-----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, Pj3ES4So7kD62HS9omrZNY84HEvdn2iROq5zqw/ES8hu5x777pRTZ5vEs+USIlo9 7oAQNN7SXb9X/iZb+LmdCg== /in/edgar/work/20000530/0000912057-00-026746/0000912057-00-026746.txt : 20000919 0000912057-00-026746.hdr.sgml : 20000919 ACCESSION NUMBER: 0000912057-00-026746 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000530 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS WORLD GAMING CORP CENTRAL INDEX KEY: 0000914577 STANDARD INDUSTRIAL CLASSIFICATION: [5500 ] IRS NUMBER: 133738518 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-25244 FILM NUMBER: 646301 BUSINESS ADDRESS: STREET 1: 545 FIFTH AVE STREET 2: STE 940 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125633355 MAIL ADDRESS: STREET 1: 545 FIFTH AVE STREET 2: STE 940 CITY: NEW YORK STATE: NY ZIP: 10017 10KSB/A 1 a10ksba.txt FORM 10-KSB/A =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended December 31, 1999 / / 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.) 545 FIFTH AVENUE, SUITE 940 10017 NEW YORK, NEW YORK (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (212) 983-3355 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. / / The issuer's revenues for the year ended December 31, 1999 were approximately $12,294,000. As of December 31, 1999, 5,365,449 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 OTC Bulletin Board, excluding outstanding shares beneficially owned by directors and executive officers, was approximately $0.51. Transitional Small Business Disclosure Format (check one: YES / / NO /X/) =============================================================================== TRANS WORLD GAMING CORP. FORM 10-KSB TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------------------- Page - ------------------------------------------------------------------------------------------------------------- PART I Item 1. Description of Business 1 General Development of Business 1 Czech Republic 1 Spain 2 Louisiana Operations 2 Other Terminated Ventures 4 Multiple Application Tracking Systems, Inc. 4 The Boxer Casino 4 The Bishkek Casino 4 OTC Bulletin Board 5 Accounting and Financial Issues 5 Corporate Information 5 Financial Information About Industry Segments 5 Narrative Description of Business 6 Industry Overview 6 The Company's Facilities 6 Louisiana Gaming 6 Woodlands Truckstop 6 Czech Republic 6 Spain 6 Future Operations 7 Czech Republic 7 Spain 7 Long Range Objectives 7 Marketing 8 Czech Republic 8 Spain 8 Acquisition Agreement 8 Regulations and Licensing 9 Federal Regulation 9 Competition 9 Employees 10 Item 2. Description of Property 10 Corporate Offices 10 Louisiana 10 Czech Republic 10 Spain 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 11 - ------------------------------------------------------------------------------------------------------------- i
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- ------------------------------------------------------------------------------------------------------------- Page PART II. Item 5. Market for Common Equity and Related Stockholder Matters 12 Item 6. Management's Discussion and Analysis or Plan of Operations 13 Forward-Looking Statements 13 Results of Operations 13 Revenues 13 Costs of Revenues 16 Earnings/(Loss) 17 Ceska, Czech Republic 17 Rozvadov, Czech Republic 18 Zaragoza, Spain 18 Liquidity and Capital Resources 19 Plan of Operations 20 Important Factors to Consider 20 Accumulated Deficit; Operating Losses; Going Concern 20 Termination of Louisiana Operations in 1999; Need to Diversify 21 Taxation of Gaming Operations 21 Dependence upon Key Personnel 21 Need for Additional Financing 21 International Activities 22 Licensing and Regulation 22 Liability Insurance 22 No Dividends 22 Possible Adverse Effect of Issuance of Preferred Stock 22 Dilutive Effect of Warrants 23 Item 7. Financial Statements 23 Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 23 PART III. Item 9. Directors and Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. 24 Information about the Board and its Committees 25 Audit Committee 25 Executive Committee 25 Compensation Committee 25 Section 16(a) Beneficial Ownership Reporting Compliance 25 Item 10. Executive Compensation 26 Summary of Cash and Certain Other Compensation 26 Option Grants and Exercises 27 Directors' Compensation 27 Employment/Severance Agreements 28 Item 11. Security Ownership of Certain Beneficial Owners and Management 28 - ------------------------------------------------------------------------------------------------------------- ii
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- ------------------------------------------------------------------------------------------------------------- Page Item 12. Certain Relationships and Related Transactions 31 Item 13. Exhibits and Reports on Form 8-K 33 (a) Exhibits 33 (b) Reports on Form 8-K 33 EXHIBITS INDEX 34 SIGNATURES 42 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 43 - -------------------------------------------------------------------------------------------------------------
iii ITEM 1. DESCRIPTION OF BUSINESS. GENERAL DEVELOPMENT OF BUSINESS Trans World Gaming Corp. (the "Company" or "TWG") was organized as a Nevada corporation in October 1993 to acquire, develop and manage, to the extent permitted by applicable local laws, gaming establishments featuring live and mechanized gaming, including video gaming devices such as video poker machines. TWG proceeded to enter into this business through its 1994 acquisition of several Louisiana based entities. In 1998, in response to changes in the laws governing the legality of operating video gaming devices in the state of Louisiana and faced with a closing date of June 30, 1999 for its Louisiana operations as a result of this change in law, TWG amended its operating strategy by shifting its focus to the casino market overseas and acquired five casinos, one of which includes a hotel, and a parcel of land in Europe. The Company has since closed two of the casinos due, as in Louisiana, to local gaming law changes, but has recently opened an additional casino on the parcel of land that was purchased in 1998, which leaves the Company with a total of four casinos currently in operation. CZECH REPUBLIC On March 31, 1998, the Company consummated a Stock Purchase Agreement ("Stock Purchase Agreement") with 21st Century Resorts a.s., an owner-operator of two casinos, and the owner of property to build a third casino, in the Czech Republic ("Resorts"), Gameway Leasing Limited ("Gameway") and Monarch Leasing Limited ("Monarch Leasing"), two off-shore affiliates of Resorts which leased equipment to Resorts and the stockholders of Resorts (the "Selling Stockholders") pursuant to which the Company acquired 100% of the equity interests of Resorts and its two operating subsidiaries and all of the assets of Gameway and Monarch Leasing. On March 31, 1998, the Company, with the assistance of Libra Investments, Inc., Los Angeles, California ("Libra") acting as placement agent, borrowed $17.0 million from fourteen sophisticated, accredited investors (the "Investors") in a private placement (the "Private Placement"). The loan is represented by 12% Senior Secured Notes (the "Senior Notes") issued pursuant to indentures (the "Indentures") by and among TWG, TWG International U.S. Corporation ("TWGI"), TWG Finance Corp. ("TFC") (TWGI and TFC) are wholly-owned subsidiaries of TWG) and U.S. Trust Company of Texas, N.A., Dallas, Texas ("USTCT") acting as indenture trustee. The Senior Notes require mandatory prepayments based upon excess cash flow generated by TWGI from the operation of Resorts and bear interest at the rate of 12% per annum. (See - Periodic Reports Form 8-K and the Amended Periodic Report on Form 8-K/A filed with the Securities and Exchange Commission ("SEC") on April 14, 1998 and June 15, 1998, respectively.) The proceeds of the Senior Notes were used to pay the net acquisition costs of, and improvements to, Resorts totaling approximately $12.6 million, to repay the First Amended Loan Agreement in the amount of $1.3 million, to cover costs and expenses of $1.4 million relating to the Private Placement and to provide working capital of $1.7 million. As a result of a change in Czech gaming law which effectively banned foreign ownership of casinos, the Company restructured the ownership of Resorts through the use of a new Czech limited liability company and amended the indentures (the "Amended Indentures"), both of which Amended Indentures relate to, but do not alter, the Senior Notes. On October 15, 1999, the Company borrowed $3.0 million ($2.7 million from Value Partners) in a private placement ("October 1999 Private Placement"). The loan is represented by 12% Senior Secured Notes ("October 1999 Senior Notes") issued pursuant to indentures by and among the Company and an independent indenture trustee. The October 1999 Senior Notes, which are due March 2005, require mandatory prepayments based on excess cash flow generated from Resorts. The October 1999 Senior Notes are collateralized primarily by all of Resort's gaming equipment and a majority interest in the capital stock of all of the Company's subsidiaries (except Casino de Zaragoza, S.A. ("CDZ"), a company 1 incorporated in Zaragoza, Spain). In addition to the October 1999 Senior Notes, each investor received a proportionate share of warrants to purchase 1,250,728 shares of the Company's common stock. The proceeds of the October 1999 Senior Notes were used to retire a $1 million short-term debt obligation, related to the acquisition of the casino in Zaragoza, Spain, to make an interest payment of approximately $250,000 on said debt, and to finance the equipping, working capital, and pre-opening costs associated with the opening of a third casino in the Czech Republic on the land that had been previously purchased in conjunction with the issuance of the Senior Notes on March 31, 1998. That casino, located near Snojmo, on the border with Austria, opened on December 22, 1999. SPAIN On April 17, 1998, the Company acquired 90% of CDZ, which holds the exclusive casino license in the region of Aragon. Following approval of its recapitalization plan by the Council of Ministers in Spain and the subsequent forfeiture of the shares of the holder of the remaining 10% ownership in the Company, who declined to participate in the recapitalization of the Company. TWG presently owns 99.92% of CDZ (See: Item 6. "Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources"). The Company acquired 90% of the outstanding stock of CDZ for approximately $780,000 (excluding related acquisition costs of approximately $678,000) and assumed its outstanding debt obligations of approximately $4.9 million. The Company intends to move the casino, which is currently located approximately fifteen miles outside of the city of Zaragoza, to a downtown location. An understanding had been reached with an agency of the provincial government, the Diputacion General de Aragon ("DGA"), to allow the casino to execute this move, subject to the issuance of a decree; however, instead of a decree, in February 2000, the DGA introduced a law that would allow the casino to relocate. The law is expected to be presented to local Spanish parliament in June 2000. Management believes, based on its discussions with Spanish authorities, the law has little opposition and is expected to pass. LOUISIANA OPERATIONS Although the Company's Louisiana video poker operations terminated as of June 30, 1999, references to the Company's Louisiana activities are presented here with respect to activities which occurred through December 31, 1999 and in the event that the appeal being undertaken by an industry group on behalf of all similarly situated companies to the U.S. Supreme Court (discussed below) results in the reversal of the lower court's decision. Trans World Gaming of Louisiana, Inc. ("TWGLa"), a wholly-owned subsidiary of TWG, owned certain ownership interests in two gaming establishments at truck stops in Louisiana, which included (i) an establishment located at the 76 Plaza in Lafayette, Louisiana known as the "Gold Coin" (formerly known as the Gold Nugget), which had 50 video lottery terminals ("VLTs" or "Devices"), 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") and at which TWGLa operated 33 VLTs. Both the Gold Coin and the Toledo Palace establishments were licensed to operate only VLTs. As a result of a referendum in 1996 in 35 parishes in Louisiana, including the two parishes in which the Gold Coin and the Toledo Palace, are located, it was determined that video poker would cease effective June 30, 1999 (the "Voter Mandate"). In accordance with the Voter Mandate, the Louisiana gaming authorities terminated the operations at both the Gold Coin and the Toledo Palace on June 30, 1999. The Company has appealed the Louisiana State Court's recent decision to uphold the Voter Mandate to the U.S. Supreme Court. The U.S. Supreme Court will decide in 2000 whether or not to consider the case (See Item 3. "Legal Proceedings"). The Company cannot, as of the date hereof, predict the outcome of its litigation or when a decision relating hereto will be rendered. In accordance with the Voter Mandate and the outcome of subsequent judicial decisions, the Company ceased all operations in Louisiana on June 30, 1999 and its lease at the Gold Coin location in Lafayette was 2 terminated on July 31, 1999. The Company sold the Woodlands truck stop in DeRidder on October 4, 1999 for $295,000 and sold the video poker machines for $84,000. In accordance with the Company's strategy to further concentrate on profitable businesses and minimize risk, the Company is in the process of disposing of its non-voting 49% interest in Chrysolith, LLC, a Louisiana limited liability company ("Chrysolith"). Chrysolith provided on-site management for all of the operations of both the Gold Coin and the Toledo Palace, including the operation, servicing and maintenance of the VLTs, pursuant to a management agreement, the Amended and Restated Regulations and Operating Agreement of Chrysolith, dated December 1994 and amended December 1996 (the "Chrysolith Operating Agreement"). Through June 30, 1999, the Company received the net revenue 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"). The Company, in conjunction with this arrangement, further reimbursed Chrysolith for all direct operating costs incurred in the operation of the VLTs. Although the Company does not foresee any further business involvement in Louisiana, the Chrysolith Operating Agreement will continue pending the decision of the U.S. Supreme Court regarding the Company's appeal of the termination of the operations at the Gold Coin and Toledo Palace. On December 22, 1994, the Company acquired from Chrysolith and Prime Properties, Inc., a Louisiana corporation ("Prime"), which leased the 76 Plaza, a truckstop in which the Gold Coin was located, certain rights therein including an 18 year sub-leasehold interest (the "Sub-Lease"), subject to the terms of an Over-Lease on the 76 Plaza between Prime, as lessee and National Auto Truckstops, Inc. ("National") as lessor. At the same time, the Company acquired from Prime the right to a 50% interest in the profits of the Gold Coin under the terms of an agreement (the "Prime Agreement") under which the Company agreed to pay Prime a total of $6.0 million for such profit interests in the form of a promissory note (the "Prime Note"). On November 10, 1997, the Company was advised that on October 16, 1997, National had placed Prime on notice that its rights to occupy the 76 Plaza would terminate on January 23, 1998, due to an alleged breach of the Over-Lease by Prime. Subsequently, on December 23, 1997, the Company filed a Petition for Concursus in the 15th Judicial District Court, Lafayette Parish, Louisiana, Case No. 976174-D, and paid the final $292,000 then owing under the Prime Note into the registry of the