensation from the Company, Consultant shall be entitled to: (i) an extension through the earlier of (A) the expiration of the term of this Agreement or (B) within ninety (90) days of its early termination of all stock options in the Company and held by Consultant in effect as of December 31, 1996, (except as set forth above. Consultant shall not be entitled to participate in Company's 1993 Incentive Stock Option Plan or similar plans); (ii) Company shall reimburse Consultant for medical benefits under COBRA for the COBRA period after which Company shall either continue to reimburse Consultant for such coverage or reimburse Consultant for equivalent medical coverage in Company's sole discretion; and (iii) Consultant shall be entitled to use the Company automobile until expiration of this Agreement or expiration of that certain Motor Vehicle Closed- Lease Agreement dated as of March 4, 1995 between the Company and Valley National Financial Service Company, whichever occurs first. (c) Company shall be responsible for all travel, entertainment and out-of-pocket expenses incurred by Consultant in performing services hereunder. All expenses 2 will be appropriately documented and submitted to the Company for payment, and shall be approved in advance by the Company. 6. DISCLOSURE OF CONFIDENTIAL INFORMATION (a) DEFINITION OF CONFIDENTIAL INFORMATION: For purposes of this Agreement, "Confidential Information" means any information that is not generally known to the public that relates to the Company, its business operations or agents, or information which from all circumstances, the Consultant knows or has reason to know that the Company intends or expects to be maintained. Confidential Information includes, but is not limited to, information contained in or relating to the customer lists, price lists, product designs, marketing or business plans or proposals, customer information, merchandising, selling, accounting, finances, know-how, trademarks, trade names, trade practices, trade secrets and other proprietary information of the Company. (b) CONSULTANT SHALL NOT DISCLOSE CONFIDENTIAL INFORMATION: The Consultant will not, during the term of Company's engagement of Consultant or following the termination of this Agreement, use, show, display, release, discuss, communicate, divulge or otherwise disclose Confidential Information to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever, without the prior written consent or authorization of the Company. (c) SCOPE: Consultant's covenant in Subsection 5(b) not to disclose Confidential Information shall not apply to information which, at the time of such disclosure, may be obtained from sources outside of the Company, or its agents, lawyers or accountants, so long as those sources did not receive the information directly or indirectly as the result of Consultant's act or omission. (d) RETURN: Consultant agrees and acknowledges that all Confidential Information is and shall remain the property of the Company, and Consultant agrees to return all Confidential Material in whatsoever form or format in his possession to the Company on demand or within fifteen (15) days of termination of this Agreement. (e) COMPELLED DISCLOSURE: In the event a third party seeks to compel disclosure of Confidential Information by the Consultant, the Consultant shall promptly notify the Board of Directors of the Company of such occurrence and furnish to the Board of Directors a copy of the demand, summons, subpoena or other process served upon the Consultant by judicial or administrative process, and will permit the Company to assume, at its expense, but with the Consultant's knowledge and cooperation, defense of such disclosure demand. In the event that the Company refuses to contest such a third party disclosure demand under judicial or administrative process, or a final judicial order is issued compelling disclosure or Confidential Information by the Consultant, the Consultant shall be entitled to disclose such information in compliance with the terms of such administrative or judicial process or order. 3 7. PROPRIETARY INFORMATION OF OTHERS Consultant acknowledges that from time to time the Company may do business with suppliers, customers and other actual or potential business associates who may supply the Company with information of a confidential nature, and that the Company may have an obligation to preserve the confidential nature of any such information. Consultant agrees to treat any such information received from suppliers, customers or other actual or potential business associates as confidential, and as if it were the Confidential information of the Company, or of any affiliates or subsidiaries of the Company, unless advised otherwise by an officer of the Company. 8. AFFILIATE The term "Company" when used in Sections 6, 7 and 10 of this Agreement shall mean, in addition to the Company, any Affiliate of the Company. The terms "Affiliate" or "Affiliates" when used in Sections 6, 7 and 10 of this Agreement shall mean any corporation that controls the Company, or is controlled by the Company, or is under common control with the Company. 9. ENTIRE AGREEMENT; MODIFICATION This Agreement constitutes the full and complete understanding and agreement of the parties with respect to the subject matter hereof, and supersedes any prior understanding or agreement between the parties relating hereto. No amendment, waiver or modification of any provision of this Agreement shall be binding unless made in writing by the parties hereto. 10. ASSIGNMENT The rights and benefits of the Company and its permitted assigns under this Agreement shall be fully assignable and transferable to any other entity: (a) which is an affiliate of the Company; or (b) with which the Company has merged or consolidated, or to which it has sold substantially all of its assets in a transaction in which such entity has assumed the liabilities of the Company under this Agreement; and in the event of any such assignment or transfer, all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by or against an affiliate or the successors and assigns of the Company. (c) Consultant may not assign this Agreement or any part hereof without Company's prior written approval in each instance. Any purported assignment in violation of the terms hereof shall be void. 11. NOTICES To be effective, all notices, consents or other communications required or permitted hereunder shall be in writing. A written notice or other communication shall be deemed to have been given hereunder (i) if delivered by hand, when the notifying party delivers such notice or other 4 communication to all other parties to this Agreement; (ii) if delivered by telecopies or overnight delivery service, on the first business day following the date of such notice or other communications transmitted by telecopier or timely delivery to the overnight courier; or (iii) if delivered by mail, on the third business day following the date such notice or other communication is deposited in the U.S. mail by certified or registered mail addressed to the other party. Mail or telecopied communications shall be directed as follows unless written notice or a change of address or telecopier number has been given in writing in accordance with this Section: If to Company: Mr. Dominick J. Valenzano, CFO Trans World Gaming Corp. One Penn Plaza, Suite 1503 New York, New York 10119 Telecopier: (212) 563-3380 If to Consultant: Mr. Stanley Kohlenberg 2 Beekman Place New York, New York 10022 Telecopier: 12. WAIVER No waiver of any right, term, condition or covenant of this Agreement by a party shall be deemed to be a waiver of any subsequent breaches of the same or other terms, covenants or conditions hereof by such party. 13. COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute one instrument. 14. CONSTRUCTION Whenever possible, each provision of the Agreement shall be interpreted in such manner as to be effective or valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 15. APPLICABLE LAW This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in that State. 16. NO THIRD PARTY BENEFICIARIES Nothing is this Agreement shall entitle any person or entity (other than a party hereto and its permitted assigns) to any claim, right, benefit or remedy of any kind. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: CONSULTANT: TRANS WORLD GAMING CORP. BY: __________________________ _____________________________ DOMINICK J. VALENZANO STANLEY KOHLENBERG CHIEF FINANCIAL OFFICER 6 EX-10.24 10 EMPLOYMENT CONTRACT EMPLOYMENT CONTRACT This EMPLOYMENT CONTRACT, dated as of December 26, 1996 between Trans World Gaming Corp., a Nevada corporation with offices at One Penn Plaza, Suite 1503, New York, New York 10119 (the "Company") and Andrew Tottenham (the "Employee"). The Company desires to engage Employee to perform services to the Company and to Employee desires to perform such services, on the terms and conditions hereinafter set forth: 1. TERM. The Company agrees to employ the Employee in an executive capacity as President and Chief Executive Officer and Employee agrees to serve on the terms and conditions of this Agreement for a period commencing on the date of this Agreement and ending five (5) years hereafter. 2. DUTIES AND SERVICES. During the Employment Period, Employee shall be employed in the business of the Company. In performance of his duties, Employee shall be subject to reasonable direction of the Board of Directors of the Company. Employee agrees to devote full time to the affairs of the Company, to discharge his duties hereunder to the best of his abilities and to take no action outside of the ordinary course of business that he is not specifically authorized to take by the Board of Directors of the Company, and that the foregoing shall constitute a material term of this Agreement. Employee's office shall be based in London, United Kingdom but shall be available to travel as the needs of the business reasonably require. 3. COMPENSATION. As full compensation for his services hereunder, the Company shall pay Employee, during the Employment Period, as follows: A. A basic salary payable in semi-monthly installments at the annual rate of $150,000 for each year of the contract, such payments to be made in accordance with the Company's usual payroll practices. B. Employee will be eligible for participation in the Company's 1993 Incentive Stock Plan and the Executive Compensation Plan. C. The Company has no current plan relative to bonuses or cost of living increases, although the Company reserves the right in the future to grant such bonuses or cost of living increases. D. Employee shall further be entitled to participate in the present or future employee benefit plans of the Company including pension plans subject to the approval of the Board of Directors if he meets the eligibility requirements therefor. 4. EXPENSES. Employee shall be entitled to reimbursement for reasonable travel and out- of-pocket expenses necessarily incurred in the performance of his duties hereunder, upon submission of written statements and/or bills in accordance with the then regular procedures of the Company. 5. REPRESENTATIONS & WARRANTIES OF EMPLOYEE. Employee represents and warrants to the Company that Employee is under no contractual or other restriction which is inconsistent with the execution of this Agreement or performance of his duties hereunder. 6. PATENTS. Any interest in patents, patent applications, inventions, copyrights, developments, and processes (the "Inventions") which Employee now or hereafter during the period he is employed by the Company under this Agreement or otherwise may own or develop relating to the fields in which the Company may then be engaged shall belong to the Company and forthwith upon request of the Company may reasonably request in order to vest in the Company all his right, title and interest in and to the Inventions free and clear of all liens, charges and encumbrances. 7. CONFIDENTIAL INFORMATION. All confidential information which Employee may now possess, may obtain during or after the Employment Period or may create prior to the end of the period he is employed by the Company, under this Agreement, or otherwise, relating to the business of the Company, or as it may relate to the Company or any customer or supplier of any of them shall not be published, disclosed, or made accessible by him to any other person, firm or corporation either during or after the termination of his employment or used by him except during the Employment in the business of the Company. Except as otherwise provided in this Section 7, Employee shall return all tangible evidence of such confidential information to the Company prior to or at the termination of his employment. 8. LIFE INSURANCE. If reasonably requested by the Company, Employee shall submit to such reasonable physical examinations and otherwise take such actions and deliver such documents may be reasonably necessary to enable the Company at its expense and for its own benefit, to obtain life insurance on the life of Employee. 9. TERMINATION. Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Employment Period: (a) either (i) Employee shall be physically or mentally incapacitated or disabled or otherwise unable to fully discharge his duties hereunder for a period of three consecutive months in any twelve month period (provided however, that there shall be no right of termination unless there is in effect disability paid for by the Company in an amount sufficient to pay Employee his full salary in the amount provided in Section 3 for the balance of the term of this Agreement), and Employee is in fact paid full salary in the amount provided in Section 3 for the balance of the term of this Agreement, (ii) Employee shall be, after all appeals have been exhausted, convicted of a felony, or (iii) Employee shall breach any material term of this Agreement or violate Company policy and fail to correct such breach within (30) days after the written notice of commission thereof, then and in each such case, the Company shall have the right to give written notice of termination of Employee's services hereunder as of a date (not earlier than 30 days from the date of giving written notice) to be specified in such notice, and this Agreement shall terminate on and the salary shall be payable to, the date so specified, or 2 (b) Employee shall die, then the Agreement shall terminate on the date of Employee's death but salary shall continue to be paid for a period of 90 days after the date of death. If Employee is terminated for any reason whatsoever; he will be entitled to 3 months severance pay equal to the salary in Section 3 for a period of 90 days. His estate shall be entitled to receive his full salary at the rate provided in Section 3 to the date as aforesaid. Nothing contained in this Section 9 shall be deemed to limit any other right the Company may have to terminate the Employee's employment hereunder upon any ground permitted by law in which case Employee will be paid severance pay equal to the salary in Section 3 for a period of 90 days. 10. SURVIVAL. The covenants, agreements, representations and warranties contained in or made pursuant to this Agreement shall survive Employee's rightful termination of employment. If any such termination is wrongful, then, except, as provided in Section 6, such covenants, agreements, representations and warranties shall not Survive. 11. MODIFICATIONS. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between the parties concerning such subject matter, and may be modified only by a written instrument duly executed by both of the parties hereto. 12. NOTICES. Any notice or other communication permitted or required to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested or delivered against receipt to the party to whom it is to be given at the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing and in accordance with the provisions of this Section 13). Notice to the estate of Employee shall be sufficient if addressed to Employee as provided in this Section 13. Any notice of other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. 13. WAIVER. Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must in writing. 14. BINDING EFFECT. Employee's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to communications, encumbrance or other claims of Employee's creditors and any attempt to do any of the foregoing shall be void. The Company's rights or obligation under this Agreement shall not be transferable by assignment or otherwise, unless Employee at its sole option, elects to accept and be bound by such transfer assignment. The provisions of this 3 Agreement shall be binding upon and inure to the benefit of Employee and his heirs and personal representative and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 15. NO THIRD PARTY BENEFICIARIES. This Agreement does not create and shall not be construed as creating any rights enforceable by any person not a party to this Agreement, except as provided in Sections 9(b) and 14 of this Agreement. 16. HEADINGS. The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 17. COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed and construed in accordance with the laws of the State of New York without giving effect to its conflict of laws provisions. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above-written. TRANS WORLD GAMING CORP. By: -------------------------- Dominick J. Valenzano Its: Chief Financial Officer ANDREW TOTTENHAM -------------------------- EX-10.25 11 EMPLOYMENT CONTRACT EMPLOYMENT CONTRACT This EMPLOYMENT CONTRACT, dated as of February 1, 1997 between Trans World Gaming Corp., a Nevada corporation, ("TWG") with offices at 3 Garfield Mews, London, England SW1 15PL, (the "Company") and Christopher Moore (the "Employee"). The Company desires to engage Employee to perform services to the Company and Employee desires to perform such services, on the terms and conditions hereinafter set forth: 1. TERM. The Company agrees to employ the Employee in an executive capacity as Director of Operations and Employee agrees to serve on the terms and conditions of this Agreement for a period commencing on the date of this Agreement and ending three (3) years hereafter. 2. DUTIES AND SERVICES. During the Employment Period, Employee shall be employed in the business of the Company. In performance of his duties, Employee shall be subject to reasonable direction of the President and CEO. Employee agrees to devote full time to the affairs of the Company, to discharge his duties hereunder to the best of his abilities and to take no action outside of the ordinary course of business that he is not specifically authorized to take by the President and CEO, and that the foregoing shall constitute a material term of this Agreement. Employee's office shall be based in London, United Kingdom but shall be available to travel as the needs of the business reasonably require. 3. COMPENSATION. As full compensation for his services hereunder, the Company shall pay Employee, during the Employment Period, as follows: A. A basic salary payable in semi-monthly installments at the annual rate of $90,000 for each year of the contract, such payments to be made in accordance with the Company's usual payroll practices. B. Employee will be entitled to a recoverable draw against his yearly incentive compensation at a rate not to exceed $20,000 per annum. C. Employee will be eligible for participation in the Company's 1993 Incentive Stock Plan and the Executive Compensation Plan. D. The Company has no current plan relative to cost of living increases, although the Company reserves the right in the figure to grant such cost of living increases. E. Employee and the Company shall each be required to contribute 5% per annum of the Employee's annual compensation to a pension plan approved by the Company. F. Employee shall further be entitled to purchase share options of TWG's common stock. Such options may not be exercised before February 1, 1998 or 12 months following the effective date of this Agreement, as follows: (i) Option to acquire 25,000 shares of TWG common stock at an exercise price equal to the closing bid price as quoted on the NASDAQ Small Cap market at the close of business on January 31, 1997. (ii) Option to acquire 25,000 shares of TWG common stock at $2.00 per share. (iii) Common stock underlying such options shall be restricted securities which carry certain piggyback registration rights. 4. EXPENSES. Employee shall be entitled to reimbursement for reasonable travel and out- of-pocket expenses necessarily incurred in the performance of his duties hereunder, upon submission of written statements and/or bills in accordance with the then regular procedures of the Company. 5. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. Employee represents and warrants to the Company that Employee is under no contractual or other restriction which is inconsistent with the execution of this Agreement or performance of his duties hereunder, and will not undertake any contractual work outside of this Agreement without the prior written consent of TWG. 6. PATENTS. Any interest in patents, patent applications, inventions, copyrights, developments, and processes (the "Inventions") which Employee during the period he is employed by the Company under this Agreement or otherwise may own or develop relating to the fields in which the Company may then be engaged shall belong to the Company and forthwith upon request of the Company may reasonably request in order to vest in the Company all his right, title and interest in and to the Inventions free and clear of all liens, charges and encumbrances. 7. CONFIDENTIAL INFORMATION. All confidential information which Employee may now possess, may obtain during or after the Employment Period or may create prior to the end of the period he is employed by the Company, under this Agreement, or otherwise, relating to the business of the Company, or as it may relate to the Company or any customer or supplier of any of them shall not be published, disclosed, or made accessible by him to any other person, firm or corporation either during or after the termination of his employment or used by him except during the Employment in the business of the Company. Except as otherwise provided in this Section 7, Employee shall return all tangible evidence of such confidential information to the Company prior to or at the termination of his employment. 8. LIFE INSURANCE. If reasonably requested by the Company, Employee shall submit to such reasonable physical examinations and otherwise take such actions and deliver such documents as may be reasonably necessary to enable the Company at its expense and for its own benefit, to obtain life insurance on the life of Employee. 2 9. TERMINATION. Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Employment Period: (a) either (i) Employee shall be physically or mentally incapacitated or disabled or otherwise unable to fully discharge his duties hereunder for a period of three consecutive months in any twelve month period (provided however, that there shall be no right of termination unless there is in effect disability paid for by the Company in an amount sufficient to pay Employee his flail salary in the amount provided in Section 3 for the balance of the term of this Agreement), and Employee is in fact paid full salary in the amount provided in Section 3 for the balance of the term of this Agreement, (ii) Employee shall be, after all appeals have been exhausted, convicted of a felony, (iii) Employee shall breach any material term of this Agreement or violates Company policy and fails to correct such breach within (30) days after the written notice of commission thereof, then and in each such case, the Company shall have the right to give written notice of termination of Employee's services hereunder as of a date (not earlier than 30 days from the date of giving written notice) to be specified in such notice, and this Agreement shall terminate on and the salary shall be payable to, the date so specified, or (b) Employee shall die, then the Agreement shall terminate on the date of Employee's death but salary shall continue to be paid for a period of 90 days after the date of death. If Employee is terminated for any reason whatsoever; he will be entitled to 3 months severance pay equal to the salary in Section 3 for a period of 90 days. His estate shall be entitled to receive his full salary at the rate provided in Section 3 to the date as aforesaid. Nothing contained in this Section 9 shall be deemed to limit any other right the Company may have to terminate the Employee's employment hereunder upon any ground permitted by law in which case Employee will be paid severance pay equal to the salary in Section 3 for a period of 90 days. 10. SURVIVAL. The covenants, agreements, representations and warranties contained in or made pursuant to this Agreement shall survive Employee's rightful termination of employment. If any such termination is wrongful, then, except, as provided in Section 6, such covenants, agreements, representations and warranties shall not survive. 11. MODIFICATIONS. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between the parties concerning such subject matter, and may be modified only by a written instrument duly executed by both of the parties hereto. 12. NOTICES. Any notice or other communication permitted or required to be given hereunder shall be in writing and shall ho mailed by certified mall, return receipt requested or delivered against receipt to the party to whom it is to be given at the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing and in accordance with the provisions of this Section 13). Notice to the estate of Employee shall be sufficient if addressed to Employee as provided in this Section 13. Any notice of other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. 3 13. WAIVER. Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must in writing. 14. BINDING EFFECT. Employee's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to communications, encumbrance or other claims of Employee's creditors and any attempt to do any of the foregoing shall be void. The Company's rights or obligation under this Agreement shall not be transferable by assignment or otherwise, unless Employee at its sole option, elects to accept and be bound by such transfer assignment. The provisions of this Agreement shall be binding upon and inure to the benefit of Employee and his heirs and personal representative and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 15. NO THIRD PARTY BENEFICIARIES. This Agreement does not create and shall not be construed as creating any rights enforceable by any person not a party to this Agreement, except as provided in Sections 9(b) and 14 of this Agreement. 16. HEADINGS. The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 17. COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed and construed in accordance with the laws of the State of New York without giving effect to its conflict of laws provisions. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above-written. TRANS WORLD GAMING CORP. By: -------------------------- Andrew Tottenham Its: President and Chief Executive Officer CHRISTOPHER MOORE -------------------------- 4 EX-10.26 12 CANCELLATION AGREEMENT CANCELLATION AGREEMENT AGREEMENT made as of the 3rd day of October, 1996, between MID-CITY ASSOCIATES, a partnership with an office at 60 East 42nd Street, New York, New York 10165 (hereinafter called "Landlord"), and TRANS WORLD GAMING CORPORATION, a Nevada corporation with an office at One Penn Plaza, New York, New York 10119 (hereinafter called "Tenant"). W I T N E S S E T H: WHEREAS, Landlord and Tenant are respectively the landlord and tenant under that certain lease, dated as of January 20, 1995, for part of the 43rd floor (Rooms 4303-4306) in the building known as One Penn Plaza, New York, New York (which lease, as it may have been modified or amended, is hereinafter called the "Lease"); and WHEREAS, Tenant has requested that Landlord cancel the Lease, and the Landlord and Tenant are willing to do so on the terms herein set forth. NOW, THEREFORE, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto mutually agree as follows: 1. The term of the Lease is hereby canceled effective as of Midnight on November 14, 1996 and shall cease and come to an end on that day with the same force and effect as though that were the original date set forth in the Lease for the expiration of its term, and Tenant shall deliver vacant, broom clean possession of the demised premises to Landlord on or before November 14, 1996. Tenant agrees that any of its property remaining in the demised premises after November 14, 1996 shall be deemed to be abandoned by Tenant, and Tenant hereby waives any of its ownership rights in and to such property. 2. In consideration of this Agreement, Tenant, upon execution hereof, shall pay to Landlord, by good and sufficient certified check to the order of Landlord's agent, Helmsley-Spear, Inc., the sum of $55,000. 3. Upon such cancellation and surrender of possession, neither party shall have any obligation to the other under the Lease, except as set forth in this Agreement. 4. Tenant agrees to duly execute and timely deliver to Landlord any forms, returns or other documents required to be executed or filed with any governmental authority in connection with this Agreement and to timely pay any transfer taxes, fees or other such charges due to any governmental authority in connection with this Agreement. The provisions of this paragraph shall survive the cancellation of the Lease. 5. The parties acknowledge and agree that the within Agreement is conditioned upon Landlord's entering into a fully executed lease agreement with Mitsubishi Electronics America, Inc., pursuant to which Rooms 4303-4306 on the 43rd floor of the Building are leased to Mitsubishi Electronics America, Inc. If, for any reason, including Landlord's failure or refusal to execute and deliver the same, such lease agreement with Mitsubishi Electronics America, Inc. is not executed and delivered by the parties thereto by Midnight, October 31, 1996, then Landlord may elect to cancel this Agreement, by giving Tenant three (3) days' prior written notice of such cancellation (by regular mail or by hand delivery, to the address set forth above), in which event, effective as of the last day of such three day notice period, the within Agreement shall be deemed null and void and neither party shall have any obligation to the other hereunder, except that Landlord shall return to Tenant the $55,000 payment made by Tenant to Landlord under paragraph 2 hereof. 6. This Agreement shall not in any way bind Landlord until such time as it has been executed by Tenant, and has been executed by Landlord and delivered to Tenant. 7. This Agreement may not be modified except by a writing subscribed by Landlord and by Tenant. 8. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WITNESS: Landlord: MID-CITY ASSOCIATES By: Helmsley-Spear, Inc., Agent By: - -------------------------------- ----------------------------- Name: Title: WITNESS: Tenant: TRANS WORLD GAMING CORPORATION By: - -------------------------------- ----------------------------- Name: Title: 2 EX-10.27 13 AGREEMENT LEASE Agreement of Lease BETWEEN MID-CITY ASSOCIATES, Landlord and TRANS WORLD GAMING CORPORATION, Tenant Premises in One Penn Plaza New York, New York 10119 Dated: as of October 2, 1996 WIEN, MALKIN & BETTEX Attorney for Tenant Attorneys for Landlord 60 East 42nd Street New York, New York 10165 TABLE OF CONTENTS Article Page 1. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2. Occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3. Alterations and Installations. . . . . . . . . . . . . . . . . . . . . .2 4. Repairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 5. Requirements of Law; Fire Insurance. . . . . . . . . . . . . . . . . . .4 6. Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 7. Loss, Damage, Reimbursement, Liability, Etc. . . . . . . . . . . . . . .5 8. Destruction--Fire or Other Cause . . . . . . . . . . . . . . . . . . . .7 9. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 10. Assignment & Subletting. . . . . . . . . . . . . . . . . . . . . . . . 10 11. Access to Demised Premises . . . . . . . . . . . . . . . . . . . . . . 14 12. Certificate of Occupancy . . . . . . . . . . . . . . . . . . . . . . . 15 13. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 14. Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 15. Remedies of Landlord; Waiver of Redemption . . . . . . . . . . . . . . 18 16. Fees and Expenses; Interest. . . . . . . . . . . . . . . . . . . . . . 18 17. No Representations by Landlord . . . . . . . . . . . . . . . . . . . . 19 18. End of Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 19. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 20. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 21. Adjacent Excavation--Shoring . . . . . . . . . . . . . . . . . . . . . 20 22. Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . . . . 20 23. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 24. Waiver of Trial by Jury. . . . . . . . . . . . . . . . . . . . . . . . 22 25. Inability to Perform . . . . . . . . . . . . . . . . . . . . . . . . . 22 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 27. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 30. Condition of Premises. . . . . . . . . . . . . . . . . . . . . . . . . 29 31. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 32. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 33. Vault and Basement Space . . . . . . . . . . . . . . . . . . . . . . . 29 34. Occupancy and Use by Tenant. . . . . . . . . . . . . . . . . . . . . . 30 35. Name of Building . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 36. Invalidity of Any Provision, Etc.. . . . . . . . . . . . . . . . . . . 31 37. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 38. Certificate of Tenant. . . . . . . . . . . . . . . . . . . . . . . . . 32 39. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 40. Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 41. Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 42. Submission of Lease. . . . . . . . . . . . . . . . . . . . . . . . . . 34 43. Memorandum of Lease. . . . . . . . . . . . . . . . . . . . . . . . . . 34 44. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 34 Exhibit A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Exhibit B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Exhibit C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 45. Tax and Operating Expense Escalation . . . . . . . . . . . . . . . . . 46 46. Rent Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 47. Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 i AGREEMENT OF LEASE made as of this 2nd day of October 1996, between MID-CITY ASSOCIATES, a general partnership with its office at 60 East 42nd Street, New York, New York 10165, hereinafter referred to as "Landlord", or "Lessor", and TRANS WORLD GAMING CORPORATION, a Nevada Corporation with an office at One Penn Plaza, New York, New York 10119 hereinafter referred to as "Tenant", or "Lessee". W I T N E S S E T H: Landlord hereby leases to Tenant and Tenant hereby hires from Landlord, in the building known as One Penn Plaza in the Borough of Manhattan, City of New York (hereinafter referred to as the "Building"), the following space: approximately 992 rentable square feet of space on the 15th floor (Room 1503) (which space is hereinafter referred to as "the demised premises" or "the premises") approximately as shown on the plan or plans or diagram or diagrams annexed hereto as "Exhibit A" (or incorporated by reference into this Lease as though physically attached hereto); for the term of three years to commence on November 15, 1996 and to end on October 31, 1999 (plus, if the term hereof commences on a day other than the first day of a month, so many days as are necessary for the term to end on the last day of the last month of the term), or until such term shall sooner cease and terminate as hereinafter provided; at a fixed annual rental rate (without electricity and subject to Article 28 adjustment) of $ 25,792 a year. Tenant agrees to pay said fixed annual rent in lawful money of the United States, in equal monthly installments in advance on the first day of each calendar month during said term, at the office of Landlord or such other place in the United States of America as Landlord may designate, without any setoff or deduction whatsoever, except such deduction as may be occasioned by the occurrence of any event permitting or requiring a deduction from or abatement of rent as specifically set forth herein. Should the obligation to pay rent commence on any day other than on the first day of a month, then the fixed rent for the unexpired portion of such month shall be adjusted and prorated on a per diem basis. The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows: ARTICLE 1 RENT 1.01. Tenant shall pay the fixed annual rent and additional rent as above and as hereinafter provided, in United States legal tender, by cash or by good and sufficient check drawn on a New York City bank which is a member of the New York Clearing House or a successor thereto. All sums other than fixed annual rent payable by Tenant hereunder shall be deemed additional rent and payable on demand, unless other payment dates are hereinafter provided. ARTICLE 2 OCCUPANCY 2.01. Tenant may not use or occupy the demised premises as a savings bank, state or Federal savings and loan association, commercial bank or trust company. Tenant shall use and 1 occupy the demised premises solely for executive and general offices relating to Tenant's business, and for no other purpose. ARTICLE 3 ALTERATIONS AND INSTALLATIONS SEE RIDER ARTICLE 47 3.01. Tenant shall make no alterations, installations, additions or improvements in or to the demised premises without Landlord's prior written consent; all such work shall be done only by contractors or mechanics designated by Landlord as approved for the Building. All such work, alterations, installations, additions and improvements shall be done at Tenant's sole expense and at such times and in such manner as Landlord may from time to time designate. Prior to commencement of such work, Tenant shall obtain and deliver to Landlord a written letter of authorization, in form satisfactory to Landlord's counsel, signed by all architects, engineers, surveyors and designers to become involved in such work, which shall confirm that any of their drawings or plans are to be removed from any filing with governmental authorities on the request of Landlord. 3.02. Any mechanic's lien, filed against the demised premises or the Building for work claimed to have been done for or materials claimed to have been furnished to Tenant shall be discharged by Tenant at its expense within thirty (30) days, by payment, filing of the bond required by law, or otherwise. Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and that no mechanic's or other lien for any such labor or materials shall attach to or affect the reversion or other estate or interest of Landlord in and to the demised premises. 3.03. All alterations, installations, additions and improvements made and installed by Landlord, shall become and be the property of Landlord and shall remain upon and be surrendered with the demised premises as a part thereof at the end of the term of this Lease. 3.04. All alterations, installations, additions and improvements made and installed by Tenant, or at Tenant's expense, upon or in the demised premises which are of a permanent nature and which cannot be removed without damage to the demised premises or Building, and all telephone, telecommunications and data processing equipment and wiring and conduits, supplemental electrical cabling and wiring, and related items, shall become and be the property of Landlord and shall remain upon and be surrendered with the demised premises as a part thereof at the end of the term of this Lease, except that Landlord shall have the right and privilege at any time prior to or within three (3) months after the termination of the Lease to serve notice upon Tenant requiring that any or all of such alterations, installations, additions and improvements, equipment, wiring, cabling and conduits, shall be removed and, in the event of service of such notice, Tenant will, at Tenant's own cost and expense, promptly remove the same in accordance with such request, and restore the premises to its original condition, ordinary wear and tear excepted. The obligations under this Section shall survive the expiration or sooner termination of the term of this Lease. 3.05. Where furnished by or at the expense of Tenant, all furniture, furnishings and trade fixtures, including without limitation, murals, business machines and equipment, counters, screens, grille work, special panelled doors, cages, partitions, metal railings, closets, panelling, 2 lighting fixtures and equipment, drinking fountains, refrigerators, and any other movable property shall remain the property of Tenant which may at its option remove all or any part thereof at any time prior to the expiration of the term of this Lease. In case Tenant shall decide not to remove any part of such property, Tenant shall notify Landlord in writing not less than three (3) months prior to the expiration of the term of this Lease, specifying the items of property which it has decided not to remove. If, within thirty (30) days after the service of such notice, Landlord shall request Tenant to remove any of the said property, Tenant shall at its expense remove the same in accordance with such request. As to such property, which Landlord does not request Tenant to remove, the same shall be, if left by Tenant, deemed abandoned by Tenant and thereupon the same shall become the property of the Landlord. 3.06. If any alterations, installations, additions, improvements or other property which Tenant shall have the right to remove or be requested by Landlord to remove as provided hereinabove (herein in this Section 3.06 called the "property") are not removed on or prior to the expiration of the term of this Lease, Landlord shall have the right to remove said property and to dispose of the same without accountability to Tenant and at the sole cost and expense of Tenant. In case of any damage to the demised premises or the Building resulting from the removal of the property, Tenant shall repair such damage or, in default thereof, shall reimburse Landlord for Landlord's cost in repairing such damage. The obligations under this Section shall survive the expiration or sooner termination of the term of this Lease. 3.07. Tenant shall keep records of Tenant's alterations, installations, additions and improvements, and the cost thereof. Tenant shall, within 45 days after demand by Landlord, furnish to Landlord copies of such records and cost if Landlord shall require same in connection with any proceeding to reduce the assessed valuation of the Building, or in connection with any proceeding instituted pursuant to Article 9 hereof. ARTICLE 4 REPAIRS 4.01. Tenant shall take good care of the demised premises and the fixtures and appurtenances therein and shall promptly, at its sole, cost and expense, make all repairs necessary to keep the demised premises in good working order and condition, including structural repairs when those are made necessary by the act, omission or negligence of Tenant or its agents or employees (subject to Section 7.05 hereof). Except as otherwise provided in Section 3.05 of this Lease, all damage or injury to the demised premises and to its fixtures, glass, appurtenances and equipment or to the Building or to its fixtures, glass, appurtenances and equipment caused by the moving of Tenant's property in or out of the Building, or by the installation or use of Tenant's property, or by the use of the demised premises in a manner contrary to the purposes for which same are leased to Tenant, shall be repaired, restored or replaced promptly by Tenant at its sole cost and expense, which repairs, restorations and replacements shall be in quality and class equal to the original work or installations. If Tenant fails to make such repairs, restorations or replacements, same may be made by Landlord at the expense of Tenant and such expense shall be collectible as additional rent and shall be paid by Tenant within 15 days after rendition of a bill therefor. Landlord, at Landlord's expense, shall effect all necessary repairs in and to the demised premises which are not the obligation of Tenant hereunder. 3 4.02. Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which such floor was designed to carry and which is allowed by law. Landlord certifies that the floor of the demised premises will carry 50 pounds live load per square foot of floor space and 20 pounds for partitions per square foot of floor space. If Tenant shall desire a floor load in excess of that set forth above, Landlord agrees (provided Landlord's architects, in their sole discretion, find that the work necessary to increase such floor load does not adversely affect the structure of the Building, and further provided that such work will not interfere with the amount or availability of any space adjoining alongside, above or below the demised premises, or interfere with the occupancy of other tenants in the Building), to strengthen and reinforce the same so as to give the live load desired, provided Tenant shall submit to Landlord the plans showing the locations of and the desired floor live load for the areas in question and provided further that Tenant shall agree to pay for or reimburse Landlord on demand for the cost of such strengthening and reinforcement as well as any other costs to and expenses of Landlord occasioned by or resulting from such strengthening or reinforcement. 4.03. Business machines and mechanical equipment belonging to Tenant which cause vibration, noise, cold or heat that may be transmitted to the Building structure or to any leased space to such a degree as to be objectionable to Landlord or to any other tenant in the Building shall be placed and maintained by Tenant at its expense in settings of cork, rubber or spring type vibration eliminators sufficient to absorb and prevent such vibration or noise, cold or heat The parties hereto recognize that the operation of elevators, air conditioning and heating equipment will cause some vibration, noise, heat or cold which may be transmitted to other parts of the Building and demised premises. Landlord shall be under no obligation to endeavor to reduce such vibration, noise, heat or cold beyond what is customary in current good building practice for a building such as One Penn Plaza. 4.04. Except as provided in Article 25 hereof and except as otherwise provided in this Lease there shall be no allowance to Tenant for a diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from the making of any repairs, alterations, additions or improvements in or to any portion of the Building or the demised premises or in or to fixtures, appurtenances or equipment thereof. Landlord shall seek to minimize any interference with Tenant's business operations. Tenant understands that work will be effected on business days during normal business hours. ARTICLE 5 REQUIREMENTS OF LAW; FIRE INSURANCE 5.01. Tenant, at its expense, shall comply with all laws, orders and regulations of Federal, State, County and Municipal authorities, and with any direction of any public officer or officers, pursuant to law, which shall impose any violation, order or duty upon Landlord or Tenant with respect to the demised premises, or the use or occupation thereof. 5.02. Tenant shall not do or permit to be done any act or thing upon said premises, which will invalidate or be in conflict with New York Standard fire insurance policies covering the Building, and fixtures and property therein, or which would increase the rate of fire insurance applicable to the Building to an amount higher than it otherwise would be; and Tenant shall neither do nor permit to be done any act or thing upon said premises which shall or might subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation being carried on upon said premises; but nothing in this 4 Section 5.02 shall prevent Tenant's use of the demised premises for the purposes stated in Article 2 hereof. 5.03. If, as a result of any act or omission by Tenant or violation of this Lease, the rate of fire insurance applicable to the Building shall be increased to an amount higher than it otherwise would be, Tenant shall reimburse Landlord for all increases of Landlord's fire insurance premiums so caused; such reimbursement to be additional rent payable upon the first day of the month following any outlay by Landlord for such increased fire insurance premiums. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make up" of rates for the Building or demised premises issued by the body making fire insurance rates for said premises, shall be presumptive evidence of the facts therein stated and of the several items and charges in the fire insurance rate then applicable to said premises. ARTICLE 6 SUBORDINATION 6.01. This Lease is subject and subordinate to that certain Agreement Restating Indenture of Lease, dated July 10, 1970 between The Bowery Savings Bank, as Lessor, and Mid-City Associates, as Lessee (hereinafter sometimes called "The Ground Lease") and to the rights of Lessor thereunder, and to all first mortgages which may now or hereafter encumber The Ground Lease, and to all renewals, modifications, consolidations, replacements and extensions of The Ground Lease and of such mortgages. 6.02. In the event of a termination of The Ground Lease, or if the interests of Landlord under this Lease are transferred by reason of or assigned in lieu of foreclosure or other proceedings for enforcement of any such mortgage, or if the holder of any such mortgage acquires a lease in substitution therefor, then the Tenant under this Lease will, at the option to be exercised in writing by the Lessor under said Ground Lease or such purchaser, assignee or lessee, as the case may be, (i) attorn to it and will perform for its benefit all the terms, covenants and conditions of this Lease on the Tenant's part to be performed with the same force and effect as if said Lessor or such , assignee or lessee, were the landlord originally named in this Lease, or (ii) enter into a new lease with said Lessor or such purchaser, assignee or lessee, as landlord, for the remaining term of this Lease and otherwise on the same terms and conditions and with the same options then remaining. ARTICLE 7 LOSS, DAMAGE, REIMBURSEMENT, LIABILITY, ETC. 7.01. Landlord or its agents shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or leaks from any part of the Building, or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatsoever nature, unless any of the foregoing shall be caused by or due to the negligence of Landlord, its agents, servants or employees. 7.02. Tenant shall reimburse Landlord for all expense, damages or fines incurred or suffered by Landlord, and for which Landlord has not been or will not be reimbursed by insurance, by reason of any breach, violation or nonperformance by Tenant, or its agents, servants or employees, of any covenant or provision of this Lease, or by reason of damage to 5 persons or property caused by moving property of or for Tenant in or out of the Building, or by the installation or removal of furniture or other property of or for Tenant except as provided in Section 3.05 of this Lease, or by reason of or arising out of the carelessness, negligence or improper conduct of Tenant, or its agents, servants or employees, in the use or occupancy of the demised premises. 7.03. Tenant shall give Landlord notice in case of fire or accidents in the demised premises promptly after Tenant is aware of such event. 7.04. Tenant agrees to look solely to Landlord's estate and interest in the land and Building, or the lease of the Building, or of the land and Building, and the demised premises, for the satisfaction of any right or remedy of tenant for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord, in the event of any liability by Landlord, and no other property or assets of Landlord shall be subject to levy, execution, attachment, or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of landlord and tenant hereunder, or Tenant's use and occupancy of the demised premises, or any other liability of Landlord to Tenant (except for negligence). 7.05. (a) Landlord agrees that, if obtainable at no additional cost, it will include in its fire insurance policies appropriate clauses pursuant to which the insurance companies (i) waive all right of subrogation against Tenant with respect to losses payable under such policies and/or (ii) agree that such policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policies. But should any additional premiums be exacted for any such clause or clauses, Landlord shall be released from the obligation hereby imposed unless Tenant shall agree to pay such additional premium. (b) Tenant agrees to include, if obtainable at no additional cost, in its fire insurance policy or policies on its furniture, furnishings, fixtures and other property removable by Tenant under the provisions of its lease of space in the Building appropriate clauses pursuant to which the insurance company or companies (i) waive the right of subrogation against Landlord and any tenant of space in the Building who shall have executed a similar waiver as set forth in this section 7.05(b), with respect to losses payable under such policy or policies and/or (ii) agree that such policy or policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policy or policies. But should any additional premium be exacted for any such clause or clauses, Tenant shall be released from the obligation hereby imposed unless Landlord or the other tenants shall agree to pay such additional premium. (c) Provided that Landlord's right of full recovery under its policy or policies aforesaid is not adversely affected or prejudiced thereby, Landlord hereby waives any and all right of recovery which it might otherwise have against Tenant, its servants, agents and employees, for loss or damage occurring to the Building and the fixtures, appurtenances and equipment therein, to the extent the same is covered by Landlord's insurance, notwithstanding that such loss or damage may result from the negligence or fault of Tenant, its servants, agents or employees. Provided that Tenant's 6 right of full recovery under its aforesaid policy or policies is not adversely affected or prejudiced thereby, Tenant hereby waives any and all right of recovery which it might otherwise have against Landlord, its servants, and employees, and against every other tenant in the Building who shall have executed a similar waiver as set forth in this Section 7.05(c) for loss or damage to Tenant's furniture, furnishings, fixtures and other property removable by Tenant under the provisions hereof to the extent that same is covered by Tenant's insurance, notwithstanding that such loss or damage may result from the negligence or fault of Landlord, its servants, agents or employees, or such other tenant and the servants, agents or employees thereof. (d) Landlord and Tenant hereby agree to advise the other promptly if the clauses to be included in their respective insurance policies pursuant to subparagraphs (a) and (b) above cannot be obtained. Landlord and Tenant hereby also agree to notify the other promptly of any cancellation or change of the terms of any such policy which would affect such clauses. ARTICLE 8 DESTRUCTION-FIRE OR OTHER CAUSE 8.01. If the Building shall be partially damaged or destroyed or if the demised premises shall be partially or totally damaged or destroyed by fire, casualty or other cause, then, whether or not the damage or destruction shall have resulted from the fault or neglect of Tenant, or its servants, employees, agents, visitors or licensees (and if this Lease shall not have been cancelled as in this article hereinafter provided), Landlord will repair the damage, and restore, replace, and rebuild the Building and the demised premises at its expense, with reasonable dispatch and continuity after notice to it of the damage or destruction; provided, however, that Landlord shall not be required to repair or replace any installation made by Tenant. If the demised premises shall be partially damaged or partially destroyed, the rent and additional rent payable hereunder shall be abated to the extent that the demised premises shall have been rendered untenantable or unfit for Tenant's use and Tenant does not occupy such damaged or destroyed part of the premises on other than an emergency basis for the period from the date of such damage or destruction to the date that the damage shall be repaired or restored. If the demised premises or a major part thereof shall be totally, or substantially totally, damaged or destroyed or rendered completely, or substantially completely, untenantable on account of fire, casualty or other cause, the rent and additional rent shall completely abate as of the date of the damage or destruction and until Landlord shall repair, restore, replace and rebuild the demised premises (subject to Landlord's right to elect not to restore the same as hereinafter provided); provided, however, that should Tenant reoccupy a portion of the demised premises for the purpose of conducting business during the period the restoration work is taking place and prior to the date that the same is made completely tenantable, rent and additional rent shall be apportioned and payable by Tenant in proportion to the part of the demised premises occupied by it. Nevertheless, in case of any substantial damage or destruction to the demised premises, Tenant, in addition to and without waiver of any other rights or remedies available to it, may cancel this Lease by written notice to Landlord, if (i) within 60 days from the date of the damage or destruction, Landlord does not file a proof of loss with its insurer; (ii) within 90 days of the date of damage or destruction Landlord does not let a contract or contracts which shall provide for the complete restoration of the demised premises within a period of two years from the date of the damage or destruction; (iii) work under such contract or contracts has not commenced within 120 days of the date of said damage or destruction; or (iv) said work is not prosecuted 7 with reasonable diligence to its completion; provided that Tenant shall not be entitled to cancel this Lease pursuant to this sentence more than thirty (30) days after Landlord shall have given written notice to Tenant that the state of facts specified in clause (i), (ii) or (iii) of this sentence, as the case may be, has occurred. The period for the commencement or completion of the required repairs and restoration work shall be extended by the number of days lost (not to exceed, however, one year) in the event such loss results from strike, act of God, war, governmental action, national or state or municipal emergency, or any cause beyond the reasonable control of Landlord. 8.02. In case the Building or the demised premises shall be substantially damaged or destroyed by fire or other cause at any time during the last two years of the term of this Lease, then Landlord may cancel this Lease upon written notice to Tenant given within ninety (90) days after such damage or destruction. 8.03. If the Building shall be so damaged at any time during the term of this Lease that Landlord shall decide to demolish it or to rebuild it, then in either of such events, Landlord may, within ninety (90) days after such fire or other casualty, elect to cancel this Lease by giving Tenant a notice in writing of such decision, and thereupon the term of this Lease shall expire by lapse of time upon the thirtieth day after such notice is given, and Tenant shall vacate the demised premises and surrender the same to Landlord. 8.04. In the event of the termination of this Lease pursuant to the provisions of this Article, this Lease shall expire as fully and completely on the date fixed in such notice of termination as if that were the date definitely fixed for the expiration of this Lease, but the rent and additional rent shall be apportioned and shall be paid up to and including the date of such damage or destruction, and any prepaid rent or prepaid additional rent shall be refunded to Tenant. 8.05. No damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the demised premises or of the Building. 