court, protesting that such sum was not actually due and owing based on the alleged breach of the Over-Lease by Prime. On or about December 30, 1997, the Company received notice from Prime that Prime (which was not aware of the Company's Petition for Concursus) considered the Company in default of the Sub-Lease and demanded that the Company pay to Prime an amount equal to approximately $299,513 on or before January 7, 1998 to cure its alleged default. Upon receipt of this correspondence, the Company contacted counsel for Prime and notified him of the Company's prior Petition for Concursus filing. On or about January 19, 1998, Prime filed in United States District Court, Western District of Louisiana, Case No. CV98-0076L-0, a Complaint for Damages and Violation of the Petroleum Marketing Practices Act against National, alleging breaches by National in the franchise agreement between Prime and National and seeking to enjoin National from terminating the Over-Lease. On or about January 21, 1998, Prime filed a Voluntary Petition in Bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of Louisiana, Case No. 98BK-50087, listing National as the holder of an unsecured claim for $925,000 (the "National Claim"). (See Form 10KSB/A for the year ended December 31, 1997, Item 6. "Management's Discussion and Analysis and Results of Operations - Important Factors to Consider".) On March 20, 1998, National filed various motions, as permitted under section 362(d) of the Bankruptcy Code, to lift the automatic stay and to permit certain actions by Prime. On April 13, 1998, the United States Bankruptcy Court granted National's motions and dismissed Prime's bankruptcy case. Following that decision, on April 17, 1998, National filed a "Motion for Expedited Hearing on Motion to Return Possession of Premises to National Auto" in the United States District Court, Western District of Louisiana, Case No. 98-0076. On May 22, 1998, the owners of Prime sold their interests in the 76 Plaza truckstop property to Mr. Lee Young, who is the 51% member of Chrysolith. At the same time, National and Prime (under its new ownership by Mr. Lee Young) executed an Amended and Restated Lease Agreement which expired on December 31, 1999 (the "Lease"). Under the terms of the Lease, National has the right to terminate the Lease under certain circumstances, including default or non-renewal of the fuel franchise by Prime. 3 On May 22, 1998, the Company negotiated settlements by and among TWGLa, Chrysolith, Prime and National (the "Settlement"). The terms of the Settlement were as follows: (i) TWGLa and the former owners of Prime agreed that TWGLa would make a final settlement payment to said former owners of $450,000, subject to certain deductions, noted below, (the "Settlement Payment"), (ii) the claim of National against Prime would be satisfied by: (a) liquidating the assets of Prime, (b) paying to National the funds previously placed in the registry of the court (Petition for Concursus file number 976174-D), and (c) paying to National available cash in Prime relating to the sale of Prime's truckstop inventory to National (the "Prime Assets") and (d) delivering a promissory note from Prime (guaranteed by TWGLa and TWG) in the principal amount of $239,597 bearing interest at the rate of 10% per annum payable in four equal monthly installments beginning on June 22, 1998 (the "National Promissory Note"); (iii) to the extent that the Prime Assets proved insufficient to satisfy the National Claim, TWGLa would reduce the Settlement Payment by the amount of such deficiency and remit such amount to National; (iv) the remaining funds of the Settlement Payment first were used to pay trade creditors and to reimburse TWGLa for payments made under the National Promissory Note and any funds remaining after such payments and reimbursements were paid to the former owners of Prime; (v) all of the litigation among the parties was dismissed (See Item 3. "Legal Proceedings"); and (vi) all parties agreed to mutually acceptable releases of all claims and liabilities against the others. As of the date of this report, $450,000 has been paid by the Company to the former owners of Prime. OTHER TERMINATED VENTURES: MULTIPLE APPLICATION TRACKING SYSTEMS, INC. On April 15, 1997, the Company acquired Multiple Application Tracking Systems, Inc. of Colorado ("MATS"), a supplier of casino software products. The purchase price was $250,000, consisting of $15,000 in cash and a $235,000 promissory note (the "MATS Note") which was set to mature in November 2000. In addition, the Company entered into a five-year employment agreement with Mr. James Hardman, Jr. ("Hardman"), the previous owner of MATS, at an annual compensation of $100,000. Mr. Hardman also was to receive ten percent (10%) of all MATS sales as a license royalty. On February 15, 1999, however, the Company sold MATS back to Hardman in return for his cancellation of the MATS Note, termination of the employment agreement and $38,000 of severance payments to benefit Hardman and one other employee. THE BOXER CASINO On March 31, 1997, Art Marketing, Ltd., d/b/a Tottenham & Co. ("Tottenham & Co."), a wholly-owned subsidiary of the Company, executed a Joint Activity Agreement with Mr. Mahmud Avdiyev, an individual engaged in various businesses in Azerbaijan (the "Avdiyev Agreement"). The Avdiyev Agreement which is for a term of twenty years, sets forth the parties' relative obligations with respect to operation of the Boxer Casino located in Gyandja, Azerbaijan Republic. In January 1998, the President of Azerbaijan ordered the closing of all of the casinos in Azerbaijan including the Boxer Casino. The shutdown resulted in the 1998 write-off of the unamortized balance of the Company's investment of $295,000. Management cannot predict when, or if, the Boxer Casino will reopen for business. THE BISHKEK CASINO In June 1998, the Company opened the Bishkek Casino located in the Kyrgyz Republic, a former member of the Soviet Union. TWG has a twenty-year management contract with Jockey Clubs Casinos, LLC ("JCC") under which TWG was to receive 40% of the pre-tax profits of the casino. During 1998, the Kyrgyz parliament passed a law which banned all casinos except those protected by the country's foreign investment laws. The Bishkek casino is one of two casinos that were allowed to remain open. However, in light of mounting losses and unrealistic future prospects, the Company wrote-off its investment in the Bishkek Casino of approximately $264,000 during 1998. In 1999, the Kyrgyz parliament eliminated the foreign investment protection and the Bishkek Casino was forced to close. 4 OTC BULLETIN BOARD The Common Stock and Warrants currently are trading on the OTC Bulletin Board. ACCOUNTING AND FINANCIAL ISSUES In December 1998, the Company reviewed the carrying amount of long-lived assets, identifiable intangibles and goodwill related to its Czech Republic, Spanish, Boxer and Bishkek casino operations under FASB No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." 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 $2.5 million for the Czech operation, $1.5 million for the Spanish operation and amortized its entire investment in Bishkek ($264,000) and Boxer casinos ($295,000) during the year ended December 31, 1998. The Company based the write-off in the Czech Republic on increased competition in Ceska Kubice, lower than anticipated revenue in Rozvadov and the fears that the proposed casino near Snojmo would be a smaller operation with fewer gaming tables and machines than originally forecasted. In Spain, delays in receiving permission to move the casino to a more favorable location, together with a smaller operation than originally planned, is the basis for the impairment charge. The Company has, from time to time, been in technical default of the Amended Indentures and has relied upon the forbearance and waivers from a majority interest of the holders of the Senior Notes. Value Partners represents this majority in interest of the holders of the Senior Notes. At December 31, 1999, Value Partners owned 59% of the Company's long-term debt and owned warrants which, upon exercise, would result in Value Partner's beneficial ownership of Common Stock equaling 61.2% of the Company's issued and outstanding shares of Common Stock. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered significant losses from operations, has a working capital deficit of $3.9 million, and a stockholders' deficit of $14.2 million as of December 31, 1999. Further, the Company is highly-leveraged with debt and, from time to time has been able to pay its obligations when they become due. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has taken steps to improve its situation including the December 1999 opening of its third Czech Republic casino and certain cost cutting measures. Furthermore, management's plans include the growth of its existing business through relocation of the Ceska casino; expansion of the Rozvadov casino; the addition of five gaming tables to the casino near Snojmo; continued marketing campaigns and promotional events; and CDZ's move to the center of Zaragoza. Further, the Company's strategy for the future includes development of a hotel division and expansion of its portfolio of gaming operations in terms of geographical location. CORPORATE INFORMATION The Company's corporate offices are located at 545 Fifth Avenue, Suite 940, New York, New York 10017 and its telephone number is (212) 983-3355. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company previously operated in three business areas, which, for accounting purposes, were consolidated into two industry segments: the ownership and management of gaming establishments overseas, which includes the operation of a full service hotel overseas; and the operation of truckstops featuring VLTs. As a result of the June 30, 1999 termination of its Louisiana gaming operations, the Company has reported them as discontinued operations. 5 NARRATIVE DESCRIPTION OF BUSINESS The Company is engaged in the acquisition, development and management of niche casino operations worldwide which feature table games and mechanized gaming devices, such as slot and video poker machines as well as development and management of small to midsize hotels which include casino facilities. On March 31, 1998, the Company acquired two casinos in the Czech Republic and land upon which a third casino was built and opened in December 1999. The Czech Republic casinos are located close to major border crossings with Germany in Ceska Kubice and Rozvadov and near the border crossing with Austria close to Snojmo. The Zaragoza casino and hotel, acquired on April 17, 1998, is located approximately 15 miles outside of Zaragoza, Spain, and is the exclusive casino licensee in the region of Aragon. (See "- General Development of Business," above, and "Future Operations," below). INDUSTRY OVERVIEW Prior to the amendments to the Czech gaming regulations in December 1998, local municipalities were empowered to grant casino licenses in their regions. The amendments to the gaming legislation removed that right from the local governments and effectively eliminated exclusivity. Another entity has recently opened a competing casino in Folmava, Czech Republic, near the Company's Ceska Kubice location which, because of its location, may negatively impact Ceska Kubice's revenue. In Spain, the regional government, DGA, which is also the largest creditor of CDZ, signed a protocol in April 1998 with TWG stating its intent to pass a law allowing the casino to move to a more favorable location. There is opposition by an Aragonian parliamentary party to the new law unless an amendment that would allow casino-style slot machines in bingo parlors is included. Rather than agree to this amendment, the DGA decided to issue a governmental decree which will circumvent the parliament and allow CDZ to move from its current location. Instead of a decree, in February 2000, the DGA introduced a law that would allow the casino to relocate nonetheless. The law is expected to be presented to local Spanish parliament in June 2000. Management believes, based on its discussions with Spanish authorities, the law has little opposition and is expected to pass. THE COMPANY'S FACILITIES LOUISIANA GAMING The Gold Coin and Toledo Palace gaming facilities were closed June 30, 1999, and the Gold Coin sub-lease was terminated by the landlord effective July 31, 1999. The VLT machines were sold in 1999 for $84,000. WOODLANDS TRUCKSTOP The Woodlands, where the Toledo Palace was located, was sold on October 4, 1999 for $295,000. CZECH REPUBLIC The Ceska Kubice casino currently has fifteen gaming tables, seventy slot machines and parking for approximately forty cars. In Rozvadov, there are seven tables, thirty-eight slot machines and parking for forty cars. In Snojmo, there are eleven gaming tables, forty-two slot machines, and parking for one hundred twenty cars. SPAIN The casino currently has nine gaming tables and twenty-four slot machines. The facility also has thirty-seven sleeping rooms, approximately 7,169 square feet of Banquet space, four shooting ranges, a swimming pool, a tennis court, and 3,557 square feet of space that was formerly operated as a nightclub. 6 FUTURE OPERATIONS CZECH REPUBLIC In April 1999, the Company purchased a parcel of land in Folmova, Czech Republic in the same region as the existing Ceska casino but nearer to the German border. The Company intends to construct a new casino on this land and to relocate the Ceska operation to the new facility. This move would give the casino excellent exposure because it would be located directly on the border road; would be located nearer to the border than the access road for the casino of Ceska's main competitor; would allow for a larger parking facility than that which exists in Ceska; would address the issue of capacity constraints on the weekend in that it would allow for an increase in the number of gaming tables over the existing space; and would allow for a floor plan to be designed which, unlike the Ceska building, would optimize the casino's equipment layout. Subsequent to relocation of the casino operation from Ceska to Folmova, the Ceska facility will be used as office space and as a training center supporting all of the Czech casinos. Based on the attendance versus capacity challenges experienced at the existing casino in Rozvadov, the Company is moving forward with its budget plan to expand the facility by adding two gaming tables. The casino near Snojmo opened on December 22, 1999 and has, in terms of both attendance and Total Drop (the dollar amount of gaming chips sold), thus far exceeded budgeted expectations. The budget calls for the addition of five gaming tables in October, 2000, and based on the promising results in the first quarter of 2000, that timetable may be accelerated. SPAIN In anticipation of receiving permission to move CDZ to center city Zaragoza, TWG is in the process of completing negotiations to lease available space in a cinema adjacent to a downtown hotel location. The cinema was chosen due to its desirable location, together with the advantages of providing common services with the hotel (food, maintenance, parking and accommodations). CDZ, which is expected to reopen at this new location within ten months after it receives permission to move, pending local planning board approvals, will have approximately 17 gaming tables and 120 slot machines. The investment required by TWG upon receipt of the approvals is anticipated to total approximately $5.0 million (See Item 6. "Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources".). Except as described above, the Company has no other 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 in the future, although it hopes to do so. LONG RANGE OBJECTIVE The Company's long-range objectives are to develop the Company's casino operations brand name, American Chance Casinos, into