8.06. The provisions of this Article shall be considered an express agreement governing any case of damage or destruction of the Building or the demised premises by fire or other casualty and Section 227 of the Real Property Law of the State of New York, and any other law of like import now or hereafter in force providing for such contingency shall have no application. ARTICLE 9 EMINENT DOMAIN 9.01. In the event that the whole of the demised premises shall be lawfully condemned or taken in any manner for any public or quasi-public use or purpose, this Lease and the term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title (hereinafter referred to as the "date of taking"), and Tenant shall have no claim against Landlord for, or make any claim for, the value of any unexpired term of this Lease, and the rent and additional rent shall be apportioned as of such date. 8 9.02. In the event that any part of the demised premises shall be so condemned or taken, then this Lease shall be and remain unaffected by such condemnation or taking, except that the rent and additional rent allocable to the part so taken shall be apportioned as of the date of taking, provided, however, that Tenant may elect to cancel this Lease in the event that more than twenty-five (25%) percent of the demised premises should be so condemned or taken, provided such notice of election is given by Tenant to Landlord not later than thirty (30) days after the date when title shall vest in the condemning authority. Upon the giving of such notice, this Lease shall terminate on the thirtieth day following the date of such notice and the rent and additional rent shall be apportioned as of such termination date. Upon such partial taking and this Lease continuing in force as to any part of the demised premises, the rent and additional rent shall be diminished by an amount representing the part of said rent and additional rent properly applicable to the portion or portions of the demised premises which may be so condemned or taken. If as a result of the partial taking (and this Lease continuing in force as to the part of the demised premises not so taken), any part of the demised premises not taken is damaged, Landlord agrees with reasonable promptness to commence the work necessary to restore the damaged portion to the condition existing immediately prior to the taking, and prosecute the same with reasonable diligence to its completion. In the event Landlord and Tenant are unable to agree as to the amount by which the rent and additional rent shall be diminished, the matter shall be determined by arbitration in accordance with the provisions of Article 31 of this Lease. Pending such determination, Tenant shall pay to Landlord the rent as fixed by Landlord, subject to adjustment in accordance with the arbitration. 9.03. Nothing hereinabove provided shall preclude Tenant from appearing, claiming, proving and receiving in the condemnation proceeding, Tenant's moving expenses, and the value of Tenant's fixtures, or tenant's alterations, installations and improvements which do not become part of the Building, or property of Landlord, provided Landlord's award is not thereby diminished. 9.04. In the event that more than twenty-five (25%) percent of the demised premises shall be so taken and Tenant shall not have elected to cancel this Lease as above provided, the entire award for a partial taking shall be paid to Landlord, and Landlord, at Landlord's own expense, shall to the extent of the net proceeds (after deducting reasonable expenses including attorneys' and appraisers' fees) of the award restore the unaffected part of the Building to substantially the same condition and tenantability as existed prior to the taking. Until said unaffected portion is restored, Tenant shall be entitled to a proportionate abatement of rent for that portion of the premises which is being restored and is not usable until the completion of the restoration or until the said portion of the premises is used by Tenant, whichever occurs sooner. Said unaffected portion shall be restored within a reasonable time but not more than six (6) months after the taking provided, however, if Landlord is delayed by strike, lockout, the elements, or other causes beyond Landlord's control, the time for completion shall be extended for a period equivalent to the delay. Should Landlord fail to complete the restoration within the said six (6) months or the time as extended, Tenant may elect to cancel this Lease and the term hereby granted in the manner and with the same results as set forth in the next two sentences of this Section 9.04. If such partial taking shall occur in the last two years of the term hereby granted, either party, irrespective of the area of the space remaining, may elect to cancel this Lease and the term hereby granted, provided such party shall, within thirty (30) days after such taking, give notice to that effect, and upon the giving of such notice, the rent shall be apportioned and paid to the date of expiration of the term specified and this Lease and the term 9 hereby granted shall cease, expire and come to an end upon the expiration of said thirty days specified in said notice. If either party shall so elect to end this Lease and the term hereby granted, Landlord need not restore any part of the demised premises and the entire award for partial condemnation shall be paid to Landlord, and Tenant shall have no claim to any part thereof, except as to the items set forth in Section 9.03 where same are applicable. 9.05. In the event all or any part of the demised premises shall be taken for a temporary use or occupancy, (a) demised term shall not be reduced or affected in any way except as provided in (d) below, (b) Tenant shall continue to be responsible for all of its obligations hereunder and shall continue to pay all rents and additional rents when due, (c) Tenant shall be entitled to receive that portion of the award which represents reimbursement for the cost of restoration of the demised premises, compensation for the use and occupancy of the demised premises and for any taking of Tenant's property, except that, if the temporary period of taking shall extend beyond the expiration of the term of this Lease, the portion of the award representing compensation for the use and occupancy of the demised premises shall be apportioned between Landlord and Tenant as of said expiration date of said term and Landlord shall receive that portion of the award which represents reimbursements for the cost of restoration of the demised premises, and (d) if the date of temporary taking of more than 25% of the demised premises shall occur during the last three (3) years of the term of this Lease, Tenant may elect to cancel this Lease by notice of election given by Tenant to Landlord not later than thirty (30) days after the date when title shall vest in the condemning authority. Upon the giving of such notice, this Lease shall terminate on the thirtieth day following the date of such notice and the rent and additional rent shall be apportioned as of such termination date, with Landlord, and not Tenant, to receive the portion of the award which represents reimbursement for the cost of restoration of the demised premises and the portion of the award representing compensation for the use and occupancy of the demised premises for the time subsequent to the cancellation date. ARTICLE 10 ASSIGNMENT AND SUBLETTING 10.01. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this Lease, nor underlet, or suffer or permit the demised premises or any part thereof to be used or occupied by others, without the prior written consent of Landlord in each instance. The merger or consolidation of a corporate lessee or sublessee where the net worth of the resulting corporation is less than the net worth of the lessee or sub lessee immediately prior to such merger or consolidation shall be deemed an assignment of this lease or of such sublease. If this Lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the rent herein reserved, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Landlord to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting. In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Landlord's prior 10 written consent in each instance. A modification, amendment or extension of a sublease shall be deemed a sublease. 10.02. If Tenant desires to assign this Lease or to sublet all or any portion of the demised premises, it shall first submit in writing to Landlord the documents described in Section 10.03 hereof, and shall offer in writing, (i) with respect to a prospective assignment, to assign this Lease to Landlord without any payment of moneys or other consideration therefor, or, (ii) with respect to a prospective subletting, to sublet to Landlord the portion of the demised premises involved ("Leaseback Area") for the term specified by Tenant in its offer and at the lower of (a) Tenant's proposed subrental or (b) at the same rate of fixed rent and additional rent; and otherwise on the same terms, covenants and conditions (including provisions relating to escalation rents), as are contained herein and as are allocable and applicable to the portion of the demised premises to be covered by such subletting. The offer shall specify the date when the Leaseback Area will be made available to Landlord, which date shall be in no event earlier than ninety (90) days nor later than one hundred eighty (180) days following the acceptance of the offer. If an offer of sublease is made, it shall in addition specify the duration of the term of the proposed sublease as fixed by Tenant, except that if the proposed sublease will result in all or substantially all of the demised premises being sublet, then Landlord shall have the option to extend the term of the proposed sublease for the balance of the term of this Lease less one (1) day. Landlord shall have a period of ninety (90) days from the receipt of such offer to either accept or reject the same. Landlord or its agents or designees shall have the right, during such time, at reasonable times during business hours, to enter the demised premises to exhibit same to prospective subtenants. If Landlord shall accept such offer, Tenant shall then execute and deliver to Landlord, or to anyone designated or named by Landlord, an assignment or sublease, as the case may be, in either case in a form reasonably satisfactory to Landlord's counsel. If a sublease is so made to Landlord or its designee, it shall expressly: (a) permit Landlord to make further subleases of all or any part of the Leaseback Area and (at no cost or expense to Tenant) to make and authorize any and all changes, alterations, installations and improvements in such space as Landlord may deem necessary for such subletting, at Landlord's expense; (b) provide that Tenant will at all times permit reasonably appropriate means of ingress to and egress from the Leaseback Area; (c) negate any intention that the estate created under such sublease be merged with any other estate held by either of the parties; and (d) provide that Landlord shall accept the Leaseback Area "as is" except that Landlord, at Tenant's expense, shall perform all such work and make all such alterations as may be required physically to separate the Leaseback Area from the remainder of the demised premises and to permit lawful occupancy, it being intended that Tenant shall have no other cost or expense in connection with the subletting of the Leaseback Area; 11 (e) provide that at the expiration of the term of such sublease Tenant will accept the Leaseback Area in its then existing condition, subject to the obligations of Landlord to make such repairs thereto as may be necessary to preserve the Leaseback Area in good order and condition, ordinary wear and tear excepted. Landlord shall indemnify and save Tenant harmless from all obligations under this Lease as to the Leaseback Area during the period of time it is so sublet, except for fixed annual rent and additional rents, if any, due under the within Lease, which are in excess of the rent and additional rents due under such sublease. Subject to the foregoing, performance by Landlord, or its designee, under a sublease of the Leaseback Area shall be deemed performance by Tenant of any similar obligation under this Lease and any default under any such sublease shall not give rise to a default under a similar obligation contained in this Lease, nor shall Tenant be liable for any default under this Lease or deemed to be in default hereunder if such default is occasioned by or arises from any act or omission of the tenant under such sublease or is occasioned by of arises from any act or omission of any occupant holding under or pursuant to any such sublease. 10.03. If Tenant requests Landlord's consent to a specific assignment or subletting, it shall submit in writing to Landlord (i) the name and address of the proposed assignee or sublessee, (ii) a duly executed counterpart of the proposed agreement of assignment or sublease, (iii) reasonably satisfactory information as to the nature and character of the business of the proposed assignee or sublessee, and as to the nature of its proposed use of the space, and (iv) banking, financial or other credit information relating to the proposed assignee or sublessee reasonably sufficient to enable Landlord to determine the financial responsibility and character of the proposed assignee or sublessee. 10.04. If Landlord shall not have accepted Tenant's offer, as provided in Section 10.02, then Landlord will not unreasonably withhold or delay its consent to Tenant's request for consent to such specific assignment or subletting (where Tenant will not move the conduct of its business to another building in New York City in violation of Article 34 hereof). Any consent of Landlord under this Article shall be subject to the terms of this Article and conditional upon there being no default by Tenant, beyond any grace period, under any of the terms, covenants and conditions of this Lease at the time that Landlord's consent to any subletting or assignment is requested and on the date of the commencement of the term of any proposed sublease or the effective date of any proposed assignment 10.05. Tenant understands and agrees that whether Landlord's written consent thereto is required or not required, no assignment or subletting shall be effective unless Tenant causes to be delivered to Landlord a duly executed copy of the sublease or assignment (unless it was theretofore delivered to Landlord). Any such sublease shall provide that the sublessee shall comply with all applicable terms and conditions of this lease to be performed by the Tenant hereunder. Any such assignment of lease shall contain an assumption by the assignee of all of the terms, covenants and conditions of this Lease to be performed by the Tenant. 10.06. If Landlord shall not have accepted any required Tenant's offer and/or Tenant effects any assignment or subletting, then Tenant thereafter shall pay to Landlord a sum equal to (a) any rent or other consideration paid to Tenant by any subtenant which (after deducting the costs of Tenant, if any, in effecting the subletting, including reasonable alteration costs, 12 commissions and legal fees) is in excess of the rent allocable to the subleased space which is then being paid by Tenant to Landlord pursuant to the terms hereof; and (b) any other profit or gain (after deducting any necessary expenses incurred) realized by Tenant from any such subletting or assignment All sums payable hereunder by Tenant shall be payable to Landlord as additional rent upon receipt thereof by Tenant. 10.07. Anything herein contained to the contrary notwithstanding: (a) Tenant shall not advertise (but may list with brokers) its space for assignment or subletting at a rental rate lower than the greater of the then Building rental rate for such space or the rental rate then being paid by Tenant to Landlord. (b) The transfer of a majority of the issued and outstanding capital stock of, or of a controlling interest in, any corporate tenant or subtenant of this Lease or a majority of the total interest in any partnership tenant or subtenant, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease or of such sublease. The transfer of outstanding capital stock of any corporate tenant, for purposes of this Article, shall not include sale of such stock by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934 as amended, and which sale is effected through "over- the-counter market" or through any recognized stock exchange. (c) No assignment or subletting shall be made: (i) To any person or entity which shall at that time be a tenant, subtenant or other occupant of any part of the Building of which the demised premises form a part, or who dealt with Landlord or Landlord's agent (directly or through a broker) with respect to space in the building during the six (6) months immediately preceding Tenant's request for Landlord's consent; (ii) By the legal representatives of the Tenant or by any person to whom Tenant's interest under this Lease passes by operation of law, except in compliance with the provisions of this Article; (iii) To any person or entity for the conduct of a business which is not in keeping with the standards and the general character of the Building of which the demised premises form a part. 10.08. Anything hereinabove contained to the contrary notwithstanding, the offer-back to Landlord provisions of Section 10.02 hereof shall not apply to, and Landlord will not unreasonably withhold or delay its consent to, an assignment of this Lease, or sublease of all or part of the demised premises, to: the parent of Tenant or to a wholly-owned subsidiary of Tenant or of said parent of Tenant, provided the net worth of the transferor or sublessor, after such transaction, is equal to or greater than its net worth immediately prior to such transaction, and provided also that any such transaction complies with the other provisions of this Article. 10.09. Anything hereinabove contained to the contrary notwithstanding, the offer-back to Landlord provisions of Section 10.02 hereof shall not apply to, and Landlord will not unreasonably withhold or delay its consent to, an assignment of this Lease, or sublease of all or 13 part of the demised premises, to: any corporation (i) to which substantially all the assets of Tenant are transferred or (ii) into which Tenant may be merged or consolidated, provided that the net worth, experience and reputation of such transferee or of the resulting or surviving corporation, as the case may be, is equal to or greater than the net worth experience and reputation of Tenant and of any guarantor of this Lease immediately prior to such transfer and provided, also, that any such transaction complies with the other provisions of this Article. 10.10. No consent from Landlord shall be necessary under Sections 10.08 and 10.09 hereof where (i) reasonably satisfactory proof is delivered to Landlord that the net worth and other provisions of 10.08 and 10.09, as the case may be, and the other provisions of this Article, have been satisfied and (ii) Tenant, in a writing reasonably satisfactory to Landlord's attorneys, agrees to remain primarily liable jointly and severally with any transferee or assignee, for the obligations of Tenant under this Lease. 10.11. In no event shall Tenant be entitled to make, nor shall Tenant make, any claim, and Tenant hereby waives any claim, for money damages (nor shall Tenant claim any money damages by way of set-off, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed its consent or approval to a proposed assignment or subletting as provided for in this Article. Tenant's sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance, injunction or declaratory judgment. ARTICLE 11 ACCESS TO DEMISED PREMISES 11.01. Tenant shall permit Landlord, or its agents or designees, to erect, use and maintain pipes, ducts and conduits in and through the demised premises, provided the same are installed adjacent to or concealed behind walls, floors and ceilings of the demised premises and are installed by such methods and at such locations as will not materially interfere with or impair Tenant's layout or use of the demised premises or damage the appearance thereof. Landlord or its agents or designees shall have the right, but only upon request made to Tenant or any authorized employee of Tenant at the demised premises to enter the demised premises, other than vaults or other enclosures where money, securities or other valuables or confidential documents are kept, at reasonable times during business hours, for the making of such repairs or alterations as Landlord shall be required or shall have the right to make by the provisions of this Lease or any other lease in the Building and, subject to the foregoing, shall also have the right to enter the demised premises for the purpose of inspecting them & exhibiting them to prospective purchasers or lessees of the entire Building or to prospective mortgagees of the fee or of the Landlord's interest in the property of which the demised premises are a part or to prospective assignees of any such mortgages or to the holder of any mortgage on the Landlord's interest in the property, its agents or designees. Landlord shall be allowed to take all material into and upon the demised premises that may be required for the repairs or alterations above mentioned as the same is required for such purpose without the same constituting an eviction of Tenant in whole or in part, and the rent reserved shall in no wise abate, except as otherwise provided in this Lease, while said repairs or alterations are being made, by reason of loss or interruption of the business of Tenant because of the prosecution of any such work. Landlord shall seek to minimize any interference with Tenant's business operations, as in Section 4.04 provided. 14 11.02. Landlord or its agents or designees may, during the nine (9) months prior to the expiration of the term of this Lease, at reasonable times during business hours, enter the demised premises to exhibit same to prospective tenants. 11.03. If Tenant shall not be personally present to open and permit an entry into the demised premises at any time when for any reason an entry therein shall be urgently necessary by reason of fire or other emergency, Landlord or Landlord's agents may forcibly enter the same without rendering Landlord or such agents liable therefor (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property) and without in any manner affecting the obligations and covenants of this Lease. ARTICLE 12 CERTIFICATE OF OCCUPANCY 12.01. Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the Building. Landlord represents that the certificate of occupancy for the Building will permit the use of the demised premises for the purposes specified in this Lease. Landlord will make no changes in the Building which would result in a change in the certificate of occupancy which prevents Tenant from using the demised premises for the purposes specified in this Lease. ARTICLE 13 BANKRUPTCY 13.01. Subject to then applicable law and to the provisions of Section 13.03, if at any time prior to the date herein fixed as the commencement of the term of this Lease there shall be filed by or against Tenant in any court pursuant to any statute either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or a trustee of all or a portion of Tenant's property, or if Tenant makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement with creditors, this Lease shall ipso facto be cancelled and terminated, in which event neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or of an order of any court shall be entitled to possession of the demised premises and Landlord, in addition to the other rights and remedies given by Section 13.04 hereof and by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may retain as liquidated damages any rent, security deposit or monies received by it from Tenant or others in behalf of Tenant upon the execution hereof. 13.02. Subject to then applicable law and to the provisions of Section 13.03, if at the date fixed as the commencement of the term of this Lease or if at any time during the term hereby demised there shall be filed by or against Tenant in any court pursuant to any statute either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant's property, or if Tenant makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement with creditors, Landlord may at Landlord's option, serve upon Tenant or any such trustee, receiver, or assignee, a notice in writing stating that this Lease and the term hereby granted shall cease and expire on the date specified in said notice, which date shall be not less than ten days after the serving of said notice, and this Lease and the term hereof shall then expire on the date so specified as if that date had originally been fixed in this Lease as the expiration 15 date of the term herein granted. Thereupon, neither Tenant nor any person claiming through or under Tenant by virtue of any statute or of an order of any court shall be entitled to possession or to remain in possession of the demised premises but shall forthwith quit and surrender the premises, and Landlord, in addition to the other rights and remedies Landlord has by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may retain as liquidated damages any rent, security, deposit or monies received by it from Tenant or others in behalf of Tenant. 13.03. In the event that at any times mentioned in either Sections 13.01 or 13.02 there shall be instituted against Tenant an involuntary proceeding for bankruptcy, insolvency, reorganization or any other relief described in Sections 13.01 and 13.02, Tenant shall have ninety (90) days in which to vacate or stay the same before this Lease shall terminate or before Landlord shall have any right to terminate this Lease, provided the rent and additional rent then in arrears, if any, are paid within fifteen (15) days after the institution of such proceeding, and further provided that the rent and additional rent which shall thereafter become due and payable are paid when due, and Tenant shall not otherwise be in default in the performance of the terms and covenants of this Lease. 13.04. In the event of the termination of this Lease pursuant to Sections 13.01, 13.02 or 13.03 hereof, Landlord shall forthwith, notwithstanding any other provisions of this Lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the then fair and reasonable rental value of the demised premises for the same period, if lower than the rent reserved at the time of termination. If such premises or any part thereof be re-let by Landlord for the unexpired term of said Lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such re-letting shall be prima facie the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of Landlord to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. ARTICLE 14 DEFAULT 14.01. If Tenant defaults in fulfilling any of the covenants of this Lease, including the payment of rent or additional rent, or if the demised premises become vacant or deserted, then, in any one or more of such events, upon Landlord serving a written 15 days' notice upon Tenant specifying the nature of said default and upon the expiration of said 15 days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of such a nature that the same cannot be completely cured or remedied within said 15-day period and if Tenant shall not have diligently commenced to take action towards curing such default within such 15-day period and shall not thereafter with reasonable diligence and in good faith proceed to remedy or cure such default, or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be occupied by someone other than Tenant and such occupancy shall continue for a period of thirty (30) days after written notice from Landlord, then Landlord may serve a written 5 days' notice of cancellation of this Lease upon Tenant, and, upon the expiration of said 5 days, this Lease and 16 the term hereunder and any rights of renewal or extension thereof shall end and expire as fully and completely as if the date of expiration of such 5-day period were the day herein originally fixed for the end and expiration of this Lease and the term hereof and Tenant shall then quit and surrender the demised premises to Landlord but Tenant shall remain liable as hereinafter provided. If Tenant shall at any time default hereunder, and if Landlord shall institute an action or summary proceedings against Tenant based upon such default, then Tenant will reimburse Landlord for the expense of reasonable attorney's fees and disbursements thereby incurred by Landlord. 14.02. If the notices provided for in Section 14.01 hereof shall have been given, and the term shall expire as aforesaid, or if Tenant shall make default in the payment of the rent reserved herein or any item of additional rent herein provided or any part of either or in making any other payment herein provided for, then and in any of such events Landlord may, without notice, re-enter the demised premises either by force or otherwise, and dispossess Tenant, the legal representatives of Tenant or other occupant of the demised premises, by summary proceedings or otherwise and remove their effects and hold the premises as if this Lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. 14.03. Notwithstanding any lease term expiration or termination under this Article 14 prior to the Lease expiration date originally fixed herein, Tenant's obligation to pay any and all rent and additional rent under this Lease shall continue to and cover all periods up to the date originally fixed for the expiration of the term hereof. 14.04. Notwithstanding the provisions of Section 14.01 hereof, Tenant, at its own cost and expense, in its name and/or (wherever necessary) Landlord's name, may contest, in any manner permitted by law (including appeals to a court, or governmental department or authority having jurisdiction in the matter), the validity or the enforcement of any governmental act, regulation or directive with which Tenant is required to comply pursuant to this Lease, and may defer compliance therewith provided that: (a) such non-compliance shall not subject Landlord to criminal prosecution or subject the land and/or Building at One Penn Plaza, New York City to lien or sale; (b) such non-compliance shall not be in violation of any fee mortgage, or of any ground of underlying lease or any mortgage thereon; (c) Tenant shall first deliver to Landlord a surety bond issued by a surety company of recognized responsibility, or other security satisfactory to Landlord, indemnifying and protecting Landlord against any loss or injury by reason of such non-compliance; and (d) Tenant shall promptly and diligently prosecute such contest. Landlord, without expense or liability to it, shall cooperate with Tenant and execute any documents or pleadings required for such purpose, provided that Landlord shall reasonably be satisfied that the facts set forth in any such documents or pleadings are accurate. 17 ARTICLE 15 REMEDIES OF LANDLORD; WAIVER OF REDEMPTION 15.01. In case of such re-entry, expiration and/or dispossess by summary proceedings or otherwise as set forth in Article 14 hereof (a) the rent shall become due thereupon and be paid up to the time of such re-entry dispossess and/or expiration, together with such expenses as Landlord may incur for legal expenses, reasonable attorneys' fees, brokerage, and/or putting the demised premises in good order, or for preparing the same for re-rental; (b) Landlord may re-let the premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the term of this Lease and may grant concessions or free rent; and/or (c) Tenant shall also pay Landlord as damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this Lease. The failure or refusal of Landlord to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such damages there shall be added to the said deficiency such expenses as Landlord may incur in connection with re-letting, such as legal expenses, reasonable attorneys' fees, brokerage and for keeping the demised premises in good order or for preparing the same for re-letting. Any such damages shall be paid in monthly installments by Tenant on the rent days specified in this Lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar proceeding. Landlord, at Landlord's option, may make such alterations, repairs, replacements and/or decorations in the demised premises as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of re-letting the demised premises; and the making of such alterations and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure or refusal to re-let the demised premises or any parts thereof, or, in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this Lease of any particular remedy, shall not preclude Landlord from any other remedy, in law or in equity. 