the premier name in the small casino niche market overseas; to establish Trans World Gaming Corp. as the industry leading owner/operator and management company in this market; and to further diversify the Company's operations to include ownership and/or management of small to midsize hotels which are complementary to the Company's casino operations. To achieve these goals, the Company's strategy consists of: (i) identifying business opportunities in areas where economic conditions, cultural habits, and political climates are favorable to investment in existing, or construction of new, gaming and hotel facilities; (ii) forming a team of TWG's casino and hotel experts to develop and market a complete set of operational and administrative guidelines for the purpose of securing casino and hotel management contracts; and (iii) continuing to demonstrate its effectiveness as an owner/operator of small casinos through improved efficiencies in its existing operations. Some of the specific action plan initiatives, which support this third strategy, are as follows: TWG management will continue to develop marketing and operational initiatives designed to increase attendance and revenues at its existing locations in the Czech Republic and Spain. The Company has 7 acquired land close to the German border near Ceska Kubice, at Folmava, Czech Republic and is planning to build a casino to replace the existing facility and relocate the Ceska Kubice to this facility. Management believes that the new location will be more accessible to its main target market in Germany and will result in improved attendance and play. In addition, TWG transferred excess slot machines from Ceska Kubice and Rozvadov to its new location near Snojmo. The Company will continue to seek ways to reduce operational and overhead costs. For example, the Company has recently reorganized the Czech Republic management structure and is in the process of closing its London offices, measures that will produce an annual savings of approximately $450,000. Financial reporting, which was identified by management as an area in need of improvement, will continue to be a focus of attention. Beginning in January 2000, a new monthly financial reporting program was successfully introduced. The Company, also, is exploring the possibility of replacing its general ledger systems and has included the purchase thereof in its 2000 Capital Plan. MARKETING CZECH REPUBLIC In 1999, the Management implemented a marketing strategy designed to increase the number of visitors to its casinos in Ceska and Rozvadov. The target area was the sixty-mile radius surrounding each of these casinos. These areas were addressed through the use of direct mailings, flyers, radio, newspaper, billboard advertising and improved directional signage in English, German and Czech, as appropriate. Customer loyalty programs, special events and promotions and a busing program were also developed and implemented. The Company's new casino near Snojmo was introduced to the residents of Vienna and its northern suburbs through a campaign of radio spots using the Rhett Butler and Scarlet O'Hara characters; free standing and bus mounted billboard advertising; and "Gone With The Wind" theme newspaper advertisements. The casino was then launched with opening parties on three successive nights. These parties, which targeted local politicians and business leaders as well as foreign investors and other foreign VIPs, included ribbon cutting ceremonies, fireworks, fire dancers, a live band, and a professionally catered dinner. The introductory marketing strategy proved to be highly successful with the casino receiving positive press coverage in well-reputed publications in the Vienna area. Moreover, as previously noted, the casino's attendance has, for the first three months of operations, surpassed the Company's projections. SPAIN TWG is currently marketing the new CDZ casino through direct mailings, radio, newspapers and billboard advertising in English and Spanish, as appropriate. By Spanish law, casinos are not permitted to do any direct advertising. Promotions of the casino, therefore, must be piggybacked on advertisements of other services that the property offers. In 1999, the Company suspended its food and beverage banquet ("Catering") operations in response to profitability and personnel issues. Pursuant to the reorganization of this department and the introduction of pro forma profit and loss reports for all event inquiries, the Company has relaunched the Catering business. The advertising associated with the Catering business will provide a vehicle for greater advertising exposure for the casino as well. ACQUISITION AGREEMENT TOTTENHAM & CO. On January 1, 1997, the Company completed the acquisition of Tottenham & Co., which was founded in 1988 by Andrew Tottenham, the Company's President and Chief Operating Officer ("COO"). Tottenham & Co. 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, 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 acquisition 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 (the "Tottenham Notes"). On December 31, 1998, the Company and Mr. Tottenham converted the Tottenham Notes and 8 accrued interest totaling $240,000 into 320,000 shares of the Company's Common Stock. All of the Common Stock, as well as the Common Stock underlying the warrants, carries certain "piggyback" registration rights. REGULATIONS AND LICENSING SPAIN. The new law that would allow CDZ to move to the center of Zaragoza has been passed from a parliamentary committee to the floor of the regional parliament. However, a certain amendment to the law is of concern to TWG. The proposed amendment would allow bingo operators in Aragon to install casino-style slot machines. The DGA, which is controlled by the largest party in parliament, opposed the amendment and decided to issue a governmental decree to circumvent the parliament and allow the casino to move to the center city. However, instead of a decree, in February 2000, the DGA introduced a law that would allow the casino to relocate. The law is expected to be presented to local Spanish parliament in June 2000. Based on discussions with Spanish authorities, the law has little opposition and is expected to pass. CZECH REPUBLIC. During the quarter ended June 30, 1998, the Czech Republic House of Deputies passed an amendment to the gaming law which restricted foreign ownership of casino licenses. In response thereto, the Company restructured its subsidiaries and Czech legal entities to comply with the amendment and was subsequently granted a ten-year license. It is currently anticipated that the foreign ownership restriction will be lifted in 2000. There may be increased competition, however, at that time, in the areas where the Company operates because local municipalities no longer have control over the issuance of casino licenses, thereby effectively eliminating exclusivity. There can be no assurance that the authorities in the Czech Republic will not amend the gaming law as it pertains to foreign ownership of casino licenses. In the event the gaming laws are amended in the future, it may have a material adverse effect on the Company's future profitability and operations. 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 or 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 that jurisdiction. GAMING TAXES. Gaming taxes in the various locations where the Company operates range from 10% to 55% of net gaming revenues. There can be no assurance that tax rates, fees or other payments 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") generally makes it unlawful 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 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. The Company is currently registered and maintains the reports required under the Federal Act. COMPETITION The Gold Coin and the Toledo Palace competed with other forms of legal and illegal gambling, including bingo and pull-tab games, card clubs, pari-mutual betting on horse racing and dog racing and state-sponsored lotteries, as well as other forms of wagering entertainment. Neither of these entities is operational at this time, due to the Voter Mandate. The Company's Czech casinos compete with 9 approximately twelve other casinos in the area with two new casinos under construction across the German border. Due to the exclusivity of the Spanish casino license, the bingo operations in Zaragoza are CDZ's only competition. (See Item 1. "Description of Business - Industry Overview"). EMPLOYEES As of March 31, 2000, the Company had 464 full-time employees (including three executive officers): 372 in the Czech Republic, 84 in Spain, 4 in London, and 4 in New York, respectively. The Company believes that its employee relations are excellent. ITEM 2. DESCRIPTION OF PROPERTY. CORPORATE OFFICES The Company's corporate offices are located at 545 Fifth Avenue, Suite 940, New York, New York, occupying 1,559 square feet of office space under a lease at the rental rate of $5,456.50 per month expiring in December 2004. The Company leases approximately 1,500 square feet of office space in London, England for the Development and Human Resources teams on a five-year lease expiring in April 2003 at approximately $4,000 per month. In light of the fact that the London-based employees work, almost exclusively, on the road, the Company is in the process of closing the London office as part of its cost cutting strategy. LOUISIANA The Company's lease for the Gold Coin was terminated effective July 31, 1999. TWGLa owned the 20-acre site on which the Woodlands is located in DeRidder, Louisiana which was sold on October 4, 1999 for $295,000. CZECH REPUBLIC The Company leases a 5,000 square foot casino facility in Ceska Kubice under the terms of an agreement that expires in 2010. The Company also leases a hotel from a local bank in nearby Krasnahorska for staff accommodations at the rate of approximately $1,400 per month. The hotel will continue to be used for staff accommodations should the casino be relocated to Folmova. In Rozvadov, the Company owns the casino building and an adjacent facility for staff accommodations. As part of the acquisition of Resorts (See Item 1. "Description of Business - -General Development of Business"), TWG acquired approximately 10 acres of land near Snojmo, close to the border in Austria, on which the Company constructed and operates a casino. TWG negotiated an agreement with a local building contractor who financed and built a 5,000 square foot casino facility and leased it to the Company under the terms of a ten-year lease for approximately $27,000 per month. (See Item 1. "Description of Business - Future Operations"). SPAIN The Company leases the current CDZ casino facility from the DGA on a month-to-month basis. ITEM 3. LEGAL PROCEEDINGS. In March 1996, the Company learned that as of June 30, 1995, Monarch Casinos ("Monarch"), a Louisiana-licensed video gaming device operator in which it owned a 49% interest, had not renewed its operator's license as required by the State of Louisiana, and as such, was no longer a licensed video poker 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 created a default under the agreements and the 10 agreements were terminated by the Company on March 14, 1996. On or about November 6, 1997, the Company was sued for breach of contract by Monarch Casinos, Inc. of Louisiana and Michael A. Edwards in the 15th Judicial District Court, Lafayette Parish, Louisiana, Case No. 97-5037B. Mr. Edwards claimed compensation charges of approximately $2.2 million and punitive charges of $11.1 million and alleged that the Company breached a management contract dated September 21, 1994. The lawsuit was settled for a cash payment of $100,000 on May 15, 1999. The final order of dismissal with full prejudice which terminated the litigation and disposed of all claims in the lawsuit was issued by the United States District Court of Louisiana on May 24, 1999. On January 25, 1997 (prior to the Company's acquisition of 90% of CDZ), the directors of CDZ filed an application in the Court of First Instance Number 11 of Zaragoza to declare CDZ in temporary receivership. Temporary receivership was granted on June 23, 1997 and the property continues to operate in receivership status. On May 22, 1998, the Company entered into the settlement relating to the Prime Agreement. (See Item 1. "Description of Business - General Development of Business.") The Company is currently involved as a plaintiff, through its Chrysolith affiliate, in litigation challenging the Voter Mandate. (See Item 1. "Description of Business - Louisiana Operations.") The Company is not currently involved in any other material legal proceeding nor was it involved in any other material litigation during the year ended December 31, 1999. 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. 11 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock and warrants (the "$8.50 Warrants") are currently on the OTC Bulletin Board under the symbols IBET and IBETW, respectively. The following table sets forth the high and low prices of the Company's Common Stock and the $8.50 Warrants for fiscal years 1998 and 1999:
- --------------------------------------------------------------------------------- Common Stock High Low -------------------------------------------------------------- 1998 First Quarter....................... 0.78* 0.30* Second Quarter...................... 0.75* 0.46* Third Quarter....................... 0.46* 0.31* Fourth Quarter...................... 0.31* 0.24* 1999 First Quarter....................... 0.44* 0.24* Second Quarter...................... 0.59* 0.26* Third Quarter....................... 1.50* 0.31* Fourth Quarter...................... 0.85* 0.50* -------------------------------------------------------------- - --------------------------------------------------------------------------------- $8.50 Warrants High Low -------------------------------------------------------------- 1998 First Quarter....................... 0.03* 0.00* Second Quarter...................... 0.03* 0.02* Third Quarter....................... 0.02* 0.01* Fourth Quarter...................... 0.02* 0.00* 1999 First Quarter....................... 0.02* 0.01* Second Quarter...................... 0.01* 0.00* Third Quarter....................... 0.04* 0.00* Fourth Quarter...................... 0.02* 0.00* --------------------------------------------------------------
* Quoted on OTC Bulletin Board As of the date of this Report, there were (a) 5,365,449 shares of Common Stock outstanding held of record by approximately 1,300 persons, (b) outstanding options to purchase an aggregate of 35,000 shares of Common Stock not part 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, which have since expired, (d) outstanding $0.01 Series D Warrants to purchase an aggregate of 2,051,912 shares of Common Stock issued in connection with the March 1996 financing, (e) outstanding $11.55 Warrants to purchase an aggregate of 151,143 shares of Common Stock, which have since expired, (f) outstanding $13.50 Warrants to purchase an aggregate of 151,143 shares of Common Stock, which have since expired, (g) outstanding $1.50 Series B Warrants to purchase an aggregate of 3,200,000 shares of Common Stock issued in connection with the restructuring of certain long-term debt, (h) outstanding $1.00 Series A Warrants to purchase an aggregate of 960,000 shares of Common Stock issued in connection with the sale of certain debt instruments, (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 Item 1. "Description of Business - Acquisition Agreements"), (j) outstanding $.50 warrants to purchase an aggregate of 220,760 shares of Common Stock issued in connection with the 1997 Promissory Note which have since expired, (See Item 6."Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources"), (k) outstanding $.01 warrants to purchase an aggregate of 104,225 shares of Common Stock issued in connection with the debt financing to fund the Bishkek Casino transaction and (l) outstanding $0.01 Series C to purchase an aggregate of 5,440,663 shares of Common Stock issued in connection with the March 1998 Private Placement, 1,646,789 of which have been exercised, and (m) outstanding $0.01 Series G warrants to purchase an aggregate 1,250,728 shares of Common Stock issued in connection with the October 1999 Private Placement and the October 1999 Senior Notes. (See Item 6. "Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources"). 12 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. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. FORWARD-LOOKING STATEMENTS This Form 10-KSB/A contains certain forward-looking statements. For this purpose, any statements contained in this Form 10-KSB/A 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 "intends" or comparable terminology are intended to identify certain forward-looking statements in this and other sections of the Form 10-KSB/A. These statements by their nature involve 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." RESULTS OF OPERATIONS The following discussion and analysis relates to the financial condition and results of operations of the Company for the year ended December 31, 1999. 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. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------- Results of Operations For the Years Ended December 31, ------------------------------------------------------------------------------------- 1999 1998 Revenue........................................... $ 12,294 $ 9,016 Pre-tax (loss).................................... (6,187) (10,500) Loss from continuing operations................... (6,187) (10,691) Loss from discontinued operations(1).............. (222) (38) Net Loss.......................................... (6,409) (10,729) Other Comprehensive Income........................ 923 112 Comprehensive Loss................................ (5,486) (10,617) Earnings/(loss) per common share - Basic.......... $ (1.78) $ (3.52) Earnings/(loss) per common share - Diluted........ $ (1.78) $ (3.52) Weighted average common shares outstanding: Basic.................................... 3,598,000 3,044,286 Diluted.................................. 3,598,000 3,044,286 -------------------------------------------------------------------------------------
- ---------------- (1) Discontinued operations consist of those in Louisiana (i.e. Gold Coin and Toledo Palace). REVENUES The Company's net revenues in 1999 are derived from a full year of activity of the operations in the Czech Republic and Spain and a partial year's activity in the casino in the Kyrgyz Republic. The following table lists the revenue by operation: TWG REVENUES FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (Dollars in millions)
---------------------------------------------------------------------------------------------------- Increase/(Decrease) ---------------------------------------------------------------------------------------------------- 1999 1998 $ % ----- ---- ------ -------- Czech Republic(1) Ceska ......... 6.5 4.2 2.3 55% Rozvadov......................... 1.8 1.3 .5 38% Spain(2) ........................ 3.9 3.5 0.4 10% Other(3) ........................ 0.1 0.0 0.1 100% ----- ---- ------ ------- $12.3 $9.0 $ 3.3 37% ===== ==== ====== ======= ----------------------------------------------------------------------------------------------------
(footnotes to follow) 13 - -------------- (1) The Czech Republic casinos were acquired on March 31, 1998. (2) The Spanish casino, CDZ, was acquired on April 17, 1998. (3) Includes Corporate Office generated consulting revenue. Gaming revenues, the Company's primary source of income, are comprised of Table Game Win, Table Game Tips, Slot Machines, Reception (entrance fees), and sales of Food and Beverage. Table Game Win, the largest contributor in the sales mix, is measured as a percentage of Total Drop, the dollar amount of all gaming chips sold. The Total Drop is the product of the attendance and the average dollar amount of chips sold to each guest (Drop per Head). The Drop per Head statistic is used to measure the "quality" of the guests in terms of their volume of play. Stated simply, these key performance indicators tell us how many people attended the casinos, the average dollar value of chips each person purchased, and what portion of the purchased chips were lost to the House (i.e. were not cashed in). The aforementioned statistics for the years ended December 31, 1999 and 1998 are presented in the table below. Please note that, for comparison purposes, the 1998 statistical data represents the full year's operation, including the period prior to acquisition of the properties by the Company. (DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- 1999 1998 ---- ---- Total Drop/Drop per Head Ceska $ 22,197 $386 $20,493 389 Rozvadov 6,241 187 4,260 317 Zaragoza 14,774 610 14,579 454 ------------------------------------------------------------ Total $ 43,212 $375 $39,333 400 ------------------------------------------------------------ Win/Win% Ceska $ 4,598 20.7% $ 3,937 19.2% Rozvadov 1,237 19.8 825 19.4 Zaragoza 2,438 16.5 2,434 16.7 ------------------------------------------------------------ Total $ 8,273 19.1% $ 7,197 18.3% ------------------------------------------------------------ Attendance Ceska 57,566 52,690 Rozvadov 33,359 13,451 Zaragoza 24,219 32,101 ------------------------------------------------------------ Total 115,144 98,242 ------------------------------------------------------------ ====================================================================================================
The year over year growth of 10% in Total Drop is the net result of two counterbalancing trends. While the overall attendance improved, the Drop per Head decreased due to the higher proportion of casual players in the guest mix. The attendance figure comparison (1999 vs. 1998) reflects the marketing strategy that was employed in 1999, namely, to grow the attendance in Ceska in off-peak times and to improve attendance in all periods in Rozvadov. 14 Zaragoza's attendance in 1999 was well below that of 1998. This negative trend was due to the fact that the 1998 attendance figure included guests who were attracted to the casino through very attractively priced (below cost) buffets, but the vast majority of whom did not play the tables. With the acquisition in 1998, TWG implemented the necessary price increases which effectively drove away the discount diners. In addition, bad press reports and suspension of the unprofitable Catering business, which limited the advertising exposure for the casino, served to further erode the client base in 1999. Table Game Tip revenue consists of the gaming chip gratuities bestowed upon gaming table Dealers by casino patrons. In the Czech Republic, one hundred percent of this Tip revenue is retained by the House. In Spain, on the other hand, per an employee bargaining agreement, employees enjoy thirty-five percent participation in the Tip revenue. In 1999, total Tip revenue was $1.2 million versus $1.4 million in 1998, a decrease of 13%. Tip revenue declined in Ceska and Zaragoza and increased slightly in Rozvadov. As a 15 percentage of Total Drop, however, all three casinos experienced declines. The reason for the lower Tip percentages in the Czech Republic casinos lies in the fact that the previous operators and management of the company supported staff solicitation of customers for tips. This culture, which management considers to have a negative impact on customer relations, was terminated over time by TWG. In Zaragoza, the Tip percentage decline was slight (.2 percentage points) and was indicative of the fact that the number of French Roulette, a game that generally produces higher Tip rates, tables was reduced in response to changes in the client mix. Slot revenue, which is the cash generated net of paid wins, was $627,000 in 1999 versus $391,000 in 1998, an increase of 60%. The growth can be attributed to the fact that the casino in Rozvadov operated without slot machines until September 1998 at which time eighty-seven machines were installed. Also in September 1998, the number of slot machines in Ceska was increased from 22 to 100. In Zaragoza, a 10% increase in Slot revenue was realized in 1999 despite the fact that attendance at the casino decreased by 7,882. The increase can be attributed to promotional efforts and the aforementioned shift in the client mix. Gaming related Food and Beverage revenues are generated on only a portion of the food and beverage that is served because they are, to a large extent, regarded as a necessary amenity to the gaming patrons. Complimentary buffets and free drinks to playing customers are the practice in the Czech Republic. In Spain, food and beverage giveaways are at the discretion of the casino manager, who uses them as a customer relations tool. In 1999, total gaming-related Food and Beverage revenue was $198,000, which represents a 45% increase over 1998 revenue of $137,000 and is indicative of the fact that the 1999 total represents a full year of operation whereas the 1998 total reflects the post acquisition period only. In Zaragoza, revenues are also derived from rentals of the property's thirty-seven sleeping rooms; telephone, laundry, and mini-bar revenues associated with the sale of the sleeping rooms; and food, beverage, and other revenues associated with Catering operations. For the fiscal year ended December 31, 1999, revenues from these areas was $378,000 compared to 1998, where these activities produced revenue of $553,000. The decline in revenue from 1998 to 1999 can be attributed to the halting of Catering operations in the Fall of 1999 in response to concerns about the profitability of the operations and to the elimination of the below-cost buffets in the restaurant. COST OF REVENUES Cost of Revenues consists of the direct costs of operating the Czech Republic and Spain casinos, primarily in the areas of labor, security, and general office expenses. The Cost of Revenues is shown in the following table: TWG COST OF REVENUES FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (Dollars in millions)
- ---------------------------------------------------------------------------------------------------- Increase/(Decrease) - ---------------------------------------------------------------------------------------------------- 1999 1998 $ % Czech Republic.................. $4.8 $3.6 $1.2 Spain.............................. 3.3 3.9 (0.06) (15)% ---- ---- $8.1 $7.5 $0.6 8% ==== ==== ====== - ----------------------------------------------------------------------------------------------------
Costs of revenues in 1999 were $4.8 million (58% of total revenues) in the Czech Republic, which represents a 7 percentage point ("ppt") improvement over 1998, and $3.3 million (85% of total revenues) in Spain, which represents a 26 ppt improvement over 1998. The 51% revenue growth in the Czech Republic, coupled with the successful implementation of several cost cutting measures, and the Company overcoming startup issues relating to the casino near Snojmo, are responsible for the positive trend in this area. Spain's high cost to revenue ratio is due to a number of issues including: a lack of flexibility in labor scheduling; the limited size of the casino (9 tables); the location of the facility; and the limited number of guest rooms. Although considerably higher than the cost of revenue ratio in the Czech Republic, 1999's 85% ratio in 16 Spain represents a significant improvement over 1998, a year in which the cost of revenues exceeded the revenue by 11%. The total cost of revenues for the Company was $8.1 million in 1999 versus $7.5 million in 1998, an increase of 8%. Selling, general and administrative expenses were $4.3 million in 1999, which represents a 75% increase over 1998. This increase is, primarily, attributable to the fact that the costs reflected in 1998 do not represent a full year period as well as the result of 1999 expenditures related to increased marketing efforts; pursuit of other gaming opportunities (i.e. development); administrative startup costs associated with the third casino located near Snojmo, and the addition/replacement of several key Corporate positions while continuing to pay severance to departed executives. Depreciation and amortization increased from $2.5 million in 1998 to $2.8 million in 1999 due, primarily, to the amortization of assets acquired during 1998 and 1999. (See Item 1. "Description of Business"). Interest expense for the year ended December 31, 1999 was $3.0 million compared to $2.5 million for the year ended December 31, 1998. The increase is due, primarily, to twelve months of interest on the $17 million Indenture being incurred in 1999 versus nine months of interest having been incurred on this debt in 1998. In addition, interest related to the supplementary $3 million Indenture was incurred in the final two plus months of 1999. Also of note is the fact that, unlike 1998, the Company did not incur any impairment charges in 1999. In 1998, after reviewing the carrying amounts of long-lived assets recorded, an asset impairment charge of $4 million was taken. EARNINGS/(LOSS) The Company incurred a loss of approximately $6.2 million from continuing operations for the year ended December 31, 1999 as compared to $10.7 million in the year ended December 31, 1998, an improvement of 42.1%. The improvement is primarily attributable to the fact that there was no need for an impairment charge in 1999. Other factors contributing to this improvement include, as discussed previously, increased attendance and improved efficiency in the Czech and Spanish gaming markets. CESKA, CZECH REPUBLIC Total revenue from the casino in Ceska, Czech Republic was $6.5 million for the fiscal year ended December 31, 1999, which represents a 55% increase over the previous year's revenue total of $4.2 million. Comparison of the twelve month statistics between 1999 and 1998 reveals that the revenue produced in the three additional months in which the casino operated is not the sole source of the 55% revenue growth. Part of the improvement can be attributed to a 1.5 ppt increase in the Win percentage (from 19.2% in 1998 to 20.7% in 1999). Ceska's attendance improvement was the direct result of a number of successful marketing campaigns including themed parties and a midweek Tombola, which was designed to attract clients on off-peak days. A Tombola is a prize drawing event, which is stretched out over several weeks. The odds of winning a Tombola drawing are governed by the amount of play a customer gives during off-peak times over the period of the event. In 2000, the marketing emphasis in Ceska will be, in addition to building on the success of the above initiatives, to increase the use of advertising media (direct mail, television, radio and press) in order to further stimulate off-peak attendance and to improve the "quality" of patrons. In the Fall of 1999, a competitive casino opened in Folmova, which is closer to the German border than the Company's Ceska property. This casino, which is called the Schoolhouse, has employed a strategy of attracting clients through the distribution of flyers at the border crossing and the posting of signs at the casino's access road turnoff. 