15.02. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of demised premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease or otherwise. ARTICLE 16 FEES AND EXPENSES; INTEREST 16.01. If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the covenants, terms or provisions in any Article of this Lease, (a) Landlord may remedy such default for the account of Tenant, immediately and without notice in case of emergency, or in any other case only provided that Tenant shall fail to remedy such default with all reasonable dispatch after Landlord shall 18 have notified Tenant in writing of such default and the applicable grace period for curing such default shall have expired; and (b) if Landlord makes any expenditures or incurs any obligations for the payment of money in connection with such default including, but not limited to, reasonable attorneys' fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred, with interest, shall be deemed to be additional rent hereunder and shall be paid by Tenant to Landlord upon rendition of a bill to Tenant therefor. If Tenant is late in making any payment due to Landlord from Tenant under this Lease, then interest shall become due and owing to Landlord on such payment from the date when it was due, computed as provided in Section 20.04 hereof. ARTICLE 17 NO REPRESENTATIONS BY LANDLORD 17.01. Landlord or Landlord's agents have made no representations or promises with respect to the said Building or demised premises except as herein expressly set forth. ARTICLE 18 END OF TERM 18.01. Upon the expiration or other termination of the term of this Lease, Tenant shall quit and surrender to Landlord the demised premises, broom clean, in good order and condition, ordinary wear and tear and damage by fire, the elements or other casualty excepted, and Tenant shall remove all of its property as herein provided. Tenant's obligation to observe or perform this covenant shall survive the expiration or sooner termination of the term of this Lease. 18.02. Tenant agrees it shall indemnify and save Landlord harm-less against all costs, claims, loss or liability resulting from delay by Tenant in so surrendering the premises, including, without limitation, any claims made by any succeeding tenant founded on such delay. Additionally, the parties recognize and agree that other damage to Landlord resulting from any failure by Tenant timely to surrender the premises will be substantial, will exceed the amount of monthly rent theretofore payable hereunder, and will be impossible of accurate measurement. Tenant therefore agrees that if possession of the premises is not surrendered to Landlord within one (1) day after the day of the expiration or sooner termination of the term of this Lease, then Tenant will pay Landlord, as liquidated damages, for each month and for each portion of any month during which Tenant holds over in the premises after expiration or termination of the term of this Lease, a sum equal to three times the average rent and additional rent which was payable per month under this Lease during the last six months of the term thereof. The aforesaid obligations shall survive the expiration or sooner termination of the term of this Lease. ARTICLE 19 QUIET ENJOYMENT 19.01. Landlord covenants and agrees with Tenant that upon Tenant paying the rent and additional rent. and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this Lease, and to the ground leases, underlying leases and mortgages hereinbefore mentioned. 19 ARTICLE 20 DEFINITIONS 20.01. The term "Landlord" as used in this Lease means only the owner, or the mortgagee in possession, for the time being of the land and Building (or the owner of a lease of the Building or of the land and Building), so that in the event of any transfer of title to said land and Building or said lease, or in the event of a lease of the Building, or of the land and Building, upon notification to Tenant of such transfer or lease the said transferor Landlord shall be and hereby is entirely freed and relieved of all existing or future covenants, obligations and liabilities of Landlord hereunder, and it shall be deemed and construed as a covenant running with the land without further agreement between the parties or their successors in interest, or between the parties and the transferee of title to said land and Building or said lease, or the said lessee of the Building, or of the land and Building, that the transferee or the lessee has assumed and agreed to carry out any and all such covenants, obligations and liabilities of Landlord hereunder. 20.02. The words "re-enter" and "re-entry" as used in this Lease are not restricted to their technical legal meaning. 20.03. The term "business days" as used in this Lease shall exclude Saturdays, Sundays and all days observed by the Federal, State or local government as legal holidays as well as all other days recognized as holidays under applicable union contracts. 20.04. Except as otherwise specifically provided in this Lease, whenever payment of interest is required by the terms hereof, it shall be computed as follows: for an individual or partnership tenant, computed at the maximum legal rate of interest; for a corporate tenant, computed at two (2%) percent per month unless there is an applicable maximum legal rate of interest which then shall be used. ARTICLE 21 ADJACENT EXCAVATION--SHORING 21.01. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as shall be necessary to preserve the wall of or the Building of which the demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of rent. ARTICLE 22 RULES AND REGULATIONS 22.01. Tenant and Tenant's servants, employees and agents shall observe faithfully and comply strictly with the Rules and Regulations set forth in Exhibit B attached hereto and made part hereof entitled "Rules and Regulations" and such other and further reasonable Rules and Regulations as Landlord or Landlord's agents may from time to time adopt provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and of any of the Rules and Regulations as originally or as hereafter adopted, the provisions of this Lease shall control. Reasonable written notice of any additional Rules and Regulations shall be given to 20 Tenant. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Landlord or Landlord's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the Chairman of the Board of Directors of the Management Division of the Real Estate Board of New York, Inc., or to such impartial person or persons as he may designate, provided however, if Tenant objects to submitting the question to such Chairman or to his designee or designees, the same shall be submitted to arbitration as set forth in Article 31 hereof, and the determination of the Chairman, his designee or designees, or the arbitrators as the case may be, shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice in writing upon Landlord within 30 days after written notice to Tenant of the adoption of any such additional Rule or Regulation. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease, against any other tenant of the Building, and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. ARTICLE 23 NO WAIVER 23.01. No agreement to accept a surrender of this Lease shall be valid unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of said premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agent shall not operate as a termination of this Lease or a surrender of the premises. In the event of Tenant at any time desiring to have Landlord sublet the premises for Tenant's account, Landlord or Landlord's agents are authorized to receive said keys for such purpose without releasing Tenant from any of the obligations under this Lease. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease or any of the Rules and Regulations set forth herein, or hereafter adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the Rules and Regulations set forth herein, or hereafter adopted, against Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No provision of this Lease shall be deemed to have been waived by Landlord, unless such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment of rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. 23.02. This Lease contains the entire agreement between the parties, and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. 21 ARTICLE 24 WAIVER OF TRIAL BY JURY 24.01. Landlord and Tenant do hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the demised premises, and/or any other claims (except claims for personal injury or property damage), and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Landlord commences any summary proceeding for non-payment of rent, Tenant will not interpose and does hereby waive the right to interpose any counterclaim of whatever nature or description in any such proceeding. ARTICLE 25 INABILITY TO PERFORM 25.01. emergency, (4) any rule, order or regulation of any governmental agency, (5) conditions of supply or demand which are affected by war or other national, state or municipal emergency, or (6) any cause beyond Landlord's control, Landlord shall be unable to fulfill its obligations under this Lease or shall be unable to supply any service which Landlord is obligated to supply, this Lease and Tenant's obligation to pay rent hereunder shall in no wise be affected, impaired or excused. As Landlord shall learn of the happening of any of the foregoing conditions, Landlord shall promptly notify Tenant of such event and, if ascertainable, its estimated duration, and will proceed promptly and diligently with the fulfillment of its obligations as soon as reasonably possible. If, for any reason whatsoever, unless the result of the causes set forth in numbers (l)-(6) of the first paragraph of this Section 25.01, or because of failure of the public utility supplying electricity or heat to the Building to supply such service: (a) all of the elevators in the banks of elevators which service the floor or floors on which the demised premises are located be inoperative for more than ten (10) consecutive business days so that to obtain access to any floor of the demised premises it would be necessary to walk up or down more than four flights of stairs (a flight of stairs shall consist of all stairs in a public stairway of the Building between one floor and the floor above or below), unless elevators in a bank of elevators which service floors above or below the floors upon which the demised premises are located are in operation and if Tenant used same it would not be necessary to walk up or down more than four flights of stairs, or (b) if the heating or air conditioning system which services the demised premises be inoperative for a period of more than ten (10) consecutive business days during the days when said system would normally be operating to service the Building, so that Tenant and its employees cannot and do not use, except on an emergency basis, part or all of the demised premises for the purposes for which the premises are leased, Tenant shall be entitled to an abatement of rent for each day after said ten (10) day period for such portion of the demised premises which is inaccessible or which cannot be used as above set forth. ARTICLE 26 NOTICES 26.01. Any notice or demand, consent, approval or disapproval required to be given by the terms and provisions of this Lease, or by any law or governmental regulation, either by Landlord to Tenant or by Tenant to Landlord, shall be in writing. Unless otherwise required by 22 such law or regulation such notice or demand shall be given, and shall be deemed to have been served and given by Landlord and received by Tenant, when Landlord shall have deposited such notice or demand by registered or certified mail enclosed in a securely closed post-paid wrapper, in a United States Government general or branch post office, or official depository with the exclusive care and custody thereof, addressed to Tenant, at the address set forth after Tenant s name on page 1 of this Lease. After Tenant shall occupy the demised premises, the address of Tenant for notices, demands, consents, approvals or disapprovals shall be One Penn Plaza, New York, N.Y., 10119. Such notice, demand, consent, approval or disapproval shall be given, and shall be deemed to have been served and given by Tenant and received by Landlord, when Tenant shall have deposited such notice or demand by registered or certified mail enclosed in a securely closed postpaid wrapper, in a United States Government general or branch post office or, official depository with the exclusive care and custody thereof, addressed to Landlord at 60 East 42nd Street, New York, N.Y., 10165. Either party may, by notice as aforesaid, designate a different address or addresses for notices, demands, consents, approvals or disapprovals. ARTICLE 27 SERVICES 27.01. Landlord shall provide necessary elevator facilities on business days from 8:00 A.M. to 6:00 P.M. and shall have sufficient elevators available at all other times. At Landlord's option, the elevators shall be operated by automatic control or by manual control, or by a combination of both of such methods. 27.02. Landlord shall cause the space in the demised premises other than any space used for the preparation or consumption of food or for storage to be kept clean in accordance with the standards set forth in Exhibit C attached hereto and made a part hereof entitled "Cleaning Schedule". 27.03. (a) Landlord shall, through the air conditioning system of the Building, furnish to the demised premises, on an all year round basis, air conditioning, ventilation and heating during the hours from 8:00 A.M. to 6:00 P.M. on business days. Provided Tenant shall comply with Building Regulations, the air conditioning system will be designed to provide summer interior conditions of 78 DEG. F when outside conditions are 95 DEG. F and winter interior conditions of 68 DEG. F with outside conditions of 10 DEG. F. (b) Landlord will maintain the air conditioning system in a manner befitting a first class building and will use all reasonable care to keep the same in proper and efficient operating condition. Tenant acknowledges that it has been advised that the conditions hereinbefore described cannot be maintained in the event of the occupancy of the demised premises by more than an average of one person for each 100 square feet of usable area or if Tenant installs and operates lighting, machines and appliances the total connected electrical load of which exceeds 4 watts per square foot of usable area. (c) Tenant agrees to keep and cause to be kept closed all the windows in and the exterior doors to the demised premises at all times, and Tenant agrees to cooperate fully with Landlord and to abide by all the regulations and requirements which Landlord 23 may reasonably prescribe for the proper functioning and protection of said air conditioning system. (d) The Tenant acknowledges it has been advised that the Building has sealed windows and that, therefore, the air in the demised premises can become stale and even unbreathable when the ventilating, air-conditioning, and heating system is not operating. Tenant agrees that Landlord shall not be obligated to operate such ventilating, air-conditioning, and heating system after or before regular business hours as set forth in Section 27.03(a) except after prior written notice from and payment by Tenant as hereinafter specified. Tenant agrees that Landlord's failure to operate such system in the absence of such notice and payment shall not be deemed a partial or other eviction, or disturbance of Tenant's use, enjoyment, or possession of the premises, and shall not render Landlord liable for damages, by abatement of rent or otherwise, and Tenant shall not be relieved from any obligation under this Lease. Landlord will provide Tenant with ventilation, air-conditioning, or heating at times other than during regular business hours, at the hourly rate hereinafter set forth, provided that Tenant shall give written notice prior to 1:00 P.M. in the case of such service on business days and prior to 1:00 P.M. on Fridays in the case of such service on Saturdays and Sundays (or 3:00 P.M. on the preceding business day, in the case of holidays). The hourly rate for such ventilating, air-conditioning, or heating service shall be the Landlord's actual operating cost per hour plus 10%. 27.04. (a) Landlord shall furnish to Tenant the electric energy which Tenant requires in the demised premises on a "rent inclusion" basis. There shall be no charge to Tenant therefor by way of measuring the same on any meter or otherwise, electric current being included as an additional service in the fixed annual rent payable hereunder. Landlord shall not in anywise be liable or responsible to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant's requirements, unless such change is caused by the willful or negligent act of Landlord. (b) If and so long as Landlord provides electricity to the demised premises on a rent inclusion basis, Tenant agrees that the fixed annual rent shall be increased by the amount of the Electricity Rent Inclusion Factor (the "ERIF"), as hereinafter defined, to compensate Landlord as hereinafter provided, for its obtaining and making available to Tenant the redistribution of electric current as an additional service, through the presently installed electrical facilities, for Tenant's reasonable use of ordinary lighting and light office equipment, during ordinary business hours. The "Electricity Rent Inclusion Factor" shall mean the amount determined by applying the estimated connected electrical load of Tenant, which shall be deemed to be the demand (KW), and hours of use thereof, which shall be deemed to be the energy (KWH), as determined by the electrical consultant as hereinafter provided, to the rate charged for such load and energy usage in the SC-4, Rate I Service Classification in effect on May 1, 1996 (and not the time-of-day rate schedule, if any), as increased or decreased by all electricity cost changes of Landlord since May 1, 1996, as hereinafter provided. 24 The parties acknowledge that the fixed annual rent hereinabove set forth has not yet been, but is to be, increased by the ERIF. Tenant, therefore, agrees to have the fixed annual rent hereinabove set forth so increased by an ERIF of $3.45 per rentable square foot, to be paid in equal monthly installments, in advance, from the date when Landlord commenced to furnish electricity to Tenant on a rent inclusion basis. If the cost to Landlord of electricity shall have been, or shall be, increased or decreased subsequent to May 1, 1996 (whether such change occurs prior to or during the term of this Lease), by change in Landlord's electric rates or service classifications, or by any increase, subsequent to the last such electric rate or service classification change, in fuel adjustments or charges of any kind, or by taxes, imposed on Landlord's electricity purchases, or on Landlord's electricity redistribution, or for any other such reason, then the aforesaid ERIF portion of the fixed annual rent shall be changed in the same percentage as any such change in cost due to changes in electric rates or service classifications, and, also, Tenant's payment obligation, for electricity redistribution, shall change from time to time so as to reflect any such increase in fuel adjustments or charges, and such taxes. Any such percentage change in Landlord's cost due to change in Landlord's electric rates or service classifications, shall be computed on the basis of the average consumption of electricity for the Building for the twelve full months immediately prior to the rate change or other such change in cost, energy and demand, and any changed methods of or rules on billing for same, applied on a consistent basis to the new electric rate or service classification and to the immediately prior existing electric rate or service classification. The parties acknowledge that they understand that it is anticipated that electric rates, charges, etc., may be changed by virtue of time-of-day rates or other methods of billing, and that the foregoing reference to changes in methods of or rules on billing is intended to include any such change. The parties agree that a reputable, independent electrical consultant firm, selected by Landlord ("Landlord's consultant"), may from time to time make surveys in the demised premises covering the electrical equipment and fixtures and use of current therein. If such survey shall disclose a change in Tenant's connected electrical load or hours of energy use, then the connected electrical load and energy usage portion of the ERIF shall be changed in accordance with such survey, and the ERIF redetermined, accordingly, by Landlord's consultant. The fixed annual rent shall be appropriately adjusted effective as of the date of any such change in connected load and/or energy usage, as disclosed by said survey. In no event, whether because of surveys, rate changes or for any other reason, is such originally specified $3.45 per square foot ERIF portion of the fixed annual rent (plus any net increase thereof, but not decrease, by virtue of all electricity rate or service classification changes of Landlord subsequent to May 1, 1996) to be reduced. The determination of changes in the ERIF by Landlord's consultant shall be binding and conclusive on Landlord and on Tenant unless within fifteen (15) days after the delivery of copies of such determination to Landlord and Tenant, either Landlord or Tenant disputes such determination by written notice to the other. If either party disputes the determination, it shall, at its own expense, within forty-five (45) days after advising the other of such dispute, obtain from a reputable independent electrical consultant its own survey of Tenant's electrical lighting and power load and hours of energy use, and a determination of such change in the ERIF in accordance with the provisions of this Article. Tenant's consultant and Landlord's consultant then shall seek to agree on a finding of such determination of such change in the ERIF. If they cannot 25 agree, they shall choose a third reputable electrical consultant whose cost shall be shared equally by Landlord and Tenant, to make a similar survey, and the determination of such ERIF change by such third electrical consultant shall be controlling. (If they cannot agree on such third consultant, within ten (10) days, then either party may apply to the Supreme Court in the County of New York for the appointment of such third consultant.) However, pending such determination, Tenant shall pay to Landlord the amount of ERIF as determined by Landlord's consultant; provided, however, if the amount of ERIF determined as aforesaid is different from that determined by Landlord's consultant, then Landlord and Tenant shall make adjustment for any deficiency owed by Tenant or overage paid by Tenant pursuant to the determination of Landlord's consultant. (c) Landlord reserves the right to discontinue furnishing electric energy to Tenant at any time upon sixty (60) days written notice to Tenant, and from and after the effective date of such termination, Landlord shall no longer be obligated to furnish Tenant with electric energy, provided, however, that such termination date may be extended for a time reasonably necessary for Tenant to make arrangements to obtain electric service directly from the public utility company servicing the Building. If Landlord exercises such right of termination, this Lease shall remain unaffected thereby and shall continue in full force and effect; and thereafter Tenant shall diligently arrange to obtain electric service directly from the public utility company servicing the Building, and may utilize the then existing electric feeders, risers and wiring serving the demised premises to the extent available and safely capable of being used for such purpose and only to the extent of Tenant's then authorized connected load. Landlord shall be obligated to pay no part of any cost required for Tenant's direct electric service. Commencing with the date when Tenant receives such direct service and as long as Tenant shall continue to receive such service, the fixed annual rental rate payable under this Lease shall be reduced by the amount of the ERIF portion thereof which was payable hereunder immediately prior to the date when Tenant received such direct service. (d) Tenant agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the Building or the risers or wiring installation. Tenant agrees not to connect any additional electrical equipment of any type to the Building electric distribution system, other than typewriters, lamps and small office machines which consume comparable amounts of electricity, without Landlord's prior written consent, which consent shall not be unreasonably withheld. Any additional risers, feeders, or other equipment proper or necessary to supply Tenant's electrical requirements, upon written request of Tenant, will be installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's judgment, the same are necessary and will not cause permanent damage or injury to the Building or the demised premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants or occupants. (e) Supplementing Section 36.03 hereof, if all or part of the ERIF payable in accordance with subdivision (b) of this Section 27.04 becomes uncollectible or reduced or refunded by virtue of any law, order or regulation, the parties agree that, at Landlord's option, in lieu of the ERIF, and in consideration of Tenant's use of the building's electrical distribution system and receipt of redistributed electricity and payment by Landlord of consultants' fees and other redistribution costs, the fixed annual rental rate(s) 26 to be paid under this Lease shall be increased by an "alternative charge" which shall be a sum equal to $3.45 per year per rentable sq. ft. of the demised premises, changed in the same percentage as any increases in the cost to Landlord for electricity for the entire building subsequent to May 1, 1996 because of rate changes, such percentage change to be computed as in subdivision (b) of this Section 27.04 provided. (f) Anything hereinabove to the contrary notwithstanding, in no event is the ERIF or any "alternate charge" to be less than an amount equal to the total of Landlord's payment to the public utility for the electricity consumed by Tenant (and any taxes thereon or on redistribution of same) plus 5% thereof for transmission line loss, plus 15% thereof for other redistribution costs. 27.05. Subject to the provisions of Section 25.01, Landlord reserves the right to stop services on the air conditioning, elevator, plumbing and electric systems when necessary by reason of accident or emergency or for repairs, alterations, replacements or improvements, provided that except in case of emergency, Landlord will notify Tenant in advance, if possible, of any such stoppage and, if ascertainable, its estimated duration, and will proceed diligently with the work necessary to resume such service as promptly as possible and in a manner so as to minimize interference with the Tenant's use and enjoyment of the demised premises. 27.06. Landlord will supply Tenant with an adequate quantity of hot and cold water for lavatory, cleaning, and drinking purposes. If Tenant requires water for any additional purpose, Tenant shall pay the cost thereof at the cost to Landlord as the same is measured by a meter to be installed and maintained at Tenant's expense. 27.07. In the event Tenant shall employ any contractor to do in the demised premises any work permitted by Section 3.01 of this Lease, such contractor and any subcontractor shall agree to employ only such labor as will not result in jurisdictional disputes or strikes. Tenant will inform Landlord in writing of the names of any contractor or subcontractor Tenant proposes to use in the demised premises at least five (5) days prior to the beginning of work by such contractor or subcontractor. 27.08. If Tenant is permitted hereunder to and does have a separate area for the preparation or consumption of food in the demised premises, Tenant shall pay to Landlord the cost of removal from the Building of any refuse or rubbish from such area and the cost of employing on a regular basis, an exterminator to keep the demised premises free from vermin; and Tenant shall provide a refrigerated garbage storage room, the plans and specifications thereof to be approved by Landlord, or other means of disposing of garbage reasonably satisfactory to Landlord's architects. 27.09. It is expressly agreed that only Landlord or any one or more persons, firms or corporations authorized in writing by Landlord will be permitted to furnish: laundry, linen, towels, drinking water, ice and other similar supplies and services to tenants and licensees in the Building. Landlord may fix, in its own absolute discretion, at any time and from time to time, the hours during which and regulations under which such supplies and services are to be furnished. Landlord expressly reserves the right to act as or to designate, at any time and from time to time, an exclusive supplier of all or any one or more of the said supplies and services, provided that 27 the quality thereof and the charges therefor are reasonably comparable to that of other suppliers; and Landlord furthermore expressly reserves the right to exclude from the Building any person, firm or corporation attempting to furnish any of said supplies or services but not so designated by Landlord. 27.10. It is expressly agreed that only Landlord or any one or more persons, firms or corporations authorized in writing by Landlord will be permitted to sell, deliver or furnish any food or beverages whatsoever for consumption within the demised premises or elsewhere in the Building. Landlord expressly reserves the right to act as or to designate at any time, or from time to time, an exclusive supplier or suppliers of such food and beverages; and Landlord further expressly reserves the right to exclude from the Building any person, firm or corporation attempting to deliver or purvey any such food or beverages but not so designated by Landlord It is understood, however, that Tenant or regular office employees of Tenant who are not employed by any supplier of such food or beverages or by any person, firm or corporation engaged in the business of purveying such food or beverages, may personally bring food or beverages into the Building for consumption within the demised premises by the said Tenant or employees of Tenant, but not for resale to or for consumption by any other tenant, or the employees or guests of any other tenant. Landlord may fix in its absolute discretion, at any time and from time to time, the hours during which, and the regulations under which food and beverages may be brought into the Building by Tenant or its regular employees. 27.11. Tenant acknowledges that it has been advised that the cleaning contractor for the Building may be a division or affiliate of Landlord. Tenant agrees to employ such contractor or such other office maintenance contractor as Landlord may from time to time designate, for all waxing, polishing, lamp replacement, cleaning and maintenance work of or in the demised premises, and Tenant's furniture, fixtures and equipment, provided that the quality thereof and the charges therefor are reasonably comparable to that of other contractors or individuals. Tenant shall not employ any other such contractor or individual without Landlord's prior written consent, but nothing herein contained shall prohibit Tenant from performing such work for itself by use of its own regular employees. 27.12. Landlord will not be required to furnish any other services, except as provided in this Article 27, and except that Landlord agrees to provide on business days (not including Saturdays, Sundays and holidays) the cleaning set forth in Exhibit C hereof. Tenant shall pay to Landlord, on demand, a reasonable charge for the removal from the demised premises of any refuse and rubbish of Tenant as shall not be contained in the waste receptacles described in Exhibit C. Landlord, its cleaning contractor and their employees shall have after-hours access to the demised premises and the use of tenant's light, power and water in the demised premises as may be reasonably required for the purpose of cleaning the demised premises. 27.13. If Tenant contests the reasonableness of any charges made by any supplier or contractor designated by Landlord as set forth in any section of this Article 27, Landlord and Tenant shall each obtain two bona fide bids for such work from independent reputable contractors, and not controlled directly or indirectly by Landlord or affiliated with Landlord or Landlord's Managing Agent, or by or with Tenant, and the average of the four bids thus obtained shall be the standard of comparison in determining the reasonableness of such charges. If the supplier or contractor designated by Landlord is unwilling to accept the average of such bids as full payment for its suppliers or services, Landlord may substitute another supplier or contractor who will accept such average as full payment, or if Landlord fails to make such substitution 28 within fifteen (15) days after the ascertainment of the average of the bids, Tenant shall be free to make its own arrangements for such work or supplies for the remainder of the term. 27.14. Landlord shall manage and maintain the Building as a first class office building. Tenant and its employees shall occupy and use the demised premises in a manner befitting such building. ARTICLE 30 CONDITION OF PREMISES 30.01. Tenant expressly acknowledges that it has inspected the demised premises and is fully familiar with the physical condition thereof. Tenant agrees to accept the demised premises in its "as is" condition. Tenant acknowledges that Landlord shall have no obligation to do any work in and to the demised premises in order to make them suitable and ready for occupancy and use by Tenant. ARTICLE 31 ARBITRATION 31.01. In each case specified in this Lease in which resort to arbitration shall be required, such arbitration (unless otherwise specifically provided in other Sections of this Lease) shall be in New York City in accordance with the Commercial Arbitration Rules of the American Arbitration Association and the provisions of this Lease, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. ARTICLE 32 INDEMNITY 32.01. Tenant shall indemnify and save Landlord harmless from and against any liability or expense arising from the use or occupation of the demised premises by Tenant or anyone on the premises with Tenant's permission, or from any breach of this Lease. ARTICLE 33 VAULT AND BASEMENT SPACE 33.01. Landlord shall have the right from time to time, to substitute for the basement space, if any, then occupied by Tenant, comparable space in the basement, provided Landlord shall give at least thirty (30) days' prior written notice to Tenant of its intention so to do. No vault or basement space not within the property line of the Building is leased hereunder, anything to the contrary indicated elsewhere in this Lease notwithstanding. Any vault or basement space not within the property line of the Building, which Tenant may be permitted to use or occupy, shall be used or occupied under revocable license and if the amount of such space be diminished or required by any governmental authority having jurisdiction, Landlord shall not be subject to any liability nor shall Tenant be entitled to abatement of rent, nor shall such diminution or abatement be deemed a constructive or actual eviction. Any fee or license charge or tax of municipal authorities for such vault or basement space shall be paid by Tenant to Landlord as additional rent within five (5) days after written demand therefor. If such fee, tax or charge shall be for vault or basement space greater in area than that occupied by Tenant, the charge to Tenant shall be pro-rated. 29 ARTICLE 34 OCCUPANCY AND USE BY TENANT 34.01. (a) Tenant acknowledges that its continued occupancy of the demised premises, and the regular conduct of its business therein, are of utmost importance to the Landlord in the renewal of other leases in the building, in the renting of vacant space in the building, in the providing of electricity, air conditioning, steam and other services to the tenants in the building, and in the maintenance of the character and quality of the tenants in the building. Tenant therefore covenants and agrees that it will occupy the entire demised premises, and will conduct its business therein in the regular and usual manner, throughout the term of this Lease. Tenant acknowledges that Landlord is executing this Lease in reliance upon these covenants and that these covenants are a material element of consideration inducing the Landlord to execute this Lease. Tenant further agrees that if it vacates the demised premises or fails to so conduct its business therein, at any time during the term of this Lease, without the prior written consent of the Landlord, then all rent and additional rent reserved in this Lease from the date of such breach to the expiration date of this Lease shall become immediately due and payable to Landlord. (b) The parties recognize and agree that the damage to Landlord resulting from any breach of the covenants in subdivision (a) hereof will be extremely substantial, will be far greater than the rent payable for the balance of the term of this Lease, and will be impossible of accurate measurement. The parties, therefore, agree that in the event of a breach or threatened breach of the said covenants, in addition to all of Landlord's other rights and remedies, at law or in equity or otherwise, Landlord shall have the right of injunction to preserve Tenant's occupancy and use. The words "become vacant or deserted" as used elsewhere in this Lease shall include Tenant's failure to occupy or use as by this Article required. (c) If Tenant breaches either of the covenants in subdivision (a) above, and this Lease be terminated because of such default, then, in addition to Landlord's rights of re-entry, restoration, preparation for and rerental, and anything elsewhere in this Lease to the contrary notwithstanding, Landlord shall retain its right to judgment on and collection of Tenant's aforesaid obligation to make a single payment to Landlord of a sum equal to the total of all rent and additional rent reserved for the remainder of the original term of this Lease, subject to future credit or repayment to Tenant in the event of any rerenting of the premises by Landlord, after first deducting from rerental income all expenses incurred by Landlord in reducing to judgment or otherwise collecting Tenant's aforesaid obligation, and in obtaining possession of, restoring, preparing for and re-letting the premises. In no event shall tenant be entitled to a credit or repayment for rerental income which exceeds the sums payable by Tenant hereunder or which covers a period after the original term of this Lease. 30 ARTICLE 35 NAME OF BUILDING 35.01. Landlord shall have the full right at any time to name and change the name of the Building and to change the designated address of the Building. The Building may be named after any person, firm, or otherwise, whether or not such name is, or resembles, the name of a tenant of the Building. ARTICLE 36 INVALIDITY OF ANY PROVISION, ETC. 36.01. If any term, covenant, condition or provision of this Lease or the application thereof to any circumstance or to any person, firm or corporation shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this Lease or the application thereof to any circumstances or to any person, firm or corporation other than those as to which any term, covenant, condition or provision is held invalid or unenforceable, shall not be affected thereby and each remaining term, covenant, condition and provision of this Lease shall be valid and shall be enforceable to the fullest extent permitted by law. 36.02. If any term, covenant, condition or provision of this Lease is found invalid or unenforceable to any extent, by a final judgment or award which shall not be subject to change by any appeal, then either party to this Lease may initiate an arbitration in accordance with the provisions of Article 31, which arbitration shall be by three (3) arbitrators each of whom shall have at least ten (10) years' experience in the supervision of the operation and management of major office buildings in Manhattan. Said arbitrators shall devise a valid and enforceable substitute term, covenant, condition or provision for this Lease which shall as nearly as possible carry out the intention of the parties with respect to the terms, covenant, condition or provisions theretofore found invalid or unenforceable. Such substitute term, covenant, condition or provision, as determined by the arbitrators, shall thereupon be deemed a part of this Lease. 36.03. In the event the fixed annual rent or additional rent or any part thereof provided to be paid by Tenant under the provisions of this Lease during the demised term shall become uncollectible or shall be reduced or required to be reduced or refunded by virtue of any Federal, State, County or City law, order or regulation, or by any direction of a public officer or body pursuant to law, or the orders, rules, code or regulations of any organization or entity formed pursuant to law, whether such organization or entity be public or private, then Landlord, at its option, may at any time thereafter terminate this Lease, by not less than thirty (30) days' written notice to Tenant, on a date set forth in said notice, in which event this Lease and the term hereof shall terminate and come to an end on the date fixed in said notice as if the said date were the date originally fixed herein for the termination of the demised term. Landlord shall not have the right so to terminate this Lease if Tenant within such period of thirty (30) days shall in writing lawfully agree that the rentals herein reserved are a reasonable rental and agree to continue to pay said rentals, and if such agreement by Tenant shall then be legally enforceable by Landlord. 31 ARTICLE 37 CAPTIONS 37.01. The captions are inserted only as a matter of convenience and for reference, and in no way define, limit or describe the scope of this Lease nor the intent of any provision thereof. ARTICLE 38 CERTIFICATE OF TENANT 38.01. Tenant shall, without charge, at any time and from time to time, within ten (10) days after request by Landlord, deliver a written instrument to Landlord or any other person, firm or corporation specified by Landlord, duly executed and acknowledged, certifying: (a) That this Lease is unmodified and in full force and effect or, if there has been any modification, that the same is in full force and effect as modified and stating any such modification; (b) Whether or not there are then existing any setoffs or defenses against the enforcement of any of the agreements, terms, covenants, or conditions of this Lease and any modification thereof upon the part of Tenant to be performed or complied with, and, if so, specifying the same; (c) The dates to which the basic rent, and additional rent, and other charges hereunder, have been paid; and (d) Whether the term of this Lease has commenced and rent become payable thereunder; and whether Tenant has accepted possession of the demised premises; and whether Landlord has substantially completed its required work under Article 30 hereof. 38.02. Tenant agrees that, except for the first month's rent hereunder, it will pay no rent under this Lease more than thirty (30) days in advance of its due date, and, in the event of any act or omission by Landlord, Tenant will not exercise any right to terminate this Lease or to remedy the default and deduct the cost thereof from rent due hereunder until Tenant shall have given written notice of such act or omission to the Ground Lessor and to the holder of any first mortgage on the Ground Lease who shall have furnished such holder's last address to Tenant, and until a reasonable time for remedying such act or omission shall have elapsed following the giving of such notices, during which time such Lessor or holder shall have the right, but shall not be obligated, to remedy or cause to be remedied such act or omission. 38.03. Anything in this Lease contained to the contrary notwithstanding, under no circumstances shall the holder of any first mortgage on the Ground Lease or, if the interests of Landlord under this Lease are transferred by reason of, or assigned in lieu of, foreclosure or other proceedings for enforcement of such mortgage, or if the holder of such mortgage acquires a lease in substitution therefor, then such purchaser, assignee, or lessee, as the case may be, whether or not it shall have succeeded to the interests of the landlord under this Lease, be subject to or liable for any offsets or deductions from rent, claims or defenses which the Tenant might have against any prior landlord under this Lease. 32 ARTICLE 39 SECURITY DEPOSIT 39.01. Tenant has deposited with Landlord the sum of $4,298.66* as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease; it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this Lease, including, but not limited to, the payment or rent and additional rent, Landlord may (but shall not be required to) use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease, including but not limited to, any damages or deficiency in the reletting of the premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. Tenant shall, upon demand, deposit with Landlord the full amount of security deposit so used or applied by Landlord, in order that Landlord shall have the full security deposit on hand at all times during the term of this Lease. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Lease, the security shall be returned to Tenant after the date fixed as the end of the Lease and after delivery of entire possession of the demised premises to Landlord. In the event of a sale of the land and building or leasing of the building, of which the demised premises form a part, Landlord shall have the right to transfer the security to the vendee or lessee and Landlord shall thereupon be released by Tenant from all liability for the return of such security: and Tenant agrees to look to the new Landlord solely for the return of said security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. ARTICLE 40 BROKER 40.01. Tenant represents and warrants that it neither consulted nor negotiated with any broker or finder with regard to the demised premises other than Helmsley-Spear, Inc. Tenant agrees to indemnify, defend and save Landlord harmless from and against any claims for fees or commissions from anyone other than Helmsley-Spear, Inc. with whom Tenant has dealt in connection with the demised premises or this Lease. Landlord agrees to pay any commission or fee owing to the aforesaid Helmsley-Spear, Inc. ________________ * It is agreed that a portion of the unapplied amount of Tenant's security deposit under that certain lease, dated January 20, 1995 between Landlord and Tenant for certain space on the 43rd floor (Rooms 4303-4306), presently in the sum of $11,422.00, shall be used to satisfy Tenant's security deposit obligation under this Lease. 33 ARTICLE 41 POSSESSION 41.01. Supplementing Articles 25 and 30 hereof, if Landlord shall be unable to give possession of the premises on the commencement date of the term of this Lease, because of the holding-over or retention of possession of any tenant or occupant, or for any other reason, Landlord shall not be subject to any liability for such failure. In such event, this Lease shall stay in full force and effect, without extension of its term. However, the rent hereunder shall not commence until the premises are made available for occupancy by Tenant (with the substantial completion in the premises of any work required by this Lease to be completed therein by Landlord at Landlord's expense prior to the commencement date of the term of this Lease). If Landlord is unable to give possession of the premises on the commencement date of the term, because changes, repairs or decorations being made for Tenant's use at Tenant's expense have not been completed, there shall be no abatement of rent and the rent shall commence on the date specified herein. If permission is given to Tenant to occupy the premises, or other premises, prior to the commencement date of the term, such occupancy shall be deemed to be pursuant to the terms of this Lease, except that the parties shall separately agree as to the obligation of Tenant to pay rent for such occupancy. The provisions of this Article are intended to constitute an "express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. ARTICLE 42 SUBMISSION OF LEASE 42.01. It is understood and agreed that this Lease is submitted to Tenant on the understanding that it shall not be considered an offer and shall not bind Landlord in any way until (i) Tenant has duly executed and delivered duplicate originals to Landlord and (ii) Landlord has executed and delivered one of said originals to Tenant. ARTICLE 43 MEMORANDUM OF LEASE 43.01. This lease shall not be recorded without the prior written consent of Landlord. At the request of either party, Landlord and Tenant shall promptly execute, acknowledge and deliver a memorandum with respect to this Lease sufficient for recording. Such memorandum shall not in any circumstances be deemed to change or otherwise affect any of the obligations or provisions of this Lease. ARTICLE 44 SUCCESSORS AND ASSIGNS 44.01. The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, successors, and, except as otherwise provided in this Lease, their assigns. IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as of the day and year first above written. SEE RIDERS ANNEXED HERETO AND MADE A PART HEREOF 34 MID-CITY ASSOCIATES BY: HELMSLEY-SPEAR, INC., Agent Witness: (as to Landlord) (Landlord) ___________________________________ By ___________________________________ Attest: (as to Tenant) TRANS WORLD GAMING CORPORATION (Tenant) ___________________________________ By ___________________________________ Tenant's Federal I.D. Number 13-3738518 35 STATE OF NEW YORK ) )ss: (Landlord) COUNTY OF NEW YORK ) On the _____________ day of _______________, 19__, before me personally came ______________________________ residing at _______________________________, to me known and known to me to be a member of MID-CITY ASSOCIATES, a general co-partnership and the person described in and who executed the foregoing instrument in the name of MID-CITY ASSOCIATES and he duly acknowledged to me that he executed the Same as and for the act and deed of MID-CITY ASSOCIATES. ________________________________ (Notary Public) STATE OF NEW YORK ) )ss: (Landlord) COUNTY OF NEW YORK ) On the ________ day of ___________________, 19__, before me personally came __________________________________, to me known, who being by me duly sworn, did depose and say that __he resides at ________________________________________, that he is the ________________________ of HELMSLEY-SPEAR, INC., a New York corporation, the corporation mentioned in, and which executed the foregoing instrument; and that __he signed h__ name thereto by order of the Board of Directors of said corporation. __________________________________ (Notary Public) 36 STATE OF NEW YORK ) )ss: (Corporate Tenant) COUNTY OF NEW YORK ) On the ________ day of ___________________, 19__, before me personally came ______________________________________________, to me known, who being by me duly sworn, did depose and say that __he resides at ________________________________________, that he is the ________________________ of __________________________, a _________________ corporation, the corporation mentioned in, and which executed the foregoing instrument; and that __he signed h__ name thereto by order of the Board of Directors of said corporation. _________________________________ (Notary Public) STATE OF NEW YORK ) )ss: (Partnership Tenant) COUNTY OF NEW YORK ) On the ____ day of _____________, 19__, before me personally came _____________________________, residing at ___________________________________, to me known and known to me to be a member of ____________________________________ a __________________________ co-partnership and the person described in and who executed the foreign instrument in the name of _________________________________________ and he duly acknowledged to me that __he executed the same as and for the act and deed of ___________________. __________________________________ (Notary Public) 37 STATE OF NEW YORK ) )ss: (Individual Tenant) COUNTY OF NEW YORK ) On the _____ day of ________________, 19__, before me personally came _______________________________, to me known and known to me to be the individual described in, and who executed the foregoing instrument, and acknowledged to me that __he executed the same. (Notary Public) 38 EXHIBIT A The plan(s) or diagram(s) comprising this Exhibit are attached hereto at the back cover of this Lease. 39 EXHIBIT B RULES AND REGULATIONS 1. The sidewalks, and public portions of the Building, such as entrances, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any tenant or used for any purpose other than ingress and egress to and from the demised premises. 2. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades, louvered openings or screens shall be attached to or hung in, or used in connection with, any window or door of the demised premises, without the prior written consent of Landlord, unless installed by Landlord. 3. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any tenant on any part of the outside of the demised premises or Building or on corridor walls. Signs on entrance door or doors shall conform to building standard signs, samples of which are on display in Landlord's rental office. Signs on doors shall, at the tenant's expense, be inscribed, painted or affixed for each tenant by sign makers approved by Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove same without any liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule. 4. The sashes, sash doors, skylights, windows, heating, ventilating and air conditioning vents and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by any tenant, nor shall any bottles, parcels, or other articles be placed on the window sills. 5. No show cases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the public halls, corridors or vestibules without the prior written consent of Landlord. 6. Whenever Tenant shall submit to Landlord any plan, agreement or other document for Landlord's consent or approval, or review and acceptance, Tenant agrees to pay Landlord as additional rent, on demand, a processing fee in a sum equal to the reasonable fee of any architect, engineer or attorney employed by Landlord to review said plan, agreement or document. 7. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the Tenant who, or whose servants, employees, agents, visitors or licensees, shall have caused the same. 8. No tenant shall in any way deface any part of the. demised premises or the Building of which they form a part. No tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt 40 shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 9. No bicycles, vehicles or animals of any kind shall be brought into or kept in or about the premises. No cooking shall be done or permitted by any Tenant on said premises except in conformity to law and then only in the utility kitchen, if any, as set forth in Tenant's layout, which is to be primarily used by Tenant's employees for heating beverages and light snacks. No tenant shall cause or permit any unusual or objectionable odors to be produced upon or permeate from the demised premises. 10. No space in the Building shall be used for manufacturing, distribution, or for the storage of merchandise or for the sale of merchandise, goods or property of any kind at auction. 11. No tenant shall make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of the Building or neighboring buildings or premises or those having business with them, whether by the use of any musical instrument, radio, talking machine, unmusical noise, whistling, singing, or in any other way. No tenant shall throw anything out of the doors, windows or skylights or down the passageways. 12. No tenant, nor any of the tenant's servants, employees, agents, visitors or licensees, shall at any time bring or keep upon the demised premises any inflammable, combustible or explosive fluid, or chemical substance, other than reasonable amounts of cleaning fluids and solvents required in the normal operation of tenant's business offices. 13. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any tenant, nor shall any changes be made in existing locks or the mechanism thereof, without the prior written approval of the Landlord and unless and until a duplicate key is delivered to Landlord. Each tenant must, upon the termination of his tenancy, restore to the Landlord all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such tenant, and in the event of the loss of any keys, so furnished, such tenant shall pay to Landlord the cost thereof. 14. All removals, or the carrying in or out of any safes, freight, furniture or bulky matter of any description, must take place during the hours and pursuant to such procedures as Landlord or its agent may determine from time to time. Landlord reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part. 15. No tenant shall occupy or permit any portion of the premises demised to it to be occupied as an office for a public stenographer or typist, or for the possession, storage, manufacture, or sale of liquor, narcotics, tobacco in any form, or as a barber or manicure shop or as a public employment bureau or agency, or for a public finance (personal loan) business. No tenant shall engage or pay any employees on the demised premises, except those actually working for such tenant on said premises, nor advertise for laborers giving an address at said premises. 16. Landlord shall have the right to prohibit any advertising by any tenant, mentioning the Building, which, in Landlord's reasonable opinion, tends to impair the reputation of the 41 Building or its desirability as a building for offices, and upon written notice from Landlord, tenants shall refrain from or discontinue such advertising. 17. Landlord reserves the right to exclude from the Building between the hours of 6:00 P.M. and 8:00 A.M. and at all hours on Sundays and legal holidays all persons who do not present a pass to the Building signed by a tenant. Each tenant shall be responsible for all persons for whom such pass is issued and shall be liable to Landlord for all acts of such persons. 18. At the option of Landlord, the Tenant agrees to purchase from Landlord or its agents all lamps and bulbs used in the demised premises and to pay for the cost of installation thereof. 19. The premises shall not be used for lodging or sleeping or for any immoral or illegal purpose. 20. Tenant shall pay to Landlord the cost of an exterminator to keep the demised premises free from vermin. 21. The requirements of tenants will be attended to only upon application at the office of the Building. Building employees shall not perform any work or do anything outside of their regular duties, unless under special instructions from the office of Landlord. 22. Canvassing, soliciting and peddling in the Building are prohibited and each tenant shall cooperate to prevent the same. 23. There shall not be used in any space, or the public halls of any building, either by any tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. No hand trucks shall be used in passenger elevators. 24. Tenants, in order to obtain maximum effectiveness of the cooling system, shall lower and/or close venetian or vertical blinds or drapes when the sun's rays fall directly on windows of demised premises and shall permit Landlord to install and maintain on the interior of said windows mylar or other such insulating materials. 25. In order that the Building can and will maintain a uniform appearance to those outside of same, each Tenant in building perimeter areas shall (a) use only building standard lighting in areas where lighting is visible from the outside of the Building and (b) use only building standard venetian or vertical blinds in window areas which are visible from the outside of the Building. 26. Replacement of ceiling tiles after they are removed for Tenant by telephone company installers, in both the demised premises and the public corridors, will be charged to Tenant on a per tile basis. 27. All paneling, grounds or other wood products not considered furniture shall be of fire retardant materials. Before installation of any such materials, certification of the materials' fire retardant characteristics shall be submitted to Landlord, or its agents, in a manner satisfactory to the Landlord. 42 Whenever the above rules conflict with any of the rights or obligations of Tenant pursuant to the provisions of the Articles of this Lease, the provisions of the Articles shall govern. 