17 Despite the increased competition in the area, during peak weekend times, the Company's casino in Ceska is often at full capacity which slows down the games and, as a result, often lowers the hold percentages. In addition, limitations of the casino's parking facilities (40 spaces) create another obstacle for potential patrons, particularly now that a competing casino is in the area. Although the overall attendance growth in Ceska was solid, the improvement was limited by competition and capacity constraints, issues that could curtail the growth of, or even erode, attendance in the future. In response to these challenges, in April 1999, the Company purchased a parcel of land in Folmova, nearer to the border than the turnoff road for the Schoolhouse casino. The Company has installed pre-emptive signage on the land advertising the Ceska casino and is planning to move the Ceska casino operation to a new facility on this parcel of land. This move would give the casino excellent exposure because it would be located directly on the border road; would allow for a parking facility of ample size; would address the issue of capacity constraints on the weekend in that it would allow for an increase in the number of gaming tables over the existing space; and would allow for a floor plan to be designed which, unlike the Ceska building, would optimize the casino's equipment layout. There can be no assurance that the relocation of the casino in Ceska will enhance future revenues. ROZVADOV, CZECH REPUBLIC The total revenue in Rozvadov was $1.8 million in the twelve months of operation in 1999, representing a 36% increase over the nine months of operation in 1998 ($1.3 million), which primarily is attributed to an increase in attendance. The casino in Rozvadov opened in November 1997. Prior to its acquisition in March 1998 by TWG, there was little advertising or promotion for the casino and attendance was stagnant. In February 1999, TWG hired a Director of Marketing and immediately launched a strong marketing campaign which included direct mail and radio advertising in Germany as well as themed parties and other promotional events. The result of the advertising was a 148% increase in attendance. In fact, with this increase in attendance, the limited space (7 tables) is unable to accommodate the peak time demand. While this trend is positive, the potential drawback of the casino reaching capacity in certain periods is that some regular attendees may be displaced. In response, the Company has included plans to add two gaming tables to the casino in its year 2000 Operating Budget. With the improvements to client base in both Ceska and Rozvadov, the 2000 marketing programs will be directed at filling in the off-peak times and improving the "quality" of the peak time players. ZARAGOZA, SPAIN Total revenue in CDZ in the year ended December 31, 1999 was $3.9 million, which represents a 10% increase over the $3.5 million in revenue achieved in 1998. Despite a 25% erosion of the casino's attendance in 1999, the casino managed to match the 1998 table game Win revenue of $2.4 million. This was accomplished, primarily, through growth of the Drop per Head of the casino's core clientele (i.e., catering to CDZ's preferred patrons). Due to CDZ's location, laws preventing direct advertising of the casino, its high operating and overhead costs, its limited number of guest rooms, and the poor condition of other parts of the facility, the casino produced a Net Loss of $1.9 million in 1999. The aforementioned challenges will be difficult to overcome should the casino remain in its present location. It was anticipated that a law that would be passed which would allow the casino to move to a downtown location and, as a result, would alter the business environment in which the casino operates. This move would give the casino direct exposure to the residents of and visitors to Zaragoza; would allow the casino to tailor the size of the workforce to the operation; would reduce the operation's overhead costs; and would allow the casino to increase the number of gaming tables and slot machines to match the anticipated increase in demand. Under this scenario, the disposition of the existing CDZ facility would be decided at the time of the move. The status of the intended move is as follows. An understanding has been reached with an agency of the provincial government, the DGA, to allow the casino to execute this move, subject to the issuance of a decree. However, instead of a decree, in February 2000, the DGA introduced a law that would allow the 18 casino to relocate. The law is expected to be presented to local Spanish parliament in June 2000. The Company believes based on its discussions with Spanish authorities, the law has little opposition and is expected to pass. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital deficit, defined as current assets minus current liabilities, increased $700,000 million to a deficit of $4.0 million at December 31, 1999 from a working capital deficit at December 31, 1998 of $3.3 million. For the year ended December 31, 1999, the Company had net cash used in continuing operations of $667,000. This was primarily a result of a $6,187,000 loss from continuing operations, $2,839,000 of depreciation and amortization, $542,000 of non-cash interest related to the amortization of debt discount (recorded in connection with the warrants issued with March 1998 and October 1999 private placements) and a $2,139,000 net increase in cash attributable to changes in operating assets and liabilities. For the year ended December 31, 1999, the Company had net cash used in discontinued operations of $197,000. For the year ended December 31, 1999, net cash used in investing activities of $2,077,000 included the purchases or property and equipment aggregating $2,422,000, payments for deposits of $34,000 and the proceeds from the sale of Louisiana property aggregating $379,000. For the year ended December 31, 1999, net cash provided by financing activities of $2,110,000 included the proceeds from an October 1999 private placement of $3,000,000 (see below) and a short-term obligation of $450,000, the $1,000,000 repayment of an overdue short-term obligation to Value Partners, $360,000 of repayments of other short-term obligations and the proceeds from the exercise of warrants aggregating $20,000. On March 31, 1998, the Company, with the assistance of Libra, acting as placement agent, borrowed $17.0 million from fourteen investors in the Private Placement. The loan is represented by the Senior Notes issued pursuant to the Indentures by and among TWG, TWGI, TFC and USTCT, as the case may be. The Indentures were amended on October 29, 1998 in connection with the restructuring of the Company's ownership of Resorts as a result of the change in the Czech gaming law which restricted foreign ownership of Czech casinos. The Amended Indentures, however, did not alter the underlying basis of the Senior Notes. The Senior Notes require mandatory prepayments based upon excess cash flow generated by TWGI from the operation of the Czech casinos acquired in the Resorts acquisition and bear interest at the rate of 12% per annum. The proceeds of the Senior Notes were used to pay the net acquisition costs of, and improvements to, Resorts totaling $12.6 million, to repay the First Amended Loan Agreement in the amount of $1.3 million, to cover costs and expenses of $1.4 million relating to the Private Placement and to provide working capital of $1.7 million. Interest payments under the terms of the Senior Notes were paid when due on March 17, and September 17, 1999. The March 17, 2000 interest payment has also been paid, and the Company was and is current on its payments under the Senior Notes. On October 15, 1999, the Company borrowed $3.0 million ($2.7 million from Value Partners) in the October 1999 Private Placement. The loan is represented by the October 1999 Senior Notes issued pursuant to indentures by and among the Company and an independent indenture trustee. The October 1999 Senior Notes, which are due March 2005, require mandatory prepayments based on excess cash flow generated from Resorts. The October 1999 Senior Notes are collateralized by primarily all of Resort's gaming equipment and a majority interest in the capital stock of all of the Company's subsidiaries (except CDZ). In addition to the October 1999 Senior Notes, each investor received a proportionate share of warrants to purchase 1,250,728 shares of the Company's Common Stock. The proceeds of the October 1999 Senior Notes were used to retire a $1 million short-term debt obligation related to the acquisition of the CDZ casino, to make an interest payment of approximately $250,000 on said debt, and to finance the equipping, working capital, and pre-opening costs associated with the opening of a third casino in the Czech Republic on land that had been previously purchased. That casino, located near Snojmo, opened on December 22, 1999. The Company has, from time to time, been in technical default of the Amended Indentures and has relied upon the forbearance and waivers from a majority interest of the holders of the Senior Notes. Value 19 Partners represents a majority in interest of the holders of the Senior Notes. The Company has borrowed other amounts from Value Partners from time to time (some of which have been in technical default for which forbearance or waivers have been granted) and may seek to borrow additional funds or obtain equity investments from Value Partners in the future. At December 31, 1999, Value Partners owned 59% of the Company's long-term debt and owned warrants to acquire 61.2% of the Company's issued and outstanding shares of Common Stock. In accordance with Spanish law, in order for a casino company to remain solvent it must have a minimum capitalization of approximately $1.8 million and such recapitalization required the approval of both the CDZ's Board of Directors (received in July 1998) and the Council of Ministers in Spain (received in October 1999). The owner of the remaining 10% of CDZ declined to participate in the recapitalization and under Spanish law that 10% interest was diluted to zero once the recapitalization was approved by the Council of Ministers, bringing the total TWG ownership to 99.92%. The Company estimates that approximately $5.0 million will be required to execute the CDZ casino relocation, assuming permission is received from the DGA for such move. An understanding had been reached with the DGA to allow the casino to execute the move, subject to the issuance of a decree. However, instead of a decree, in February 2000, the DGA introduced a law that would allow the casino to relocate. The law is expected to be presented to local Spanish parliament in June 2000. Management believes based on its discussions with Spanish authorities, the law has little opposition and is expected to pass. During the years ended December 31, 1999 and 1998, DGA granted the Company a deferral of approximately $1.8 million in taxes on gaming winnings accruing during 1997-1999. Furthermore, in April 1999, the Company reached an agreement with the Spanish Social Security Authorities to defer approximately $1.2 million related to all debts generated in 1997 and the first quarter of 1998. If the Company does not make its payments according to the receivership schedule and is unable to obtain further deferral from the Spanish Taxing Authorities, the debt would become immediately payable and revert to pre-receivership levels. Management has indicated that, based on its discussions with Spanish Taxing Authorities, further deferral of payments until April 2001 is anticipated. PLAN OF OPERATIONS TWG management will continue to develop marketing and operational strategies designed to increase attendance and revenues at its existing locations in the Czech Republic and Spain. The Company has acquired land close to the German border near Ceska Kubice, at Folmava, Czech Republic and is planning to build a casino to replace the existing facility. Management believes that the new location would be more accessible to its main target market in Germany and will result in improved attendance and play. TWG transferred excess slot machines from Ceska Kubice and Rozvadov to its new location near Snojmo. IMPORTANT FACTORS TO CONSIDER ACCUMULATED DEFICIT; OPERATING LOSSES; GOING CONCERN On December 31, 1999, the Company had an accumulated deficit of approximately $30.3 million and a working capital deficit of approximately $4 million. For the year ended December 31, 1999, the Company incurred a net loss of approximately $6.4 million. The ability of the Company to achieve profitability depends upon the successful operation of gaming establishments in the Czech Republic and Spain, their expansion and relocation, and the diversification of its operations to include other sources of revenue. There can be no assurance that the Company will achieve profitability as a result of these operations or otherwise. The Company's independent public accountants' have issued their report dated February 17, 2000 with an explanatory paragraph relating to the Company's ability to continue as a going concern. 20 TERMINATION OF LOUISIANA OPERATIONS IN 1999; NEED TO DIVERSIFY In November 1996, residents in 35 parishes in Louisiana, including the two parishes in which the Gold Coin and the Toledo Palace are located, voted to discontinue video poker effective June 30, 1999. The Company is currently involved in litigation to overturn the voter referendum. See Item 3. "Legal Proceedings." No assurances can be given that such litigation will be successful. At this time, the Company has operations in the Czech Republic and Spain, but no U.S. gaming operations. The Company is currently seeking to develop or acquire interests in gaming operations and hotels at other locations; however, there can be no assurance that the Company will be able to develop or acquire such new operations in the future. 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. The Czech Republic currently has a number of laws related to various taxes imposed by governmental authorities. Applicable taxes include value added tax, corporate tax, and payroll (social) taxes, together with others. In addition, laws related to these taxes have not been in force for significant periods, in contrast to more developed market economies; therefore, implementing regulations are often unclear or nonexistent. Accordingly, few precedents with regard to issues have been established. Often, differing opinions regarding legal interpretations exist both among and within government ministries and organizations, creating uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (for example, customs and currency control matters) are subject to review and investigation by a number of authorities, who are enabled by law to impose extremely severe fines, penalties and interest charges. These facts create tax risks in the Czech Republic substantially more significant than typically found in countries with more developed tax systems. Management believes that it has adequately provided for tax liabilities; however, the risk remains that relevant authority in the Czech Republic, and to a lesser extent as of the date of this report in Spain could take differing positions with regard to interpretive issues and the effect could be significant. DEPENDENCE UPON KEY PERSONNEL The Company's ability to successfully implement its strategy, manage the Czech and Spanish casinos and maintain a competitive position will depend in a large part on the ability of Rami S. Ramadan, the Company's newly-hired Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Mr. Ramadan has served as Executive Vice President of Finance for the Ian Schrager Hotels and also held financial positions with Hyatt Hotels, Euro-Disney and Meridien Hotels. The Company may also be highly dependent upon other key employees, casino managers and consultants whom the Company may retain from time to time. Although Mr. Ramadan has an employment agreement with the Company that continues for an additional two years, there can be no assurances that the Company will be able to continue to retain Mr. Ramadan or any of such other personnel. NEED FOR ADDITIONAL FINANCING The Company believes, although there can be no assurance, that existing cash, together with anticipated cash flows from operations, will be sufficient to satisfy its current obligations for the next twelve months. However, the Company will require additional capital for the relocation of the Ceska, Rozvadov, and Zaragoza casinos as well as the expansion of the casino near Snojmo and for 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 debt and/or equity financing for the acquisition of other businesses when and if an opportunity to acquire such businesses arises. The Company's ability to obtain additional financing may be limited for a number of reasons, including the fact that because the Company is highly-leveraged, 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. 21 Because the Company is highly leveraged with debt, it is more vulnerable to extended economic downturns and reduces the Company's ability to respond to changing economic and industry conditions. This high leverage may adversely impact the holders of the Company's equity securities by impairing the Company's ability to obtain additional financing needed for working capital, capital expenditures, acquisitions or general corporate purposes. INTERNATIONAL ACTIVITIES Since July 1, 1999, the Company's operations were totally outside of the United States. Operating internationally involves additional risks relating to such things as currency exchange rates, different legal or regulatory environments, political and economic risks relating to the stability or predictability of foreign governments, differences in the manner in which different cultures do business, difficulties in staffing and managing foreign operations, differences in financial reporting, operating difficulties, different types of criminal threats and other factors. The occurrence of any of these risks, if severe enough, could have a material adverse effect on the financial condition or results of operations of the Company. LICENSING AND REGULATION The Company's operations are subject to regulation by each local jurisdiction in which it operates or plans to operate business, as well as federal laws and the laws of any foreign country. Each of the Company's officers, and directors, and in certain instances, persons who have more than a 5% income or profit interest in, or who exercise significant influence over the activities of, the Company may be subject to strict scrutiny and approval from the gaming commission or other regulatory body of each jurisdiction in which the Company may conduct gaming operations. 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 of its 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. LIABILITY INSURANCE The Company currently maintains and intends to maintain general liability insurance in each of those locations in which it operates. 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, if any are generated, for investment in its business. 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 22 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. DILUTIVE EFFECT OF WARRANTS In March 1998, in connection with the completion of the Private Placement, the Company issued warrants to purchase approximately 9.5 million shares of the Company's Common Stock. In addition, in connection with the restructuring of the Senior Bonds, in March 1998 the Company issued approximately 3.2 million warrants to purchase the Company's Common Stock. The Company also issued approximately 1.25 million warrants to purchase the Company's Common Stock in connection with the October 1999 Private Placement. The issuance of such securities will have a dilutive effect on the Company's earnings, if any are generated, on a diluted basis. Together these warrants represented at December 31, 1999, 260% of the Company's issued and outstanding shares of Common Stock. ITEM 7. FINANCIAL STATEMENTS. The following items are included in this Report: Consolidated Financial Statements Index to Consolidated Financial Statements.......................................................43 Independent Auditors' Report....................................................................F-1 Consolidated Balance Sheet......................................................................F-2 Consolidated Statements of Operations and Comprehensive Loss....................................F-3 Consolidated Statements of Stockholders' Deficit................................................F-4 Consolidated Statements of Cash Flows...........................................................F-5 Notes to Consolidated Financial Statements......................................................F-7 Audit Report for Casino de Zaragoza............................................................F-24
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Pannell Kerr Forster PC ("PKF") completed the Company's audit for the year ended December 31, 1997. In August, 1998, PKF informally indicated that it did not wish to act as the Company's independent auditor for the year ended December 31, 1998 and that it would decline to stand for reelection to audit the Company's financial statements for the year ended December 31, 1998 for which PKF tendered its formal resignation on February 25, 1999 to the Company without having performed an audit for the Company's year ended December 31, 1998. Upon receipt of notice from PKF that it would resign and not stand for reelection as the Company's independent accountant, the Company began its search for a new independent accountant in September 1998. On February 19, 1999, the Company and Rothstein Kass & Company, P.C. ("RKC") signed a letter of engagement whereby RKC agreed to perform an audit of the Company for the year ended December 31, 1998. Prior to the date of engagement of RKC, the Company had not consulted with RKC regarding the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered on the Company's financial statements. The decision to accept the engagement of RKC as the Company's independent accountant was recommended by the Audit Committee and approved by the Board of Directors of the Company. At the October 29, 1999 Annual Meeting of the Company, the appointment of RKC was ratified by the Company's shareholders. 23 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The following table provides information as of March 31, 2000 with respect to each of the Company's directors and each Executive Officer:
- ------------------------------------------------------------------------------------------------------------ Name Age Position in the Company Director or Executive Since - ------------------------------------------------------------------------------------------------------------ Rami S. Ramadan(1)............... 50 CEO, CFO and Director 1999 Andrew Tottenham(1).............. 42 President, Chief Operating 1996 Officer and Director Julio E. Heurtematte, Jr.(2)..... 64 Director 1998 Malcolm M.B. Sterrett(2)......... 57 Director 1998 Geoffrey Baker(2,3).............. 51 Director 1999 - ------------------------------------------------------------------------------------------------------------
(1) Member of the Executive Committee. (2) Member of Audit Committee and Compensation Committee. (3) Mr. Geoffrey Baker, who was appointed to a fill a vacancy on the Board of Directors on December 22, 1998, resigned from his position on May 13, 1999 and rejoined the Board on August 4, 1999. Dominick J. Valenzano resigned on July 12, 1999 from his position as CFO of the Company, to pursue other business interests. Stanley Kohlenberg resigned on June 30, 1999 from has position as CEO, but remained as Chairman, until February 8, 2000. RAMI S. RAMADAN has served as CEO/CFO since July 12, 1999. His most recent prior position had been Executive Vice President of Finance for the Ian Schrager Hotels from November 1997 to July 1999. Prior to that, Mr. Ramadan held senior financial positions with Hyatt Hotels from January 1994 to November 1997, Euro Disney from October 1990 to December 1993 and Meridien Hotels from September 1975 to September 1990. ANDREW TOTTENHAM was appointed as President and CEO of the Company on January 1, 1997 and served in such capacities until September 1998 when he was appointed to the offices of President and COO. 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. since 1988. Mr. Tottenham commenced his career in the gaming industry in 1975 and has worked for the Silhouette Club, 24 Bally's Park Place, Connoisseur Club, and Victoria Casino. Mr. Tottenham is the son-in-law of Mr. Kohlenberg. JULIO E. HEURTEMATTE, JR. Mr. Heurtematte currently is a private consultant, specializing in international projects, trade and investments and has acted in such capacity since 1989. From 1963 to 1989, Mr. Heurtematte served with the Inter-American Development Bank in several capacities, most recently as its Deputy Manager for Project Analysis. MALCOLM M. B. STERRETT. Mr. Sterrett is a private investor. From 1989 to 1993, he was a partner at the law firm of Pepper Hamilton & Scheetz, Washington, D.C. From 1988 to 1989, he served as General Counsel to the U.S. Department of Health and Human Services and from 1982 to 1988 he was a Commissioner on the U.S. Interstate Commerce Commission. Prior thereto, he was Vice President and General Counsel to the United States Railway Association and served as Staff Director and Counsel to the U.S. Senate Committee on Commerce, Science and Transportation. GEOFFREY B. BAKER. Mr. Baker is a private investor. From 1983 to the present, Mr. Baker has been a member of the private investment firm, Baker & Donaldson. From 1977 to 1982, he was Legislative Director to U.S. Senator Lowell P. Weicker, Jr. and from 1975 to 1977, he served on the Senate Committee on Commerce as a minority staff member for surface transportation. INFORMATION ABOUT THE BOARD AND ITS COMMITTEES The business and affairs of the Company are managed by the Company's Board of Directors. Meetings of the Board are held quarterly and on an as-needed basis. The Board has established several committees, described below, which also meet on an as-required basis during the year. The Board held six meetings during the Company's fiscal year ended December 31, 1999. No director of the Company attended fewer than 75% of the total number of meetings of the Board or meetings of committees of the Board during the year ended December 31, 1999. The Board of Directors has established the following committees: AUDIT COMMITTEE. The Audit Committee reviews and approves internal accounting controls, internal audit operations and activities, the Company's annual report and audited financial statements, the selection of the Company's independent auditors, the activities and recommendations of the Company's independent auditors, material changes in the Company's accounting procedures, the Company's policies regarding conflicts of interest and such other matters as may be delegated by the Board. The Audit Committee, composed of Messrs. Baker, Heurtematte and Sterrett, all non-employee directors, met once in 1999. EXECUTIVE COMMITTEE. The Executive Committee recommends a list of potential director nominees to the Board of the Company, develops guidelines for corporate structuring and Board-related issues and acts as an oversight committee. Although the Executive Committee will consider nominees recommended by the Company's shareholders, it has neither actively solicited nominations nor established any procedures for this purpose. The Executive Committee, composed of Messrs. Ramadan and Tottenham, met once during 1999. COMPENSATION COMMITTEE. The Compensation Committee sets the compensation for executive officers of the Company and sets the terms of grants of awards under the Company's 1993 Incentive Stock Option Plan (the "1993 Plan"), the Company's 1998 Stock Option Plan (the "1998 Plan"), the 1999 Non-Employee Director Stock Option Plan and any other equity-based compensation plans adopted by the Company. The Compensation Committee, composed of Messrs. Baker, Heurtematte and Sterrett, met once during 1999. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's officers, directors and persons who own more than 10% of the Company's Common Stock to file reports of ownership and changes in ownership with SEC and the National Association of Securities Dealers, Inc. by certain dates. The Company believes that 25 in the fiscal year ended December 31, 1999, these filing requirements were not satisfied by its directors and executive officers. For the year ended December 31, 1999, Geoffrey Baker, Julio Heurtematte, Malcolm Sterrett, Maureen Weppler, Stanley Kohlenberg, Dominick Valenzano and Andrew Tottenham each were late once in reporting one transaction; each of which were subsequently filed. In making the foregoing statements, the Company has relied on representations of its directors and executive officers and copies of the reports that they have filed with the SEC. The Company knows of no person who owns 10% or more of the Company's Common Stock. ITEM 10. EXECUTIVE COMPENSATION. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth the cash and non-cash compensation paid or earned during the fiscal years ending December 31, 1999, 1998, and 1997 by the Chief Executive Officer(s) and Chief Financial Officer of the Company (the "Named Officers") during those periods.
SUMMARY COMPENSATION TABLE - -------------------------------------------------------------------------------------------------------------------------- LONG-TERM COMPENSATION - -------------------------------------------------------------------------------------------------------------------------- OTHER ANNUAL STOCK ALL OTHER YEAR SALARY BONUS(4) COMPENSATION OPTIONS(5) COMPENSATION(6) Rami Ramadan 1999 $150,000 100,000 $ 2,200 Chief Executive Officer Chief Financial Officer(1) Andrew Tottenham 1999 195,000 President and Chief 1998 180,000 25,000 9,000 Executive Officer(2) 1997 150,000 $60,000 $100,000 8,600 Stanley Kohlenberg 1999 180,000 Former President and 1998 43,750 25,000 42,500 Chief Executive Officer(3) 1997 Dominick J. Valenzano 1999 120,000 Former Chief Financial 1998 120,000 25,000 4,300 Officer(7) 1997 90,000 30,000 50,000 6,360 - --------------------------------------------------------------------------------------------------------------------------
(1) Mr. Ramadan joined the Company as its CEO and CFO, July 12, 1999. (2) Mr. Tottenham was elected President and CEO of the Company as of January 1, 1997 and became President and COO on September 16, 1998. (3) Mr. Kohlenberg served as President and CEO of the Company from March 6, 1996 to December 31, 1996 and again from September 16, 1998 to June 30, 1999, the date of his resignation. Under the terms of a severance agreement dated May 23, 1999, Mr. Kohlenberg received six months salary and will participate in the Company's health plan for that period. (4) Bonus amounts shown were earned with respect to each year indicated. (5) Amounts shown represent the number of qualified stock options granted each year. With the exception of Mr. Valenzano's options which have expired, options listed are exercisable; all of the options, at December 31, 1999, were issued at the fair market value of one share of the Company's Common Stock on the date of grant. (6) The amounts shown represent the cost of a leased automobile provided to Messrs. Tottenham, Valenzano and Ramadan (received Mr. Valenzano's car on September 1, 1999) by the Company 26 for each year indicated and represent a consulting fee paid to Mr. Kohlenberg under the terms of a Consulting Agreement which terminated on September 15, 1998. (7) Mr. Valenzano resigned from the Company on August 5, 1999. Under the terms of a severance agreement, executed on August 5, 1999, Mr. Valenzano received six months salary and participated in the Company's health plan for six months following such termination. OPTION GRANTS AND EXERCISES The following table summarizes certain information concerning individual grants of options during fiscal 1999 to the executive officers named in the Summary Compensation Table above and the potential realizable value of the options held by such persons at December 31, 1999.