43 EXHIBIT C CLEANING SCHEDULE GENERAL All linoleum, rubber, asphalt tile and other similar types of hard-surfaced flooring to be swept nightly, using approved dust-check type of mop. All carpeting and rugs to be vacuum-cleaned nightly. Hand dust and wipe clean all furniture, fixtures and window sills nightly; wash sills when necessary. Empty and clean nightly all waste receptacles of customary office size. Empty and clean all ash trays and screen all sand urns nightly. Dust interior of all waste disposal cans and baskets nightly; damp-dust as necessary. Wash clean all water fountains and coolers nightly. Dust all telephones as necessary. Sweep all private stairway structures nightly. LAVATORIES IN THE CORE Sweep and wash all lavatory floors nightly using proper disinfectants. Wash and polish all mirrors, powder shelves, bright work and enameled surfaces in all lavatories nightly. Wash and disinfect all basins, bowls and urinals throughout all lavatories, nightly. Wash all toilet seats, nightly. Empty paper towel receptacles and transport waste paper to designated area in basement, nightly. Fill toilet tissue holders, towel receptacles and soap dispensers, nightly. Empty sanitary disposal receptacles, nightly Thoroughly wash and polish all wall tile and stall surface as often as necessary. 44 HIGH DUSTING Do all high dusting quarterly which includes the following: Dust all pictures, frames, charts, graphs and similar wall hangings not reached in nightly cleaning. Cleaning of light fixtures shall be for account of Tenant. Hand dust all door and other ventilating louvres within reach, as necessary. GLASS Exterior windows to be cleaned inside and outside as necessary, but at least two times a year, weather permitting. Interior glass doors and glass partitions to be cleaned when necessary. 45 RIDER ATTACHED TO AND FORMING A PART OF LEASE BETWEEN MID-CITY ASSOCIATES, LANDLORD AND TRANS WORLD GAMING CORPORATION, TENANT ARTICLE 45 TAX AND OPERATING EXPENSE ESCALATION Tenant shall pay to Landlord, as additional rent, tax escalation and operating expense escalation in accordance with this Article: (a) DEFINITIONS: For the purpose of this Article, the following definitions shall apply: (i) The term "base year" as hereinafter set forth for the determination of expense escalation, shall mean the calendar year 1996. (ii) The term "base tax year" as hereinafter set forth for the determination of real estate tax escalation shall mean the New York City real estate tax year commencing July 1, 1996 and ending June 30, 1997. (iii) The term "The Percentage" shall mean .0479 percent (.0479%) for real estate tax escalation and shall mean .0514 percent (.0514%) for expense escalation. The Percentage has been computed on the basis of a fraction, the numerator of which is the rentable square foot area of the presently demised premises and the denominator of which is the total rentable square foot area of the office and commercial space in the building project (excluding garage space), for tax escalation and the denominator of which is the total rentable square foot area of the office space in the building project, for expense escalation. The parties acknowledge and agree that the total rentable square foot area of the presently demised premises shall be deemed to be 992 sq. ft. and that the rentable square foot area of the office and commercial space in the building project shall be deemed to be 2,072,136 sq. ft. and that of its office space shall be deemed to be 1,928,539 sq. ft. (iv) The term "the building project" shall mean all of the land together with the improvements in which Landlord has an interest below 33rd Street, in Pennsylvania Station and below, on and above ground level in the block bounded by 34th Street, 8th Avenue, 33rd Street, and 7th Avenue, exclusive of the frontage 100 feet deep west of 7th Avenue and the frontage 52 feet 51/2 inches deep east of 8th Avenue. (v) The term "comparative year" shall mean the respective twelve months following each of the base year and the base tax year,* or such other period of twelve (12) months occurring during the term of this Lease as hereafter may be duly adopted as the fiscal year for real estate tax purposes by the City of New York. (vi) The term "real estate taxes" shall mean the total of all taxes and special or other assessments levied, assessed or imposed at any time by any governmental _________________ * or such other period of twelve (12) months occurring during the term of this Lease as hereafter may be duly adopted as the fiscal year for real estate tax purposes by the City of New York. 46 authority upon or against the building project, and also any tax or assessment levied, assessed or imposed at any time by any governmental authority in connection with the receipt of income or rents from said building project to the extent that same shall be in lieu of all or a portion of any of the aforesaid taxes or assessments, or additions or increases thereof, upon or against said building project. If, due to a future change in the method of taxation or in the taxing authority, or for any other reason. a franchise, income. transit, profit or other tax or governmental imposition. however designated, shall be levied against Landlord in substitution in whole or in part for the real estate taxes. or in lieu of additions to or increases of said real estate taxes. then such franchise, income. transit, profit or other tax or governmental imposition shall be deemed to be included within the definition of "real estate taxes" for the purposes hereof. As to special assessments which are payable over a period of time extending beyond the term of this Lease, only a pro rata portion thereof, covering the portion of the term of this Lease unexpired at the time of the imposition of such assessment, shall be included in "real estate taxes". If, by law, any assessment may be paid in installments, then, for the purposes hereof (a) such assessment shall be deemed to have been payable in the maximum number of installments permitted by law and (b) there shall be included in real estate taxes, for each comparative year in which such installments may be paid, the installments of such assessment so becoming payable during such comparative year, together with interest payable during such comparative year. (vii) Where a "transition assessment" is imposed by the City of New York for any tax (fiscal) year, then the phrases "assessed value" and "assessments" shall mean the transition assessment for that tax (fiscal) year.* (viii) The phrase "real estate taxes payable during the base tax year" shall mean that amount obtained by multiplying the assessed value of the land and buildings of the building project for the base tax year by the tax rate for the base tax year for each $l00 of such assessed value. (ix) The term "Expenses" shall mean the total of all the costs and expenses incurred or borne by Landlord with respect to the operation and maintenance of the building project and the services provided tenants therein, including, but not limited to, the costs and expenses incurred for and with respect to: steam and any other fuel; water rates and sewer rents; air-conditioning; ventilation and heating; cleaning, by contract or otherwise, window washing (interior and exterior); elevators; escalators; porter and matron service; Building electric current;* protection and security; lobby decoration, _____________________________ * Where more than one assessment is imposed by the City of New York for any tax year, whether denominated an "actual assessment" or a "transitional assessment" or otherwise, then the phrases herein "assessed value" and "assessments" shall mean whichever of the actual, transitional or other assessment is designated by the City of New York as the taxable assessment for that tax year. * i.e. Building electric current shall be deemed to mean all electricity purchased for the Building except that which is redistributed to tenants in the Building; the parties acknowledge and agree that Forty percent (40%) of the Building's payment to the public utility for the purchase of electricity shall be deemed to be payment for Building electric current. 47 repairs; association fees or dues; maintenance; painting of non-tenant areas; replacements and improvements which are appropriate for the continued operation of the building project; fire, extended coverage, boiler and machinery, sprinkler, apparatus, public liability and property damage, rental and plate glass insurance and any insurance required by a mortgagee; management fees; supplies; wages, salaries, disability benefits, pensions, hospitalization, retirement plans and group insurance respecting employees of the Landlord up to and including the building manager; uniforms and working clothes for such employees and the cleaning thereof; expenses imposed on the Landlord pursuant to any law or to any collective bargaining agreement with respect to such employees; workmen's compensation insurance, payroll, social security, unemployment and other similar taxes with respect to such employees. Provided, however, that the foregoing costs and expenses shall exclude or have deducted from them, as the case may be and as shall be appropriate: (a) leasing commissions (b) Managing agents' fees or commissions in excess of the rates then customarily charged for building management for buildings of like class and character; (c) executives' salaries above the grade of building manager; (d) expenditures for capital improvements except those which under generally applied real estate practice are expensed or regarded as deferred expenses and except for capital expenditures required by law, in either of which cases the cost thereof shall be included in Expenses for the comparative year in which the costs are incurred and subsequent comparative years, on a straight line basis, to the extent that such items are amortized over an appropriate period, but not more than ten years, with an interest factor equal to the prime rate of the Chemical Bank of New York at the time of Landlord's having incurred said expenditure. (e) amounts received by Landlord through proceeds of insurance to the extent the proceeds are compensation for expenses which were previously included in Expenses hereunder; (f) cost of repairs or replacements incurred by reason of fire or other casualty, but only to the extent to which Landlord is compensated therefor through proceeds of insurance, or caused by the exercise of the right of eminent domain; (g) advertising and promotional expenditures; (h) legal fees for disputes with tenants and legal and auditing fees, other than legal and auditing fees reasonably incurred in connection with the maintenance and operation of the Building or in connection with the preparation of statements required pursuant to additional rent or lease escalation provisions; 48 (i) costs incurred in performing work or furnishing services for individual tenants (including this Tenant) at such tenant's expense to the extent that such work or service is in excess of any work or service Landlord at its expense is obligated to furnish to this Tenant; costs of performing work or furnishing services for tenants other than this Tenant at Landlord's expense to the extent that such work or service is in excess of any work or service Landlord is obligated to furnish to this Tenant at Landlord's expense; if any work or service is performed or furnished by Landlord to or for any tenant other than this Tenant at such tenant's expense then, but only to the extent that Landlord is obligated to perform such work or furnish such service to or for this Tenant at Landlord's expense, such work or service shall be deemed to have been performed or furnished to such other tenant at Landlord's expense and shall therefore be included in Expenses. If Landlord shall purchase any item of capital equipment or make any capital expenditure designed to result in savings or reductions in Expenses then the costs for same shall be included in Expenses. The costs of capital equipment or capital expenditures are so to be included in Expenses for the comparative year in which the costs are incurred and subsequent comparative years, on a straight line basis, to the extent that such items are amortized over such period of time as reasonably can be estimated as the time in which such savings or reductions in Expenses are expected to equal Landlord's costs for such capital equipment or capital expenditure, with an interest factor equal to the prime rate of the Chemical Bank of New York at the time of Landlord's having incurred said costs. If Landlord shall lease any such item of capital equipment designed to result in savings or reductions in Expenses, then the rentals and other costs paid pursuant to such leasing shall be included in Expenses for the comparative year in which they were incurred. If during all or part of any comparative year, Landlord shall not furnish any particular items(s) of work or service (which would constitute an Expense hereunder) to portions of the building project, due to the fact that such portions are not occupied or leased, or because such item of work or service is not required or desired by the tenant of such portion, or such tenant is itself obtaining and providing such item of work or service, or for other reasons, then, for the purposes of computing the additional rent payable hereunder, the amount of the expenses for such item for such period shall be increased by an amount equal to the additional operating and maintenance expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such item of work or services to such portion of the building project. (b) REAL ESTATE TAXES: 1. In the event that the real estate taxes payable for any comparative year shall exceed the amount of such real estate taxes payable during the base tax year, Tenant shall pay to Landlord, as additional rent for such comparative year, an amount equal to The Percentage of the excess. By or after the start of the comparative year following the base tax year, and by or after the start of each comparative year thereafter, 49 Landlord shall furnish to Tenant a statement of the real estate taxes payable for such comparative year, and a statement of the real estate taxes payable during the base tax year. If the real estate taxes payable for such comparative year exceed the real estate taxes payable during the base tax year, additional rent for such comparative year, in an amount equal to The Percentage of the excess, shall be due from Tenant to Landlord, and such additional rent shall be payable by Tenant to Landlord within ten (10) days after receipt of the aforesaid statement. Additionally, Tenant shall pay to Landlord, on demand, a sum equal to The Percentage of any business improvement district assessment payable by the building project. 2. Should the real estate taxes payable during the base tax year be reduced by final determination of legal proceedings, settlement or otherwise, then, the real estate taxes payable during the base tax year shall be correspondingly revised, the additional rent theretofore paid or payable hereunder for all comparative years shall be recomputed on the basis of such reduction, and Tenant shall pay to Landlord as additional rent, within ten (10) days after being billed therefor, any deficiency between the amount of such additional rent as theretofore computed and the amount thereof due as the result of such recomputations. Should the real estate taxes payable during the base tax year be increased by such final determination of legal proceedings, settlement or otherwise, then appropriate recomputation and adjustment also shall be made. 3. If, after Tenant shall have made a payment of additional rent under this subdivision (b) Landlord shall receive a refund of any portion of the real estate taxes payable for any comparative year after the base tax year on which such payment of additional rent shall have been based, as a result of a reduction of such real estate taxes by final determination of legal proceedings, settlement or otherwise, Landlord shall within ten (10) days after receiving the refund pay to Tenant The Percentage of the refund less The Percentage of expenses (including attorneys' and appraisers' fees) incurred by Landlord in connection with any such application or proceeding. If, prior to the payment of taxes for any comparative year, Landlord shall have obtained a reduction of that comparative year's assessed valuation of the building,, project, and therefore of said taxes, then the term "real estate taxes for that comparative year shall be deemed to include the amount of Landlord's expenses in obtaining such reduction in assessed valuation, including attorneys fees and appraisers' fees. (c) EXPENSES: 1. If the Expenses for any comparative year shall be greater than the Expenses for the base year, Tenant shall pay to Landlord, as additional rent for such comparative year, in the manner hereinafter provided, an amount equal to The Percentage of the excess of the Expenses for such comparative year over the Expenses for the base year (such amount being hereinafter called the "Expense Payment"). Following the expiration of each comparative year and after receipt thereof from Landlord's certified public accountant, Landlord shall submit to Tenant a statement, certified by Landlord, setting forth the Expenses for the preceding comparative year, the 50 Expenses for the base year, and the Expense Payment, if any, due to Landlord from Tenant for such comparative year. The rendition of such statement to Tenant shall constitute prima facie proof of the accuracy thereof and, if such statement shows an Expense Payment due from Tenant to Landlord with respect to the preceding comparative year then (i) Tenant shall make payment of any unpaid portion thereof within ten (10) days after receipt of such statement; and (ii) Tenant shall also pay to Landlord, as additional rent, within ten (10) days after receipt of such statement, an amount equal to the product obtained by multiplying the total Expense Payment for the preceding comparative year by a fraction, the denominator of which shall be twelve (12) and the numerator of which shall be the number of months of the current comparative year which shall have elapsed prior to the first day of the month immediately following the rendition of such statement; and (iii) Tenant shall also pay to Landlord, as additional rent, commencing as of the first day of the month following the rendition of such statement and on the first day of each month thereafter until a new statement is rendered, one-twelfth (1/12) of the total Expense Payment for the preceding comparative year. The aforesaid monthly payments based on the total Expense Payment for the preceding comparative year shall be adjusted to reflect, if Landlord can reasonably so estimate, known increases in rates, for the current comparative year, applicable to the categories involved in computing Expenses, whenever such increases become known prior to or during such current comparative year. The payments required to be made under (ii) and (iii) above shall be credited toward the Expense Payment due from Tenant for the then current comparative year, subject to adjustment as and when the statement for such current comparative year is rendered by Landlord. (d) The statements of the real estate taxes and of the Expenses to be furnished by Landlord as provided in subdivisions (b) and (c) above shall be certified by Landlord, and shall be prepared in reasonable detail for the Landlord by a certified public accountant (who may be the CPA now or then currently employed by Landlord for the audit of its accounts); said certified public accountant may rely on Landlord's allocations and estimates wherever operating cost allocations or estimates are needed for this Article. The statements thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant of the real estate taxes and Expenses for the periods represented thereby, unless Tenant within thirty (30) days after they are furnished shall give a written notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate. If Tenant shall so dispute said statements then, pending the resolutions of such dispute, Tenant shall pay the additional rent to Landlord in accordance with the statements furnished by Landlord. (e) In no event shall the fixed annual rent under this Lease be reduced by virtue of this Article. (f) If the term of this Lease commences on a day which is not the first day of a comparative year, then the additional rent due hereunder for such comparative year shall be a proportionate share of said additional rent for the entire comparative year, said proportionate share to be based upon the length of time that the term of this Lease will be in existence during such comparative year. Upon the date of any expiration or termination of this Lease (except 51 termination because of Tenant's default), whether the same be the date hereinabove set forth for the expiration of the term or any prior or subsequent date, a proportionate share of said additional rent for the comparative year during which such expiration or termination occurs shall immediately become due and payable by Tenant to Landlord, if not theretofore already billed and paid. The said proportionate share shall be based upon the length of time that this Lease shall have been in existence during such comparative year. Landlord shall, as soon as reasonably practicable, compute the additional rent due from Tenant, as aforesaid, which computations shall either be based on that comparative year's actual figures or be an estimate based upon the most recent statements theretofore prepared by Landlord and furnished to Tenant under subdivisions (b) and (c) above. If an estimate is used, then Landlord shall cause statements to be prepared on the basis of the comparative year's actual figures as soon as they are available, and within ten (10) days after such statement or statements are prepared by Landlord and furnished to Tenant, Landlord and Tenant shall make appropriate adjustments of any estimated payments theretofore made. (g) Landlord's and Tenant's obligation to make the adjustments referred to in subdivision (f) above shall survive any expiration or termination of this Lease. (h) Any delay or failure of Landlord in billing for any additional rent hereunder shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such additional rent. 52 RIDER ATTACHED TO AND FORMING A PART OF LEASE BETWEEN MID-CITY ASSOCIATES, LANDLORD AND TRANS WORLD GAMING CORPORATION, TENANT ARTICLE 46 RENT CREDIT If and so long as Tenant is not in default under the Lease beyond any grace period, Tenant shall be entitled to a rent credit in the amount of $2,149.33 to be applied to the first monthly installment of fixed annual rent (without electricity) due under this Lease; except that Tenant shall nevertheless be obligated, from and after the commencement date of the term, to pay any additional rents hereunder and to pay the ERIF portion of the fixed annual rent pursuant to Section 27.04 hereof. Anything contained herein to the contrary notwithstanding, if Tenant, at any time during the term of this Lease after Tenant has been granted all or a portion of the rent credit described in this Article, breaches any covenant, condition or provision of this Lease and fails to cure such breach within any applicable grace period, and provided that this Lease is terminated by Landlord because of such default, then, in addition to all other damages and remedies herein provided and to which Landlord may otherwise be entitled, Landlord shall also be entitled to the repayment of any rent credit theretofore enjoyed by Tenant, which sum shall be deemed additional rent hereunder and shall be due upon demand by Landlord. The obligation of Tenant to pay such additional rent (or damages) to Landlord shall survive the expiration or sooner termination of the term of this Lease. 53 ARTICLE 47 ALTERATIONS Supplementing Article 3 hereof, Landlord will not unreasonably withhold or delay approval of written requests of Tenant to make non-structural interior alterations, decorations, additions and improvements (herein referred to as "alterations") in and to the demised premises, provided that such alterations do not adversely affect utility services or plumbing and electrical lines or other systems of the Building. All alterations shall be per-formed in accordance with the following terms and conditions: (a) All such alterations costing more than $5,000 shall be performed in accordance with plans and specifications first submitted to Landlord for its prior written approval. Landlord shall be given, in writing, a good description of all other alterations. (b) All alterations shall be done in a good and workmanlike manner. Tenant shall, prior to the commencement of any such alterations, at its sole cost and expense, obtain and exhibit to Landlord any governmental permit required in connection with such alterations. (c) All alterations shall be done in compliance with all other applicable provisions of this Lease and with all applicable laws, ordinances, directions, rules and regulations of governmental authorities having jurisdiction, including, without limitation, The Americans with Disabilities Act of 1990 and New York City Local Law No. 58/87 and similar present or future laws, and rules and regulations issued pursuant thereto, and also No. 76 and similar present or future laws, and rules and regulations is-sued pursuant thereto, on abatement, storage, transportation and disposal of asbestos, which work, if required, shall be effected at Tenant's sole cost and expense, by contractors and consultants approved by Landlord and in strict compliance with the aforesaid laws and regulations and with Landlord's rules and regulations thereon. (d) All work shall be performed with union labor having the proper jurisdictional qualifications. (e) Tenant shall keep the Building and the demised premises fee and clear of all liens for any work or material claimed to have been furnished to Tenant or to the demised premises. (f) Prior to the commencement of any work by or for Tenant, Tenant shall furnish to Landlord certificates evidencing the existence of the following insurance: (i) Worker's compensation insurance covering all persons employed for such work and with respect to whom death or bodily injury claims could be asserted against Landlord, Tenant or the demised premises. (ii) Broad form general liability insurance written on an occurrence basis naming Tenant as an insured and naming Landlord and its designees as additional insureds, with limits of not less than $3,000,000 combined single limit for personal injury in any one occurrence, and with limits of not less than $500,000 for property damage. (The foregoing limits may be revised from time to time by Landlord to such higher limits as Landlord from time to time reasonably requires.) Tenant, at its sole cost and expense, shall cause all such insurance to be maintained at all times when the work to be 54 performed for or by Tenant is in progress. All such insurance shall be in a company authorized to do business in New York and all policies, or certificates therefor, is-sued by the insurer and bearing notation evidencing the payment of premiums, shall be delivered to Landlord. Blanket coverage shall be acceptable, provided that coverage meeting the requirements of this paragraph is assigned to Tenant's location at the demised premises. (g) All work to be performed by Tenant shall be done in manner which will not unreasonably interfere with or disturb other tenants and occupants of the Building. (h) Any alterations or other work and installations in and for the demised premises, which shall be consented to by Landlord as provided herein, shall be effected on Tenant's behalf by Landlord, its agents or contractors, and shall be paid for by Tenant promptly when billed, at cost plus ten (10%) percent thereof for supervision and overhead, plus ten (10%) percent for general conditions, as additional rent hereunder. 55 EX-10.28 14 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT Dated as of January 1, 1997 Between TRANS WORLD GAMING CORP. and the Shareholders of ART MARKETING, LTD. LIST OF EXHIBITS NAME OF EXHIBIT NUMBER OF EXHIBIT Warrant Exhibit 1.2(a) Note Exhibit 1.2(b) Disclosure Schedule Exhibit 2.1 List of Defined Terms Exhibit 6.13 TABLE OF CONTENTS PAGE NO. ARTICLE 1. EXCHANGE OF STOCK ............................................... 1 1.1. Shares to be Acquired................................................1 1.2. Acquisition Price....................................................1 ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS...................................2 2.1. Disclosure Schedule..................................................2 2.2. Corporate Organization...............................................2 2.3. Capitalization.......................................................3 2.4. Authorization........................................................3 2.5. Non-Contravention....................................................3 2.6. Consents and Approvals...............................................4 2.7. Financial Statements.................................................4 2.8. Loss Contingencies; Other Non-Accrued Liabilities....................4 2.9. Absence of Certain Changes...........................................4 2.10. Real Properties.....................................................5 2.11. Machinery, Equipment, Vehicles and Personal Property................5 2.12. Receivables and Payables............................................6 2.13. Intellectual Property Rights........................................6 2.14. Litigation..........................................................7 2.15. Tax Matters.........................................................7 2.16. Insurance...........................................................8 2.17. Benefit Plans.......................................................8 2.18. Bank Accounts; Powers of Attorney...................................9 2.19. Contracts and Commitments; No Default...............................9 2.20. Orders, Commitments and Returns....................................10 2.21. Labor and Employment Matters.......................................10 2.22. Dealers and Suppliers..............................................10 2.23. Permits and Other Operating Rights.................................11 2.24. Compliance with Law................................................11 2.25. Assets of Business.................................................11 2.26. Business Generally.................................................11 2.27. Brokers............................................................11 2.28. Shareholders Representations.......................................11 2.29. Accuracy of Information............................................13 ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................13 3.1. Corporate Organization..............................................13 3.2. Authorization.......................................................13 3.3. Non-Contravention...................................................13 3.4. Disclosure..........................................................14 3.5. Consents and Approvals..............................................14 3.6. Brokers.............................................................14 3.7. Information Furnished...............................................14 i ARTICLE 4. COVENANTS.........................................................15 4.1. Full Access to Purchaser............................................15 4.2. Confidentiality.....................................................15 4.3. Further Assurances; Cooperation; Notification.......................16 ARTICLE 5. SURVIVAL AND INDEMNIFICATION......................................16 5.1. Survival............................................................16 5.2. Indemnification by Purchaser........................................16 5.3. Indemnification by the Shareholders--Untrue Representation or Breach of Warranty..................................................16 5.4. Indemnification by the Shareholders -- Other........................17 5.5. Basket Amount.......................................................17 5.6. Claims for Indemnification..........................................17 ARTICLE 6. MISCELLANEOUS PROVISIONS..........................................18 6.1. Expenses............................................................18 6.2. Amendment and Modification..........................................18 6.3. Waiver of Compliance; Consents......................................18 6.4. No Third Party Beneficiaries........................................18 6.5. Notices.............................................................18 6.6. Assignment..........................................................19 6.7. Governing Law.......................................................19 6.8. Counterparts........................................................20 6.9. Headings............................................................20 6.10. Entire Agreement...................................................20 6.11. Injunctive Relief..................................................20 6.12. Arbitration........................................................20 6.13. List of Defined Terms..............................................21 ii STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT, dated as of January 1, 1997, is by and among Trans World Gaming Corp., a Nevada corporation ("Purchaser"), and Andrew Tottenham and Robin Tottenham, the shareholders (collectively, the "Shareholders") of Art Marketing, Ltd. d/b/a Tottenham & Co., a United Kingdom corporation ("Company"). A. The parties hereto wish to provide for the terms and conditions upon which Purchaser will acquire all of the issued and outstanding shares of capital stock of the Company, which are owned 75% by Andrew Tottenham and 25% by Robin Tottenham, each in exchange, in like proportion, for shares of Purchaser, certain warrants therefor, and a note. B. The parties hereto wish to make certain representations, warranties, covenants and agreements in connection with such acquisition of stock and also to prescribe various conditions to such transaction. Accordingly, and in consideration of the representations, warranties, covenants, agreements and conditions herein contained, the parties hereto agree as follows: ARTICLE 1. EXCHANGE OF STOCK 1.1. SHARES TO BE ACQUIRED. The Shareholders hereby sell, transfer, assign and deliver to Purchaser, and Purchaser acquires from Shareholders, all of the 100 outstanding shares of common stock, par value L1 per share, of Company, free and clear of any Encumbrances (as defined herein) (the "Shares"). 1.2. ACQUISITION PRICE. In exchange for the Shares to be acquired from the Shareholders pursuant to this Agreement, Purchaser will pay consideration consisting of (i) an aggregate of 500,000 shares of common stock of Purchaser, par value $.001 per share (the "Purchaser Shares"), all of which shares will be "restricted" as defined under the rules promulgated under the Securities Act of 1933, as amended, (ii) warrants to purchase, in the aggregate, 250,000 additional shares of Purchaser common stock, which warrants shall be exercisable for a period of five (5) years at a price of $.5938 per share, and which shall have seven (7)-year piggy back registration rights, as provided herein (the "Warrants"), and shall be in the form of Exhibit 1.2(a) attached hereto, to be granted to the Shareholders by Purchaser, and (iii) two unsecured promissory notes in the aggregate principal amount of $200,000 due January 1, 2002, plus interest as provided in each case therein, which notes, beginning January 1, 1998, shall be convertible into common stock of the Purchaser at a price of $1.00 per share (each a Note and collectively, the "Notes") and which shall each be in the form of Exhibit 1.2(b) hereto. The Notes shall be made by Purchaser and payable to each of the Shareholders in accordance with their respective terms (such consideration collectively, the "Acquisition Price"). The total Acquisition Price shall be allocated between the Shareholders as follows: (a) 375,000 Purchaser Shares to Andrew Tottenham; 125,000 Purchaser Shares to Robin Tottenham; (b) Warrants for an additional 187,500 Purchaser Shares to Andrew Tottenham; Warrants for an additional 62,500 Purchaser Shares to Robin Tottenham; and (c) A Note in the principal amount of $150,000 to Andrew Tottenham; a Note in the principal amount of $50,000 to Robin Tottenham. At the Closing, (i) each of the Shareholders will endorse a certificate representing his or her Shares to the order of Purchaser, and will deliver such certificate to Purchaser, and (ii) Purchaser will deliver the certificate evidencing the Purchaser Shares, and will execute and deliver the Warrants and the Notes. ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS The Shareholders hereby, jointly and severally, represent and warrant to Purchaser as of the date hereof as follows: 2.1. DISCLOSURE SCHEDULE. The disclosure schedule marked as Exhibit 2.1 hereto (the "Disclosure Schedule") is divided into sections which correspond to the subsections of this Section 2. The Disclosure Schedule is accurate and complete and the disclosures in any subsection thereof shall constitute disclosure for purposes of any other subsection and any other section or subsection of this Agreement or any exhibit to or other writing which is designated herein as being part of this Agreement. 2.2. CORPORATE ORGANIZATION. Company is a corporation duly organized, validly existing and in good standing under the law of the United Kingdom, has full corporate power and authority to carry on its business as it is now being conducted and to own, lease and operate its properties and assets, is duly qualified or licensed to do business as a foreign corporation in good standing in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of its business requires such qualification or licensing, except in such jurisdictions in which the failure to be so qualified or licensed and in good standing would not, individually or in the aggregate, have a material adverse effect on its condition (financial or otherwise), working capital, assets, properties, liabilities, obligations, reserves, businesses, prospects, goodwill or going concern value; and has heretofore delivered to Purchaser complete and correct copies of its articles or certificate of incorporation and bylaws, or equivalent documents, as presently in effect. The Disclosure Schedule contains a list of all jurisdictions in which Company is qualified or licensed to do business. Company does not own (and has not at any time during the preceding five (5) years owned) of record or beneficially more than five percent (5%) of the outstanding equity securities having ordinary voting rights or power of any corporation or partnership or other legal entity. 2 2.3. CAPITALIZATION. The authorized capital stock of Company is set forth on the Disclosure Schedule. The number of shares of capital stock of Company outstanding and the number of shares of capital stock of Company held in treasury as of the date of this Agreement are set forth on the Disclosure Schedule. All issued and outstanding shares of capital stock of Company are duly authorized, validly issued, fully paid, nonassessable and are without, and were not issued in violation of, preemptive rights. Except as set forth on the Disclosure Schedule: (i) there are no shares of capital stock or other equity securities of Company outstanding or any securities convertible into or exchangeable for such shares, securities or rights; (ii) there are no outstanding options, warrants, conversion privileges or other rights to purchase or acquire any capital stock or other equity securities of Company or any securities convertible into or exchangeable for such shares, securities or rights; and (iii) there are no contracts, commitments, understandings, arrangements or restrictions by which Company is bound to issue or acquire any additional shares of its capital stock or other equity securities or any options, warrants, conversion privileges or other rights to purchase or acquire any capital stock or other equity securities of Company or any securities convertible into or exchangeable for such shares, securities or rights. 2.4. AUTHORIZATION. Each of the Shareholders has the legal capacity to execute, deliver and perform this Agreement and to carry out the transactions contemplated herein. This Agreement has been duly and validly executed by each of the Shareholders and is the valid and binding legal obligation of the Shareholders, enforceable against each of the Shareholders in accordance with its terms. 2.5. NON-CONTRAVENTION. Except as set forth in the Disclosure Schedule, neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will: (i) violate or be in conflict with any provision of the articles or certificate of incorporation or bylaws of Company; or (ii) be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to any right of termination, cancellation, imposition of fees or penalties under, any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which Company or either of the Shareholders is a party or by which Company or the Shareholders or any of its or Shareholders' properties or assets are or may be bound (unless with respect to which defaults or other rights, requisite waivers or consents shall have been obtained at or prior to the Closing) or result in the creation or imposition of any mortgage, pledge, lien, security interest, encumbrance, restriction, adverse claim or charge of any kind, upon any property or assets of Company or the Shareholders under any debt, obligation, contract, agreement or commitment to which Company or either of the Shareholders is a party or by which Company or the Shareholders or any of its or Shareholders' assets or properties are or may be bound; or (iii) violate any statute, treaty, law, judgment, writ, injunction, decision, decree, order, regulation, ordinance or other similar authoritative matters of any foreign, federal, state or local governmental or quasi- governmental, administrative, regulatory or judicial court, department, commission, agency, board, bureau, instrumentality or other authority (hereinafter sometimes separately referred to as an "Authority" and sometimes 3 collectively as "Authorities") (sometimes hereinafter separately referred to as a "Law" and sometimes collectively as "Laws"). 2.6. CONSENTS AND APPROVALS. Except as set forth in the Disclosure Schedule, with respect to Company and the Shareholders, no consent, approval, order or authorization of or from, or registration, notification, declaration or filing with (hereinafter sometimes separately referred to as a "Consent" and sometimes collectively as "Consents") any individual or entity, including without limitation any Authority, is required in connection with the execution, delivery or performance of this Agreement by the Shareholders or the consummation by the Shareholders of the transactions contemplated herein. 2.7. FINANCIAL STATEMENTS. The Shareholders have furnished to Purchaser the balance sheets and statements of operations (or income or loss), changes in shareholders' equity and changes in cash flow (or financial position) and the reports of independent public accountants described on the Disclosure Schedule (the "Interim Financial Statements"). The Shareholders have also undertaken to furnish to Purchaser an audited balance sheet to be dated as of April 30, 1997 which will be referred to herein as the "Final Balance Sheet." Except as disclosed therein, the aforesaid Interim Financial Statements and the Final Balance Sheet (i) are or will be, as the case may be, in accordance with the books and records of Company and have been, or will be, as the case may be, prepared in conformity with generally accepted accounting principles consistently applied for all periods, and (ii) fairly present and will fairly present, as the case may be, the financial position of Company as of the respective dates thereof, and the results of operations (or income or loss), changes in shareholders' equity and changes in cash flow (or financial position) for the periods then ended, all in accordance with generally accepted accounting principles consistently applied for all periods. 2.8. LOSS CONTINGENCIES; OTHER NON-ACCRUED LIABILITIES. Except as described in the Disclosure Schedule or as will be disclosed in the footnotes to the Final Balance Sheet, Company does not have (i) any loss contingencies which are not required by generally accepted accounting principles to be accrued; (ii) any loss contingencies involving an unasserted claim or assessment which are not required by generally accepted accounting principles to be disclosed because the potential claimants have not manifested to Company an awareness of a possible claim or assessment; or (iii) any categories of known liabilities or obligations (other than non-pension post-retirement medical care, dental care, life insurance or other benefits) which are not required by generally accepted accounting principles to be accrued. For purposes of this Agreement, "Loss Contingency" shall have the meaning accorded to it by generally accepted accounting principles. 2.9. ABSENCE OF CERTAIN CHANGES. Except as set forth in the Disclosure Schedule, since the date of the latest of the Interim Financial Statements, Company has owned and operated its assets, properties and businesses in the ordinary course of business and consistent with past practice; without limiting the generality of the foregoing, Company has not, subject to the aforesaid exceptions: 4 (a) suffered any adverse change in its condition (financial or otherwise), working capital, assets, properties, liabilities, obligations, reserves, businesses, prospects, goodwill or going concern value or experienced any event or failed to take any action which event or failure reasonably could be expected to result in such an adverse change; (b) suffered any loss, damage, destruction or other casualty (whether or not covered by insurance) or suffered any loss of officers, employees, dealers, distributors, independent contractors, customers, or suppliers or other favorable business relationships; (c) declared, set aside, made or paid any dividend or other distribution in respect of its capital stock; or purchased or redeemed any shares of its capital stock; (d) issued or sold any shares of its capital stock, or any options, warrants, conversion, exchange or other rights to purchase or acquire any such shares or any securities convertible into or exchangeable for such shares; (e) incurred any indebtedness for borrowed money; (f) mortgaged, pledged, or subjected to any lien, lease, security interest or other charge or encumbrance any of its properties or assets, tangible or intangible; (g) acquired or disposed of any assets or properties; (h) forgiven or canceled any debts or claims, or waived any rights; (i) entered into any material transaction; (j) granted to any officer or salaried employee or any other employee any increase in compensation in any form or paid any severance or termination pay; (k) entered into any commitment for capital expenditures for additions to plant, property or equipment; or (l) agreed, whether in writing or otherwise, to take any action described in this subsection. 2.10. REAL PROPERTIES. The Company does not own any real property. The Company leases certain real property, as described in the Disclosure Schedule, but, except as set forth in the Disclosure Schedule, there are no facts known to the Shareholders that could impose liability on the Purchaser in connection with the leasing of such real estate (other than the payment of rent in connection with such lease). 2.11. MACHINERY, EQUIPMENT, VEHICLES AND PERSONAL PROPERTY. Except as set forth in the Disclosure Schedule, Company has good and merchantable right, title and interest in and to, or a leasehold interest in and to, all its equipment, vehicles and other personal property which was purchased or otherwise acquired since the date of the latest of the Interim Financial Statements (except for such items sold or leased in the ordinary course of business since such date). Except as set forth in the Disclosure Schedule, all of such leasehold 5 interests relating to equipment, vehicles and other personal property are valid and in full force and effect and enforceable in accordance with their terms and there does not exist any violation, breach or default thereof or thereunder. Except as set forth in the Disclosure Schedule, none of such equipment, vehicles or other personal property owned by Company is subject to any mortgage, pledge, lien or security interest of any kind or nature (whether or not of record) except (i) liens securing specified liabilities or obligations shown on the Interim Financial Statements and which will be shown on the Final Balance Sheet with respect to which no breach, violation or default exists or shall exist; (ii) mechanics', carriers', workers' and other similar liens arising in the ordinary course of business; (iii) minor imperfections of title which do not impair the existing use of such real property assets or fixtures; and (iv) liens for current taxes not yet due and payable or being contested in good faith by appropriate proceedings (herein called "Permitted Liens"). Except as set forth in the Disclosure Schedule, the equipment, vehicles and other personal property of Company which are necessary to the conduct of its business are in good operating condition and repair and fit for the intended purposes thereof and no material maintenance, replacement or repair has been deferred or neglected. 2.12. RECEIVABLES AND PAYABLES. (a) Except as set forth on the Disclosure Schedule, (i) Company has good right, title and interest in and to all its accounts and notes receivable and trade notes and trade accounts as reflected on the Interim Financial Statements and as will be reflected in the Final Balance Sheet; (ii) none of such accounts and notes receivable and trade notes and trade accounts is or will be subject to any mortgage, pledge, lien or security interest of any kind or nature (whether or not of record); (iii) except to the extent of applicable reserves shown on the Interim Financial Statements and which will be shown in the Final Balance Sheet, all of the accounts and notes receivable, trade notes and trade accounts owing to Company constitute valid and enforceable claims arising from bona fide transactions in the ordinary course of business, and there are no claims, refusals to pay or other rights of set-off against any thereof; (iv) no account or note debtor whose account or note balance exceeds the amount set forth in the Disclosure Schedule at the date set forth therein was delinquent in payment by more than ninety days; and (v) there is no reason why any account or note receivable or trade note or trade account will not be collected in accordance with its terms, other than for such accounts and notes which are not in excess of the reserves established therefor and reflected on the Disclosure Schedule. (b) All accounts payable and notes payable by Company arose in bona fide transactions in the ordinary course of business and no such account payable or note payable is delinquent by more than ninety days in its payment. 2.13. INTELLECTUAL PROPERTY RIGHTS. Company owns the industrial and intellectual property rights, including without limitation the patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, computer programs and other computer software, inventions, know-how, trade secrets, technology, proprietary processes and formulae (collectively, "Intellectual Property Rights") described on the Disclosure Schedule. Except as set forth on the Disclosure Schedule, the use of all Intellectual Property Rights necessary or required for the conduct of the businesses of Company as presently conducted and as proposed to be conducted does not and will not infringe or violate or allegedly infringe or violate the 6 intellectual property rights of any person or entity. Except as described on the Disclosure Schedule, Company does not own or use any Intellectual Property Rights pursuant to any written license agreement and has not granted any person or entity any rights, pursuant to written license agreement or otherwise, to use the Intellectual Property Rights. 2.14. LITIGATION. Except as set forth in the Disclosure Schedule, there is no legal, administrative, arbitration, or other proceeding, suit, claim or action of any nature or investigation, review or audit of any kind (including without limitation a proceeding, suit, claim or action, or an investigation, review or audit, involving any environmental Law or matter), judgment, decree, decision, injunction, writ or order pending, noticed, scheduled or, to the knowledge of Company, threatened or contemplated by or against or involving Company, its assets, properties or businesses or its directors, officers, agents or employees (but only in their capacity as such), whether at law or in equity, before or by any person or entity or Authority, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the parties hereto pursuant to this Agreement or in connection with the transactions contemplated herein. 2.15. TAX MATTERS. For purposes of this Agreement, the term "Taxes" means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, real or personal property, windfall profits, customs, duties or other taxes, fees, assessments, charges or levies of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, and the term "Tax" means any one of the foregoing Taxes. In addition, the term "Tax Returns" means all returns, declarations, reports, statements and other documents required to be filed with any Authority in respect of Taxes, and the term "Tax Return" means any one of the foregoing Tax Returns. Except as set forth in the Disclosure Schedule, the Shareholders, jointly and severally, hereby represent and warrant the following with respect to the Company: (a) FILING OF TAX RETURNS. There have been properly completed and duly filed on a timely basis and in correct form all Tax Returns required to be filed on or prior to the date hereof by the Company. As of the time of filing, the foregoing Tax Returns correctly reflected the facts regarding the income, business, assets, operations, activities, status or other matters of the Company or any other information required to be shown thereon. There is no material omission, deficiency, error, misstatement or misrepresentation, whether innocent, intentional or fraudulent, in any Tax Return filed by the Company for any period. Any Tax Returns filed after the date hereof, but on or before the Closing Date, will conform with the provisions of this subsection 2.15. (b) PAYMENT OF TAXES. With respect to all amounts in respect of Taxes imposed upon the Company, or for which the Company is or could be liable, whether to taxing Authorities (as, for example, under Law) or to other persons or entities (as, for example, under tax allocation agreements), with respect to all taxable periods or portions of periods ending on or before the Closing Date, all applicable Tax Laws and agreements have been or will be fully complied with, and all such amounts of Taxes required to be paid by the Company to taxing Authorities or others on or before the date hereof have been duly 7 paid or will be paid on or before the Closing Date or adequate provision has been made or will have been made therefor in the Final Balance Sheet; the reserves for all such Taxes reflected in the Final Balance Sheet are, or will be, adequate and there are no liens for such Taxes upon any property or assets of the Company. The Company has withheld and remitted all amounts required to be withheld and remitted by it in respect of Taxes. (c) AUDITS AND EXTENSIONS. Except as set forth in the Disclosure Schedule, none of the Tax Returns of the Company has been examined by the Internal Revenue Service or any similar Authority, and, except to the extent shown in such Disclosure Schedule, all deficiencies asserted as a result of such examinations have been paid or finally settled and no issue has been raised by the Internal Revenue Service or any similar Authority in any such examination which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so examined. Except as set forth in the Disclosure Schedule, all deficiencies and assessments of Taxes of the Company resulting from an examination of any Tax Returns by any Authority have been paid and there are no pending examinations currently being made by any Authority nor has there been any written or oral notification to the Company or either of the Shareholders of any intention to make an examination of any Taxes by any Authority. Except as set forth in the Disclosure Schedule, there are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return for any period. (d) INDEPENDENT CONTRACTORS AND EMPLOYEES. For purposes of computing Taxes and the filing of Tax Returns, to the best of the Shareholders' knowledge, the Company has not failed to treat as "employees" any individual providing services to the Company who would be classified as an "employee" under the applicable rules or regulations of any Authority with respect to such classification. 2.16. INSURANCE. The Disclosure Schedule contains an accurate and complete list of all policies of fire and other casualty, general liability, theft, life, workers' compensation, health, directors and officers, business interruption and other forms of insurance owned or held by Company, specifying the insurer, the policy number, the term of the coverage and, in the case of any "claims made" coverage, the same information as to predecessor policies for the previous five years. All present policies are in full force and effect and all premiums with respect thereto have been paid. Company has not been denied any form of insurance and no policy of insurance has been revoked or rescinded during the past five years, except as described on the Disclosure Schedule. 2.17. BENEFIT PLANS. Except as set forth in the Disclosure Schedule, to the Shareholders' knowledge, there are no facts or circumstances which could, directly or indirectly, subject Purchaser or any of its affiliates to any Liability of any nature with respect to any pension, welfare, incentive, perquisite, paid time off, severance or other benefit plan, policy, practice or agreement sponsored, maintained or contributed to by Company or any affiliate, to which Company or any affiliate is a party or with respect to which Company or any affiliate could have any liability. 8 2.18. BANK ACCOUNTS; POWERS OF ATTORNEY. The Disclosure Schedule sets forth: (i) the names of all financial institutions, investment banking and brokerage houses, and other similar institutions at which the Company maintains accounts, deposits, safe deposit boxes of any nature, and the names of all persons authorized to draw thereon or make withdrawals therefrom; (ii) the terms and conditions thereof and any limitations or restrictions as to use, withdrawal or otherwise; and (iii) the names of all persons or entities holding general or special powers of attorney from Company and a summary of the terms thereof. 2.19. CONTRACTS AND COMMITMENTS; NO DEFAULT. (a) Except as set forth in the Disclosure Schedule, Company: (i) has no written contract, commitment, agreement or arrangement with any person or, to Company's knowledge, any oral contract, commitment, agreement or arrangement which (A) requires payments individually in excess of $10,000 annually or in excess of $50,000 over its term (including without limitation periods covered by any option to extend or renew by either party) and (B) is not terminable on thirty (30) days' or less notice without cost or other Liability; (ii) does not pay any person or entity cash remuneration at the annual rate (including without limitation guaranteed bonuses) of more than $50,000 for services rendered; (iii) is not restricted by agreement from carrying on its businesses or any part thereof anywhere in the world or from competing in any line of business with any person or entity; (iv) is not subject to any obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any person or entity; (v) is not party to any agreement, contract, commitment or loan to which any of its directors, officers or shareholders or any affiliate or associate (or former affiliate or associate) thereof is a party; (vi) is not subject to any outstanding sales or purchase contracts, commitments or proposals which will result in any loss upon completion or performance thereof; (vii) is not party to any purchase or sale contract or agreement that calls for aggregate purchases or sales in excess over the course of such contract or agreement of $25,000 or which continues for a period of more than twelve months (including without limitation periods covered by any option to renew or extend by either party) which is not terminable on sixty (60) days' or less notice without cost or other Liability at or any time after the Closing; and (viii) has no distributorship, dealer, manufacturer's representative, franchise or similar sales contract relating to the payment of a commission. 9 (b) True and complete copies (or summaries, in the case of oral items) of all items disclosed pursuant to subsection 2.19(a) have been made available to Purchaser for review. Except as set forth in the Disclosure Schedule, all such items are valid and enforceable by and against Company in accordance with their respective terms; Company is not in breach, violation or default, however defined, in the performance of any of its obligations thereunder, and no facts and circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a breach, violation or default thereunder or thereof; and, to Company's knowledge, no other parties thereto are in a breach, violation or default, however defined, thereunder or thereof, and no facts or circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a breach, violation or default thereunder or thereof. 2.20. ORDERS, COMMITMENTS AND RETURNS. Except as set forth in the Disclosure Schedule, all accepted and unfulfilled orders for the performance of services entered into by Company and all outstanding contracts or commitments for the purchase of supplies, materials and services were made in bona fide transactions in the ordinary course of business. Except as set forth in the Disclosure Schedule, there are no claims against Company. 2.21. LABOR AND EMPLOYMENT MATTERS. Except as set forth in the Disclosure Schedule: (i) Company is and has been in compliance with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such Laws respecting employment discrimination and occupational safety and health requirements, and has not and is not engaged in any unfair labor practice; (ii) there is no unfair labor practice or similar complaint against the Company pending or, to the Shareholders' knowledge, threatened before any Authority; (iii) no labor representation question exists respecting the employees of Company and there is not pending or, to the Shareholders' knowledge, threatened any activity intended or likely to result in a labor representation vote respecting the employees of the Company; (iv) no collective bargaining agreement is binding and in force against Company or currently being negotiated by Company; (v) Company is not delinquent in payments to any persons for any wages, salaries, commissions, bonuses or other direct or indirect compensation for any services performed by them or amounts required to be reimbursed to such persons; (vi) upon termination of the employment of any person, neither Company, Purchaser or any subsidiary of Purchaser will, by reason of anything done at or prior to or as of the Closing Date, be liable to any of such persons for so-called "severance pay" or any other payments; and (vii) within the twelve month period prior to the date hereof there has not been any expression of intention to Company by any officer or key employee to terminate such employment. 2.22. DEALERS AND SUPPLIERS. Except as set forth in the Disclosure Schedule, there has not been in the twelve month period prior to the date hereof any adverse change in the business relationship of Company with any dealer or supplier to Company. 10 2.23. PERMITS AND OTHER OPERATING RIGHTS. Except as set forth in the Disclosure Schedule, Company does not require the Consent of any Authority to permit it to operate in the manner in which it presently is being operated, and possesses all permits and other authorizations from all Authorities presently required necessary to permit it to operate it businesses in the manner in which they presently are conducted. 2.24. COMPLIANCE WITH LAW. Except as set forth in the Disclosure Schedule, and without limiting the scope of any other representations or warranties contained in this Agreement, but without intending to duplicate the scope of such other representations and warranties, the assets, properties, businesses and operations of Company are and have been in compliance with all Laws applicable to the ownership and conduct of their assets, properties, businesses and operations. There are no outstanding and unsatisfied deficiency reports, plans of correction, notices of noncompliance or work orders relating to any such Authorities, and no such discussions with any such Authorities are scheduled or pending. 2.25. ASSETS OF BUSINESS. The assets owned or leased by Company constitute all of the assets held for use or used primarily in connection with its business and are adequate to carry on such business as presently conducted and as contemplated by Company to be conducted. 2.26. BUSINESS GENERALLY. To Company's knowledge, except as set forth in the Disclosure Schedule, there has been no event, transaction or information which has come to the attention of Company which, as it relates directly to the business of Company, could, individually or in the aggregate, reasonably be expected to have a material adverse effect on such business. 2.27. BROKERS. Except as set forth in the Disclosure Schedule, neither Company nor any of its directors, officers or employees has employed any broker, finder, or financial advisor or incurred any liability for any brokerage fee or commission, finder's fee or financial advisory fee, in connection with the transactions contemplated hereby, nor is there any basis known to Company for any such fee or commission to be claimed by any person or entity. 2.28. SHAREHOLDERS REPRESENTATIONS. (a) Each of the Shareholders has full legal right, power and authority to sell, transfer, assign and deliver his or her Shares to Purchaser at Closing and delivery of the Shares at Closing will transfer to Purchaser valid legal and beneficial ownership thereof free and clear of all claims, security interests, liens, charges and encumbrances of any kind or nature whatsoever (collectively, "Encumbrances"). (b) Each of the Shareholders, prior to execution of this Agreement, became familiar with the material business and financial affairs of Purchaser and its subsidiaries (if any) and was given access to such information regarding such business and financial affairs as the 11 Shareholders deemed necessary to enable them to make an informed investment decision with respect to the Purchaser Shares to be issued in connection with this Agreement. In particular, the Shareholders received the following documents and information and had sufficient time to review and consider such documents and information: Purchaser's most recently issued annual report to shareholders; Purchaser's proxy statement for the most recent annual meeting of its shareholders; Purchaser's Form 10-KSB most recently required to be filed with the Securities and Exchange Commission; Purchaser's Form 10-QSB's required to be filed with the Securities and Exchange Commission for fiscal quarters ended after the fiscal year covered by the aforesaid Form 10-KSB; a statement by Purchaser describing the Purchaser Shares; a statement by Purchaser that there were no material changes in the affairs of Purchaser and its subsidiaries (if any) that were not disclosed in the aforesaid documents and statement; a statement by Purchaser that there are no undisclosed agreements, arrangements or understandings which benefit or relate to the Shareholders in connection with the transactions contemplated hereby, and, if either of the Shareholders is not an "accredited investor" as defined in Rule 501(a) of the rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933 (the "Rules"), copies to such Shareholder of all material written information which would be furnished to an "accredited investor." (c) Each of the Shareholders either (i) is an "accredited investor" (as defined in Rule 501(a) of the Rules) because such Shareholder is a director or executive officer (defined to be the president, a vice president in charge of a principal business unit, division or function, or any other officer or person who performs a policy-making function) of Company or because such Shareholder has presented to Purchaser evidence, including without limitation a copy of such Shareholder's income tax returns for the last two calendar years, of compliance with the requirements of Rule 501(a)(5) or Rule 501(a)(6) of the Rules, or (ii) has retained a "purchaser representative" as defined in Rule 501(h) of the Rules, has furnished to Purchaser all documentation establishing that the terms of Rule 501(h) of the Rules have been satisfied by such Shareholder and such purchaser representative, and has furnished to Purchaser all documentation requested by Purchaser to establish that such Shareholder, together with such purchaser representative, has such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the investment in the Purchaser Shares to be issued in connection with this Agreement. (d) Each of the Shareholders is acquiring the Purchaser Shares to be acquired pursuant to this Agreement for his or her own account (and such Shareholder will be the sole beneficial owner thereof) for the purpose of investment and not with a view to distribution thereof within the meaning of the Securities Act of 1933 and the Rules, nor with any present intention of distribution or selling such Purchaser Shares, and the Shareholders understand that such shares have not been registered under the Securities Act of 1933 and therefore cannot be resold unless they are registered under the Securities Act of 1933 or unless an exemption from registration is available. (e) The Shareholders have been afforded an opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Agreement and to obtain any additional information as Shareholders deem necessary to verify the accuracy of documents and statements identified in subsection (b) and copies of any exhibits identified in such documents. 12 (f) The Shareholders have consented to the placing of the following legend on the certificate for the Purchaser Shares to be issued to each Shareholder in connection with this Agreement: THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY BE SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED ONLY IF A REGISTRATION STATEMENT DESCRIBING SUCH PROPOSED TRANSACTION IS IN EFFECT PURSUANT TO THE PROVISIONS OF THAT ACT OR IF, IN THE OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE SATISFACTORY TO THE ISSUER OF THESE SHARES AND ITS COUNSEL, AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THAT ACT IS AVAILABLE. 2.29. ACCURACY OF INFORMATION. No representation or warranty by the Shareholders in this Agreement contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading as of the date of the representation or warranty. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to the Shareholders as of the date hereof as follows: 3.1 CORPORATE ORGANIZATION. Purchaser is a corporation duly organized, validly existing and in good standing under the law of the State of Nevada. 3.2. AUTHORIZATION. Purchaser has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Board of Directors of Purchaser has taken all action required by law, its articles or certificate of incorporation and bylaws or otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein. This Agreement is the valid and binding legal obligation of Purchaser enforceable against it in accordance with its terms except as enforceability may be limited by applicable Nevada law. 3.3. NON-CONTRAVENTION. Neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will: (i) violate any provision of the articles or certificates of incorporation or bylaws of Purchaser or any subsidiary of Purchaser; or (ii) except for such 13 violations, conflicts, defaults, accelerations, terminations, cancellations, impositions of fees or penalties, mortgages, pledges, liens, security interests, encumbrances, restrictions and charges which would not, individually or in the aggregate, have a material adverse affect on the business of Purchaser and its subsidiaries taken as a whole, (A) violate, be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to, any right of termination, cancellation, imposition of fees or penalties under, any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which Purchaser or any subsidiary of Purchaser is a party or by which they or any of their properties or assets is or may be bound (unless with respect to which defaults or other rights, requisite waivers or consents shall have been obtained at or prior to the Closing) or (B) result in the creation or imposition of any mortgage, pledge, lien, security interest, encumbrance, restriction or charge of any kind, upon any property or assets of Purchaser or any subsidiary of Purchaser under any debt, obligation, contract, agreement or commitment to which Purchaser or any subsidiary of Purchaser is a party or by which Purchaser or any subsidiary of Purchaser or any of their assets or properties is or may be bound; or (iii) to the knowledge of Purchaser violate any Law. 3.4. DISCLOSURE. No representation or warranty by Purchaser in this Agreement contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary in order to make the statements herein or therein, in light of the circumstances under which made, not misleading as of the date of the representation or warranty. 3.5. CONSENTS AND APPROVALS. No Consent is required by any person or entity, including without limitation any Authority, in connection with the execution, delivery and performance by Purchaser of this Agreement, or the consummation of the transactions contemplated herein, other than any Consent which, if not made or obtained, will not, individually or in the aggregate, have a material adverse effect on the business of Purchaser and its subsidiaries taken as a whole. 3.6. BROKERS. Neither Purchaser nor any of its directors, officers or key employees have employed any broker, finder or financial advisor, or incurred any liability for any brokerage fee or commission, finder's fee or financial advisory fee, in connection with the transactions contemplated hereby, nor is there any basis known to Purchaser for any such fee or commission to be claimed by any person or entity. 3.7. INFORMATION FURNISHED. Purchaser has furnished to the Shareholders the information described in subsection 2.28(b); none of such information contained any untrue statements of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 14 ARTICLE 4. COVENANTS 4.1. FULL ACCESS TO PURCHASER. The Shareholders shall cause Company to afford to Purchaser and its directors, officers, employees, counsel, accountants, investment advisors and other authorized representatives and agents free and full access to the facilities, properties, books and records of Company in order that Purchaser may have full opportunity to make such investigations as it shall desire to make of the affairs of Company; PROVIDED, HOWEVER, that any such investigation shall be conducted in such a manner as not to interfere unreasonably with business operations; and the Shareholders shall cause Company to furnish such additional financial and operating data and other information as Purchaser shall, from time to time, reasonably request, including without limitation access to the working papers of their independent certified public accountants; and, provided, further, that any such investigation shall not affect or otherwise diminish or obviate in any respect any of the representations and warranties of the Shareholders herein. 4.2. CONFIDENTIALITY. Each of the parties hereto agrees that it will not use, or permit the use of, any of the information relating to any other party hereto furnished to it in connection with the transactions contemplated herein ("Information") in a manner or for a purpose detrimental to such other party or otherwise than in connection with the transaction, and that they will not disclose, divulge, provide or make accessible (collectively, "Disclose"), or permit the Disclosure of, any of the Information to any person or entity, other than their responsible directors, officers, employees, investment advisors, accountants, counsel and other authorized representatives and agents, except as may be required by judicial or administrative process or, in the opinion of such party's regular counsel, by other requirements of Law; PROVIDED, HOWEVER, that prior to any Disclosure of any Information permitted hereunder, the disclosing party shall first obtain the recipients' undertaking to comply with the provisions of this subsection with respect to such information. The term "Information" as used herein shall not include any information relating to a party which the party disclosing such information can show: (i) to have been in its possession prior to its receipt from another party hereto; (ii) to be now or to later become generally available to the public through no fault of the disclosing party; (iii) to have been available to the public at the time of its receipt by the disclosing party; (iv) to have been received separately by the disclosing party in an unrestricted manner from a person entitled to disclose such information; or (v) to have been developed independently by the disclosing party without regard to any information received in connection with this transaction. Each party hereto also agrees to promptly return to the party from whom originally received all original and duplicate copies of written materials containing Information should the transactions contemplated herein not occur. A party hereto shall be deemed to have satisfied its obligations to hold the Information confidential if it exercises the same care as it takes with respect to its own similar information. 4.3. FURTHER ASSURANCES; COOPERATION; NOTIFICATION. (a) Each party hereto shall, before, at and after Closing, execute and deliver such instruments and take such other actions as the other party or parties, as the case may be, may reasonably require in order to carry out the intent of this Agreement. 15 (b) The Shareholders shall cause Company to cooperate with Purchaser to promptly develop plans for the management of the business after the Closing, including without limitation plans relating to productivity, marketing, operations and improvements, and to further cooperate with Purchaser to provide for the implementation of such plans as soon as practicable after the Closing. Subject to applicable Law, the Shareholders shall cause Company to confer on a regular and reasonable basis with one or more representatives of Purchaser to report on material operational matters and the general status of ongoing operations. (c) At all times from the date hereof until the Closing, each party shall promptly notify the other in writing of the occurrence of any event which it reasonably believes will or may result in a breach of this Agreement. ARTICLE 5. SURVIVAL AND INDEMNIFICATION 5.1. SURVIVAL. The representations and warranties of each of the parties hereto shall survive the Closing for a period of one year after the date of Closing. 5.2. INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify the Shareholders from and against any and all loss, liability or damage suffered or incurred by it by reason of (i) any untrue representation of, or breach of warranty by, Purchaser in any part of this Agreement, provided, however, that no claim for indemnity may be made pursuant to this subsection after the first anniversary of the Closing Date; and (ii) any nonfulfillment of any covenant, agreement or undertaking of Purchaser in any part of this Agreement which by its terms is to remain in effect after the Closing and has not been specifically waived in writing at the Closing by the party or parties hereof entitled to the benefits thereof. 5.3. INDEMNIFICATION BY THE SHAREHOLDERS--UNTRUE REPRESENTATION OR BREACH OF WARRANTY. Each of the Shareholders, jointly and severally, agrees to indemnify Purchaser from and against any and all loss, liability or damage suffered or incurred by it by reason of any untrue representation of, or breach of warranty by the Shareholders in this Agreement, provided, however, that no claim for indemnity may be made pursuant to this subsection after the third anniversary of the Closing Date. Notwithstanding anything to the contrary in this subsection, no claim may be made under this subsection if it (or the principal facts with respect to it) were known or reasonably should have been known and the claim could have been asserted at a time when it would have resulted in a required adjustment which would be reflected in the Audited Closing Balance Sheet. 5.4. INDEMNIFICATION BY THE SHAREHOLDERS -- OTHER. Each of the Shareholders, jointly and severally, agrees to indemnify Purchaser from and against: (i) any and all loss, liability or damage suffered or incurred by it by reason of any nonfulfillment 16 of any covenant, agreement or undertaking of the Shareholders in this Agreement which by its terms is to remain in effect after the Closing and has not been specifically waived in writing at the Closing by the party or parties hereto entitled to the benefits thereof; and (ii) any and all costs and expenses, including without limitation legal fees and expenses, in connection with enforcing the indemnification rights of Purchaser pursuant to subsections 5.3 and 5.5. 5.5. BASKET AMOUNT. Notwithstanding anything in subsections 5.3 and 5.4 to the contrary, Purchaser shall not be entitled to any indemnification under such subsections if the aggregate amount of all claims thereunder is less than $10,000 (the "Exception Amount"), but if the aggregate amount of all claims equals or exceeds the Exception Amount, then Purchaser shall be entitled to full indemnification of all claims and there shall be no Exception Amount. The parties hereto do not intend that the Exception Amount be deemed to be a definition of what is "material" for any purpose in this Agreement. 5.6. CLAIMS FOR INDEMNIFICATION. The parties intend that all indemnification claims hereunder be made as promptly as practicable by the party seeking indemnification (the "Indemnified Party") and that in the case of Purchaser all such claims be made pursuant to the terms and provisions of the Escrow Agreement until and including the Termination Date, as defined in the Escrow Agreement. After the Termination Date all such claims of Purchaser, including without limitation pre-Termination Date claims which, on or prior to the Termination Date, were admitted as valid pursuant to Escrow Agreement procedures or are or become the subject of an arbitration award in favor of the Indemnified Party but which are not satisfied pursuant to the Escrow Agreement, shall be presented to the Shareholders, and, in the case of all other claims, shall proceed according to the remaining terms and provisions of this subsection. Whenever any claim shall arise for indemnification hereunder (other than a claim to be submitted pursuant to aforesaid terms and provisions), the Indemnified Party shall promptly notify the party from whom indemnification is sought (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim. In the case of any such claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings of a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the liability arising therefrom. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to indemnification hereunder without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld. If the Indemnifying Party is of the opinion that the Indemnified Party is not entitled to indemnification, or is not entitled to indemnification in the amount claimed in such notice, it shall deliver, within ten (10) business days after the receipt of such notice, a written objection to such claim and written specifications in reasonable detail of the aspects or details objected to, and the grounds for such objection. If the Indemnifying Party shall file timely written notice of objection to any claim for indemnification, the validity and amount of such claim shall be determined by arbitration pursuant to subsection 6.12 hereof. If timely notice of objection is not delivered or if a claim by an Indemnified Party is admitted in writing by an Indemnifying Party or if an arbitration award is made in favor of an Indemnified Party, the Indemnified Party, as a non-exclusive remedy, shall have the right to set-off the amount of such claim or award against any amount yet owed, whether due or to become due, by the Indemnified Party or any subsidiary thereof to any 17 Indemnifying Party by reason of this Agreement or any agreement or arrangement or contract to be entered into at the Closing. ARTICLE 6. MISCELLANEOUS PROVISIONS 6.1. EXPENSES. Each of the parties hereto shall bear its own costs, fees and expenses in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including without limitation fees, commissions and expenses payable to brokers, finders, investment bankers, consultants, exchange or transfer agents, attorneys, accountants and other professionals, whether or not the transactions contemplated herein is consummated; PROVIDED, HOWEVER, that Purchaser on the one hand, and the Shareholders, on the other, shall each bear one-half (1/2) of all fees and expenses of the Escrow Agent. 6.2. AMENDMENT AND MODIFICATION. Subject to applicable Law, this Agreement may be amended or modified by the parties hereto at any time prior to the Closing with respect to any of the terms contained herein. 6.3. WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply with any obligation, covenant, agreement or condition herein may be expressly waived in writing by the party entitled hereby to such compliance, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. No single or partial exercise of a right or remedy shall preclude any other or further exercise thereof or of any other right or remedy hereunder. Whenever this Agreement requires or permits the consent by or on behalf of a party, such consent shall be given in writing in the same manner as for waivers of compliance. 6.4. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall entitle any person or entity (other than a party hereto and his, her or its respective successors and assigns permitted hereby) to any claim, cause of action, remedy or right of any kind. 6.5. NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given and effective: (i) on the date of delivery, if delivered personally; (ii) on the earlier of the fourth (4th) day after mailing or the date of the return receipt acknowledgment, if mailed, postage prepaid, by certified or registered mail, return receipt requested; or (iii) on the date of transmission, if sent by facsimile, telecopy, telegraph, telex or other similar telegraphic communications equipment: 18 If to Purchaser: To: Trans World Gaming Corp. One Penn Plaza, Suite 1503 New York, NY 10119 Attn: Mr. Dominick Valenzano Fax: (212) 563-3380 With a copy to: Oppenheimer Wolff & Donnelly 45 South Seventh Street Suite 3400 Minneapolis, MN 55402 Attn: Thomas R. Marek, Esq. Fax: (612) 344-9376 or to such other person or address as Purchaser shall furnish to the other parties hereto in writing in accordance with this subsection. If to the Shareholders: To: Art Marketing, Ltd. d/b/a Tottenham & Co. 3 Garfield Mews London, SW11 5PL United Kingdom Attn: Mr. Andrew Tottenham Fax: 001-44-171-924-2231 With a copy to such other person or address as the Shareholders may furnish to Purchaser from time to time in accordance with this subsection. 6.6. ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (whether voluntarily, involuntarily, by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other parties, PROVIDED, HOWEVER, that Purchaser may assign this Agreement, in whole or in any part, and from time to time, to a wholly-owned, direct or indirect, subsidiary of Purchaser, if Purchaser remains bound hereby). 6.7. GOVERNING LAW. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the internal substantive laws of the State of New York (without regard to the laws of conflict that might otherwise apply) as to all matters, including without limitation matters of validity, construction, effect, performance and remedies. 19 6.8. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.9. HEADINGS. The table of contents and the headings of the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 6.10. ENTIRE AGREEMENT. The Disclosure Schedule and the exhibits and other writings referred to in this Agreement or in the Disclosure Schedule or any such exhibit or other writing are part of this Agreement, together they embody the entire agreement and understanding of the parties hereto in respect of the transactions contemplated by this Agreement and together they are referred to as "this Agreement" or the "Agreement". There are no restrictions, promises, warranties, agreements, covenants or undertakings, other than those expressly set forth or referred to in this Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to the transaction or transactions contemplated by this Agreement (including without limitation the letter of intent dated November 13, 1996, between Purchaser and Company and all amendments and extensions thereof). Provisions of this Agreement shall be interpreted to be valid and enforceable under applicable Law to the extent that such interpretation does not materially alter this Agreement; provided, however, that if any such provision shall become invalid or unenforceable under applicable Law such provision shall be stricken to the extent necessary and the remainder of such provisions and the remainder of this Agreement shall continue in full force and effect. 6.11. INJUNCTIVE RELIEF. It is expressly agreed among the parties hereto that monetary damages would be inadequate to compensate a party hereto for any breach by any other party of its covenants and agreements in subsections 4(c) and 4(e) hereof. Accordingly, the parties agree and acknowledge that any such violation or threatened violation will cause irreparable injury to the other and that, in addition to any other remedies which may be available, such party shall be entitled to injunctive relief against the threatened breach of subsections 4(c) and 4(e) hereof or the continuation of any such breach without the necessity or roving actual damages and may seek to specifically enforce the terms thereof. 6.12. ARBITRATION. With the sole exception of the injunctive relief contemplated by subsection 9(k), any controversy or claim arising out of or relating to this Agreement, or the making, performance or interpretation thereof, including without limitation alleged fraudulent inducement thereof, shall be settled by binding arbitration in New York, New York by a panel of three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Judgment upon any arbitration award may be entered in any court having jurisdiction thereof and the parties consent to the jurisdiction of the courts of the State of New York for this purpose. 20 6.13. LIST OF DEFINED TERMS. Reference is made to Exhibit 6.13 for a listing and location of terms defined in this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. TRANS WORLD GAMING CORP. Attested by: By: --------------------------- ---------------------------- Dominick Valenzano Chief Financial Officer ANDREW TOTTENHAM ---------------------------- ROBIN TOTTENHAM ---------------------------- 21 Exhibit 6.13 ------------ LIST OF DEFINED TERMS TERM PAGE ---- ----- Acquisition Price 1 Agreement 20 Audited Closing Balance Sheet 16 Authorities 4 Authority 3 Company 1 Consent 4 Consents 4 Disclose 15 Disclosure Schedule 2 Encumbrances 11 Exception Amount 17 Final Balance Sheet 4 Indemnified Party 17 Indemnifying Party 17 Information 15 Intellectual Property Rights 6 Interim Financial Statements 4 Law 4 Laws 4 Loss Contingency 4 Notes 4 Permitted Liens 6 Purchaser 1 Purchaser Shares 1 Rules 12 Shareholders 1 Shares 1 Tax 15 Tax Return 15 Tax Returns 15 Taxes 15 Warrants 1 22 EX-27.1 15 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON PAGES F-3 AND F-4 OF THE COMPANY'S 10KSB FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 489 0 397 0 56 109 541 106 2,351 1,629 4,825 0 0 3 (4,106) 2,351 2,763 6,655 2,454 3,590 3,004 0 1,118 (1,057) 320 (1,377) 0 11,383 0 (12,760) (5.02) (5.02)
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