OPTIONS GRANTED IN FISCAL 1999 INDIVIDUAL GRANTS - ------------------------------------------------------------------------------------------------------------------- % OF TOTAL OPTIONS SHARES OF COMMON GRANTED TO STOCK UNDERLYING EMPLOYEES IN FISCAL EXERCISE OF BASE EXPIRATION OPTIONS GRANTED YEAR PRICE ($/SH) DATE - ------------------------------------------------------------------------------------------------------------------- RAMI S. RAMADAN.............. 100,000 100% 0.50 07/30/08 - -------------------------------------------------------------------------------------------------------------------
No options were exercised by the executive officers named in the Summary Compensation Table during fiscal 1999. The following table summarizes the option values held by the executive officers named in the Summary Compensation Table as of December 31, 1999. AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999 YEAR-END OPTION VALUE TABLE
- ------------------------------------------------------------------------------------------------------------------ NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY AT DECEMBER 31, 1999 OPTIONS AT DECEMBER 31, 1999 - ------------------------------------------------------------------------------------------------------------------ SHARES NAME ACQUIRED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ON EXERCISE RAMI S. RAMADAN 100,000 0 0 0 STANLEY KOHLENBERG 137,000 0 0 0 ANDREW TOTTENHAM 127,000 0 0 0 DOMINICK J. VALENZANO 145,000 0 0 0 - -----------------------------------------------------------------------------------------------------------------
DIRECTORS' COMPENSATION Directors receive a cash fee of $2,000 for each meeting attended and all members of the Board are reimbursed for out-of-pocket expenses in connection with attending Board meetings. Pursuant to the 1999 Non-Employee Director Stock Option adopted at the October 29, 1999 Annual Meeting, each non-employee director is provided with an automatic grant of a non-qualified option to purchase 2,000 shares of Common Stock on the date following each fiscal quarter in which the director serves. Each such option (i) 27 has a ten-year term, (ii) has an exercise price per share equal to 100% of the fair market value of one share of Common Stock on the date of grant, and (iii) becomes fully exercisable on the date of grant. EMPLOYMENT/SEVERANCE AGREEMENTS RAMI S. RAMADAN. Effective July 12, 1999, the Company entered into a three year employment agreement with Mr. Ramadan pursuant to which he will serve as the Company's Chief Executive Officer and Chief Financial Officer at an annual salary of $300,000. Mr. Ramadan is eligible to participate in the 1998 Plan, Executive Compensation Plan and any present or future employee benefit plans. He also will be reimbursed for reasonable travel and out-of-pocket expenses necessarily incurred in the performance of his duties. Mr. Ramadan will also receive three separate equal annual installments of options to acquire the Company's Common Stock, each of which shall have a five-year term commencing upon the date on which each installment is granted. Upon commencement of the employment agreement, Mr. Ramadan received 100,000 options exercisable at $0.50 per share; upon commencement of the second year of the employment agreement an additional 100,000 options exercisable at $0.55 per share will be granted; and upon commencement of the third year of the employment agreement the final installment of 100,000 options exercisable at $0.61 per share will be granted. Upon commencement of the second and third year of the employment agreement, the exercise price for all unexercised options granted in the preceding year will be increased to the current year's exercise price up to $0.61. In the event the employment agreement is terminated other than for cause, as defined in the agreement, within six months of the commencement date, the Company shall pay to Mr. Ramadan one year's salary in a lump sum within 30 days of the notice of termination. If the agreement is terminated other than for cause at anytime after six (6) months following commencement of the employment agreement, Mr. Ramadan will receive two years' salary. ANDREW TOTTENHAM. Effective as of January 1, 1997, the Company entered into a five-year employment agreement with Mr. Tottenham pursuant to which he serves as the Company's President and Chief Operating Officer at an annual salary of $150,000. On June 1, 1999, Mr. Tottenham's salary was increased to $180,000 and on November 1, 1999, it was increased to $200,000. Mr. Tottenham will be eligible for participation in the Company's 1993 Plan, 1998 Plan, the Executive Compensation Plan, and any present or future employee benefit plans. He also will be reimbursed for reasonable travel and out-of-pocket expenses necessarily incurred in the performance of his duties. Mr. Tottenham works from the Company's offices in London, England. The Company is entitled to terminate Mr. Tottenham's employment, and its salary obligation to him, upon 30 days written notice in the event of (i) disability (assuming there is disability insurance sufficient to pay Mr. Tottenham his full salary for the remaining term of the employment agreement), (ii) conviction of a felony, or (iii) a breach of the employment agreement. If Mr. Tottenham dies during the term of the employment agreement, his estate is entitled to three months' salary at his base salary rate on the date of death. If Mr. Tottenham is terminated for any other reason, he is entitled to three months' severance pay at his base salary rate in effect on the date of such termination. STANLEY KOHLENBERG. Effective July 12, 1999, the Company and Mr. Kohlenberg entered into a severance agreement, pursuant to which Mr. Kohlenberg resigned as Chief Executive Officer of the Company on June 30, 1999. Mr. Kohlenberg received severance payments equal to six (6) months salary and continued to participate in the Company's benefit plans for six (6) months. Mr. Kohlenberg continued to serve as Chairman of the Company's Board of Directors until his resignation on February 8, 2000. DOMINICK J. VALENZANO. The Company and Mr. Valenzano executed a severance agreement on August 5, 1999 pursuant to which Mr. Valenzano resigned as Chief Financial Officer of the Company. Mr. Valenzano received severance payments equal to six (6) months salary and continued to participate in the Company's benefit plans for six (6) months. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information regarding the beneficial ownership of the Common Stock as of March 31, 2000, unless otherwise noted, (a) by each shareholder who is known by the Company to own beneficially more than 5.0% of the outstanding Common Stock, (b) by each director, (c) by each executive officer named in the Summary Compensation Table below, and by all executive officers 28 and directors as a group. Unless otherwise noted, each of the shareholders listed in the table or included within a group listed in the table possesses sole voting and investment power with respect to the shares indicated subject to community property laws where applicable. The business address for each director and officer of the Company is 545 Fifth Avenue, Suite 940, New York, New York 10017.
- ------------------------------------------------------------------------------------------------------------ Number of Shares of Common Percentage of Name of Beneficial Owner Stock Beneficially Owned(1) Ownership(1) - ------------------------------------------------------------------------------------------------------------ Value Partners, Ltd........................... 8,257,452(2) 60.6% Anasazi Partners Limited Partnership.......... 1,135,667(3) 17.5% Fort Pitt Fund III, L.P....................... 312,682(4) 5.5% Ravich Children Permanent Trust............ 1,250,727(5) 18.9% C.P. Baker & Co., Ltd......................... 3,186,037(6) 39.4% U.S. Bancorp.................................. 681,647(7) 11.2% Stanley Kohlenberg............................ 237,000(8) 4.2% Andrew Tottenham.............................. 1,205,500(9) 18.3% Rami S. Ramadan............................... 100,000(10) * Julio Heurtematte............................. 54,961(11) * Malcolm M.B. Sterrett......................... 54,961(12) * Geoffrey B. Baker............................. 50,961(13) * All directors and executive officers as a group (5 persons).................... 1,466,383(14) 24.4% * Less than 1%. - --------------------------------------------------------------------------------------------------------------
(1) The percentage of outstanding shares is based on 5,365,449 shares outstanding as of May 10, 2000 (the "Calculation Date") and, for certain individuals and entities, on reports filed with the Securities and Exchange Commission ("SEC"). A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the Calculation Date upon the exercise of options or warrants. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by such person (but not those held by any other person) are exercisable within 60 days from the date of the Voting Record Date have been exercised. Included are shares of Common Stock issuable upon the exercise of options or warrants to purchase the Company's Common Stock. (2) Value Partners, Ltd. is a Texas limited partnership, whose business address is 4514 Cole Avenue, Suite 808, Dallas, Texas 75205. Includes warrants to purchase: 600,000 shares of Common Stock at an exercise price of $1.00, expiring December 31, 2005; 2,000,000 shares of Common Stock at an exercise price of $1.50 per share, expiring December 31, 2005; 4,427,573 shares of Common Stock at an exercise price of $.01 per share, expiring March 31, 2008 (of these warrants 675,392 were acquired from Credit Suisse First Boston Management Corporation in October 1999); 104,225 shares of Common Stock at an exercise price of $.01 per share expiring March 31, 2008; and 1,125,654 shares of Common Stock at an exercise price of $.01 per share, expiring March 31, 2008. (3) Anasazi Partners, Ltd. is a Massachusetts limited partnership whose business address is 120 Boylston Street, Suite 800, Boston, Massachusetts 02116. Includes 269,000 shares of Common Stock purchased in the Company's initial public offering ("IPO"); and warrants to purchase 200,000 shares of Common Stock at an exercise price of $1.00 per share, expiring December 31, 2005 (of these warrants, 50,000 were acquired from New Generation, Ltd. in 1999), and 666,667 shares of Common Stock at an exercise price of $1.50 per share, expiring December 31, 2005). (4) The business address for Fort Pitt Fund III, L.P. is P.O. Box 974, Uniontown, Pennsylvania 15401. Includes warrants to purchase 312,682 shares of Common Stock at an exercise price of $.01 per share expiring March 31, 2008. 29 (5) The business address for the Ravich Children's Permanent Trust is 8730 Wilshire Blvd., Beverly Hills, California 90021. (6) The business address for C.P. Baker & Co. is 120 Boylston Street, Suite 800, Boston, Massachusetts 02116. Includes: 183,500 shares of Common Stock of which Mr. Baker is the record holder; 10,000 shares of stock of which C.P. Baker & Company, Ltd., an affiliate of Mr. Baker, holds of record; warrants to purchase 1,723,570 shares of Common Stock at an exercise price of $0.01, expiring June 30, 2002, that may be exercised by Mr. Baker and/or his affiliates, C. P. Baker & Company, Ltd. and C. P. Baker Venture Fund I; 269,000 shares of Common Stock of which Anasazi Partners, an affiliate of Mr. Baker, holds of record; warrants to purchase 200,000 shares of Common Stock at an exercise price of $1.00, expiring December 31, 2005, that may be exercised by Anasazi Partners; and warrants to purchase 666,667 shares of Common Stock at an exercise price of $1.50, expiring December 31, 2005, that may be exercised by Anasazi Partners. See also note (3) above. (7) The business address for U.S. Bancorp. is 11766 Wilshire Boulevard, Suite 870, Los Angeles, California 90025. Represents warrants to purchase 681,647 shares of Common Stock at an exercise price of $.01 per share, expiring March 31, 2008, which were acquired from Credit Suisse First Boston Management Corporation in October 1999. (8) Includes 1,000 shares issued on May 22, 1995; 25,000 shares issued on March 07, 1996; and 1,000 shares issued at the end of each quarter for the quarter ended March 31, 1997 through the quarter ended September 30, 1998 subject to non-qualified options granted to Mr. Kohlenberg under the 1993 Plan as well as 75,000 shares and 25,000 shares of Common Stock, subject to incentive options granted to Mr. Kohlenberg on December 31, 1996 and December 31, 1998, respectively all of which fully vested on the dates of grant. Also includes 2,000 shares issued at the end of the quarter for the quarter ended September 30, 1999 through the quarter ended December 31, 1999 subject to non-qualified options granted to Mr. Kohlenberg under the 1998 Plan all of which fully vested on the dates of grant. Does not include 929,500 shares (187,500 of which are immediately exercisable warrants and 107,000 of which are immediately exercisable options) held be Andrew Tottenham, a son-in-law of Mr. Kohlenberg, as to which beneficial ownership is disclaimed. (9) Includes 623,500 shares of Common Stock (240,000 shares were issued to Mr. Tottenham upon conversion of the Tottenham Notes on December 31, 1998) and 1,000 shares and 1,000 shares subject to non-qualified options granted to Andrew Tottenham under the 1993 Plan on October 2, 1996 and on December 31, 1996, respectively, and 100,000 shares and 25,000 shares subject to incentive options granted to Mr. Tottenham on December 31, 1997 and December 31, 1998 respectively, all of which fully vested on the dates of grant. Also includes 187,500 shares subject to immediately exercisable warrants which were granted to Mr. Tottenham on January 1, 1997. Also includes 205,000 shares of Common Stock owned by Robin Tottenham (80,000 shares were issued to Mrs. Tottenham upon conversion of the Tottenham Notes on December 31, 1998), the wife of Mr. Tottenham and the daughter of Mr. Kohlenberg, and 62,500 shares subject to immediately exercisable warrants that were granted to Mrs. Tottenham on January 1, 1997. Does not include shares owned by Mr. Kohlenberg, as set forth above, as to which beneficial ownership is disclaimed. (10) Consists of shares subject to incentive options granted to Mr. Ramadan on July 12, 1999, all of which fully vested on the date of grant. (11) Includes warrants to purchase 41,961 shares of Common Stock at an exercise price of $.01 per share expiring March 31, 2008; 1,000 shares of Common Stock subject to non-qualified options granted to Mr. Heurtematte under the 1998 Plan at the end of each calendar quarter ended March 31, 1998 through December 31, 1998 and 2,000 shares of Common Stock subject to non-qualified options granted under the 1999 Director Plan at the end of each calendar quarter ended March 31, 1999 through March 31, 2000, all of which fully vested on the dates of grant. (12) Includes warrants to purchase 41,961 shares of Common Stock at an exercise price of $.01 per share expiring March 31, 2008; 1,000 shares of Common Stock subject to non-qualified options granted to Mr. Sterrett under the 1998 Plan at the end of each calendar quarter ended March 31, 1998 through December 30 31, 1998 and 2,000 shares of Common Stock, subject to non-qualified options, granted under the 1999 Director Plan at the end of each calendar quarter ended since March 31, 1999 through March 31, 2000, all of which fully vested on the dates of grant. (13) Includes warrants to purchase 41,961 shares of Common Stock at an exercise price of $.01 per share expiring March 31, 2008; 1,000 shares of Common Stock subject to non-qualified options granted to Mr. Baker under the 1993 Plan at December 31, 1998, 2,000 shares of Common Stock, subject to non-qualified options, granted under the 1999 Director Plan for the calendar quarter ended March 31, 1999 and 2,000 shares of Common Stock subject to non-qualified options granted under the 1999 Director Plan at the end of each quarter ended since September 31, 1999 through March 31, 2000, all of which fully vested on the dates of grant. (14) See Notes (9), (10), (11), (12), and (13) above. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. TOTTENHAM & CO. On January 1, 1997, the Company completed the acquisition of Tottenham & Co. which was founded in 1988 by Andrew Tottenham, the Company's President and COO 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, 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 acquisition 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 (the "Tottenham Notes"). On December 31, 1998, the Company and Andrew Tottenham converted the Tottenham Notes and accrued interest totaling $240,000 into 320,000 shares of the Company's Common Stock. All of the Common Stock, as well as the Common Stock underlying the warrants, carries certain "piggyback" registration rights. CHRYSOLITH OPERATING AGREEMENT. The Company is a member under, and party to, which sets forth the rights and obligations of the original members, all of whom are individuals (the "Original Members"), and the Company. Under this agreement, Chrysolith operated, serviced and maintained the VLTs at the Gold Coin and Toledo Palace and the Company provided management, financial and consulting services. The Chrysolith Operating Agreement will continue pending the decision of the U.S. Supreme Court regarding the Company's appeal of the termination of the operations at the Gold Coin and Toledo Palace. MONARCH ACQUISITION. In April 1994, the Company acquired for $49,000 a 49% ownership interest in Monarch Casinos ("Monarch"), a Louisiana-licensed video gaming device operator which was 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 between Monarch and the previous owner of the Woodlands. All of such loans were payable on demand, bore interest at the rate of 10% and were evidenced by promissory notes executed by Monarch. In October 1994, the Company credited Monarch $25,000 against prior advances, among other things, in consideration for the assignment by Monarch to the Company of an option to purchase the Woodlands. Although it was originally intended that Monarch would own, operate and maintain the VLTs at both the Toledo Palace and the Gold Coin, the Company believed that Chrysolith was better suited to operate the video poker parlors and thus entered into the Chrysolith Agreement. In March 1996, the Company learned that as of June 30, 1995, Monarch had not renewed its operator's license as required by the State of Louisiana, and as such, was no longer a licensed video poker 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 created a default under the agreements and the agreements were terminated by the Company on March 14, 1996. On or about November 6, 1997 Monarch and Michael Edwards, President of Monarch, filed suit against the Company alleging, among other things, breach of contract. The lawsuit was settled in May 1999 for a cash payment by the Company of $100,000 and both parties released the other of any and all further obligations. See Item 3. "Legal Proceedings". 31 On October 29, 1997, the Company and Value Partners executed a loan which was amended on December 19, 1997, under which TWG had the ability to borrow up to $2,538,000 (the "First Amended Loan Agreement"). As of December 31, 1998, the Company had borrowed $1,538,000 under this loan, including the Bishkek Note described below, of which $1,288,000 was repaid on March 31, 1998 from the proceeds of the Private Placement. On March 19, 1998, the Company and Value Partners executed a Lender's Waiver and Option Agreement (the "Waiver") under which the Company borrowed $250,000 (the "Bishkek Note") to fund the Bishkek Casino transaction. In February 1999, the Company repaid the principal and accrued interest on the Bishkek Note in full, and it was cancelled. On March 31, 1998, the Company, with the assistance of Libra, acting as placement agent, borrowed $17.0 million from fourteen investors in the Private Placement. The loan is represented by the Senior Notes issued pursuant to the Indentures by and among TWG, TWGI, TFC and USTCT, as the case may be. The Indentures were amended on October 29, 1998 in connection with the restructuring of the Company's ownership of Resorts as a result of the change in the Czech gaming law which restricted foreign ownership of Czech casinos. The Amended Indentures, however, did not alter the underlying basis of the Senior Notes. The Senior Notes require mandatory prepayments based upon excess cash flow generated by TWGI from the operation of the Czech casinos acquired in the Resorts acquisition and bear interest at the rate of 12% per annum. The proceeds of the Senior Notes were used to pay the net acquisition costs of, and improvements to, Resorts totaling $12.6 million, to repay the First Amended Loan Agreement in the amount of $1.3 million, to cover costs and expenses of $1.4 million relating to the Private Placement and to provide working capital of $1.7 million. Interest payments under the terms of the Senior Notes were paid when due on March 17, and September 17, 1999. The March 17, 2000 interest payment has also been paid, and the Company was and is current on its payments under the Senior Notes. On May 19, 1998, the Company and Value Partners executed a Loan Agreement (the "Value Partners Loan") under which the Company borrowed $1,000,000 at 12% interest per annum to fund the purchase of the stock of the CDZ (see - "Plan of Operations"). The Company was in technical default of, and had not timely paid the Value Partners Loan which was due on September 15, 1998. The interest rate automatically increased to 17% on September 15, 1998. On July 30, 1999, the Company received from Value Partners a waiver of such default and a waiver of the cross defaults on the Amended Indentures by the majority in interest of the holders of the Senior Notes. Value Partners also granted an extension of this loan until January 1, 2000, which had been accruing since September 1998 until the debt was satisfied in October 1999. (See below). On October 15, 1999, the Company borrowed $3.0 million ($2.7 million from Value Partners) in the October 1999 Private Placement. The loan is represented by the October 1999 Senior Notes issued pursuant to indentures by and among the Company and an independent indenture trustee. The October 1999 Senior Notes, which are due March 2005, require mandatory prepayments based on excess cash flow generated from Resorts. The October 1999 Senior Notes are collateralized by primarily all of Resort's gaming equipment and a majority interest in the capital stock of all of the Company's subsidiaries (except CDZ). In addition to the October 1999 Senior Notes, each investor received a proportionate share of warrants to purchase 1,251,000 shares of the Company's Common Stock. The proceeds of the October 1999 Senior Notes were used to retire a $1 million short-term debt obligation related to the acquisition of the CDZ casino, to make an interest payment of approximately $250,000 on said debt, and to finance the equipping, working capital, and pre-opening costs associated with the opening of a third casino in the Czech Republic on land that had been previously purchased. That casino, located near Snojmo, opened on December 22, 1999. The Company has, from time to time, been in technical default of the Amended Indentures and has relied upon the forbearance and waivers from a majority interest of the holders of the Senior Notes. Value Partners represents a majority in interest of the holders of the Senior Notes. The Company has borrowed other amounts from Value Partners from time to time (some of which have been in technical default for 32 which forbearance or waivers have been granted) and may seek to borrow additional funds or obtain equity investments from Value Partners in the future. At December 31, 1999, Value Partners owned 59% of the Company's long-term debt and owned warrants to acquire 61.2% of the Company's issued and outstanding shares of Common Stock. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS Reference is made to the Exhibit Index hereinafter contained. 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 May 10, 2000, upon written request from any such person. Requests should be sent to: Rami S. Ramadan, Chief Executive Officer, Trans World Gaming Corp., 545 Fifth Avenue, Suite 940, New York, New York 10017. (b) REPORTS ON FORM 8-K During the last quarter of the year ended December 31, 1999, the Company filed a Periodic Report on Form 8-K with the SEC on October 28, 1999. This Periodic Report related to the $3.0 million financing in the October 1999 Private Placement. 33 TRANS WORLD GAMING CORP. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB/A FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------- -------------------------------- Item No Item Method of Filing 2 Deed of Sale of Shares Authenticated Mr. Jose Incorporated by reference to Exhibit 2 contained in Maria Badia Gasco, Notary of Zaragoza, dated the Form 8-K/A file don July 2, 1998 (File No. April 17, 1998 0-25244) 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 Bylaws 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 Incorporated by reference to Exhibit 4.2 contained in Purchase Warrant 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 Incorporated by reference to Exhibit 4.4 contained in dated June 17, 1996 Form 10-KSB for the fiscal year ended December 31, 1996. (File No. 0-25244) 4.5 Supplement No. 1 dated January 14, 1997 to Incorporated by reference to Exhibit 4.5 contained in Confidential Private Placement Memorandum Form 10-KSB for the fiscal year ended December 31, dated June 17, 1996 1996. (File No. 0-25244) 4.6 Indenture dated as of November 1, 1996 Incorporated by reference to Exhibit 4.6 contained in between the Company and Trans World Form 10-KSB for the fiscal year ended December 31, Gaming of Louisiana, Inc., as Issuer, and 1996. (File No. 0-25244) U.S. Trust Company of Texas, N.A., as Trustee 4.7 Form of 12% Secured Convertible Senior Incorporated by reference to Exhibit 4.7 contained in Bond due June 30, 1999 Form 10-KSB for the fiscal year ended December 31, 1996. (File No. 0-25244) 34 4.8 Form of Warrant to Purchase Common Stock Incorporated by reference to Exhibit 4.8 contained in dated July 1, 1996 Form 10-KSB for the fiscal year ended December 31, 1996. (File No. 0-25244) 4.9 Form of Warrant for Purchase of Shares of Incorporated by reference to Exhibit 4.9 contained in Common Stock dated January 1, 1997 Form 10-KSB for the fiscal year ended December 31, 1996. (File No. 0-25244) 4.10 Form of Non-Negotiable Promissory Note Incorporated by reference to Exhibit 4.10 contained dated January 1, 1997 in Form 10-KSB for the fiscal year ended December 31, 1996. (File No. 0-25244) 4.11 First Amended Senior Secured Promissory Incorporated by reference to Exhibit 4.11 contained Note dated December 19, 1997 in Form 10-KSB for the fiscal year ended December 31, 1997 filed on March 30, 1998. (File No. 0-25244) 4.12 Form of Warrant for Purchase of Shares of Incorporated by reference to Exhibit 4.12 contained Common Stock dated January 15, 1998 in Form 10-KSB for the fiscal year ended December 31, 1997 filed on March 30, 1998. (File No. 0-25244) 4.13 Lenders Waiver and Option Agreement dated Incorporated by reference to Exhibit 4.13 contained March 9, 1998 in Form 10-KSB for the fiscal year ended December 31, 1997 filed on March 30, 1998. (File No. 0-25244) 4.14 Indenture dated March 31, 1998 among the Incorporated by reference to Exhibit 4(I) contained Company, TWG International U.S. in the Form 8-K filed on April 14, 1998 (File No. Corporation, TWG Finance Corp. and U.S. 0-25244) Trust Company of Texas, N.A. 4.15 Series C Warrant to Purchase Common Stock Incorporated by reference to Exhibit 4(II) contained dated March 31, 1998 in the Form 8-K filed on April 14, 1998 (File No. 0-25244) 4.16 Indenture dated March 31, 1998 between TWG Incorporated by reference to Exhibit 4(III) contained International U.S. Corporation and U.S. Trust in the Form 8-K filed on April 14, 1998 (File No. Company of Texas, N.A. 0-25244) 4.17 Consent to Amend Indenture, Bonds and Incorporated by reference to Exhibit 4(IV) contained Warrants dated March 25, 1998 by and in the Form 8-K filed on April 14, 1998 (File No. between the Company, Trans World Gaming of 0-25244) Louisiana, Inc., U.S. Trust Company of Texas, N.A., and certain individuals 35 4.18 First Amended Indenture dated March 31, 1998 Incorporated by reference to Exhibit 4(V) contained among the Company, TWGLa and U.S. Trust in the Form 8-K filed on April 14, 1998 (File No. Company of Texas, N.A. 0-25244) 4.19 First Amended Indenture dated March 31,1998 Incorporated by reference to Exhibit 4(V) contained among the Company, TWGLa and U.S. Trust in the Form 8-K filed on April 14, 1998 (File No. Company of Texas, N.A. 0-25244) 4.20 Series A Warrant to Purchase Common Stock Incorporated by reference to Exhibit 4(VI) contained dated March 31, 1998 in the Form 8-K filed on April 14, 1998 (File No. 0-25244) 4.21 Series B Warrant to Purchase Common Stock Incorporated by reference to Exhibit 4(VII) contained dated March 31, 1998 in the Form 8-K filed on April 14, 1998 (File No. 0-25244) 4.22 Agreement to Amend Warrants dated March Incorporated by reference to Exhibit 4(VIII) contained 31, 1998 among the Company and the named in the Form 8-K filed on April 14, 1998 (File No. Holders 0-25244) 10.1 Agreement for Exchange of Shares dated July Incorporated by reference to Exhibit 10.1 contained 12, 1994, between the Company and the in the registration statement on Form SB-2 (File No. shareholders of Lee Young Enterprises, Inc. 33-85446-A). 10.2 Asset Purchase Agreement dated as of Incorporated by reference to Exhibit 10.2 contained September 21, 1994, between the Company and in the registration statement on Form SB-2 (File No. Prime Properties, Inc. 33-85446-A). 10.3 Agreement of Sale dated as of September 21, Incorporated by reference to Exhibit 10.3 contained 1994, between the Company and Prime in the registration statement on Form SB-2 (File No. Properties, Inc. 33-85446-A). 10.4 Form of Lease between Prime Properties, Inc. Incorporated by reference to Exhibit 10.4 contained and 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, LLC, Prime Properties, Inc., in the registration statement on Form SB-2 (File No. Monarch Casinos, Inc. of Louisiana, and the 33-85446-A). Company. 10.6 Asset Purchase Agreement dated September Incorporated by reference to Exhibit 10.6 contained 21, 1994, between Chrysolith L.L.C. and in the registration statement on Form SB-2 (File No. Monarch 33-85446-A). 36 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 in the registration statement on Form SB-2 (File No. Kelly McCoy Jones, as Lessor, and Monarch, 33-85446-A). as Lessee. 10.8 Offer to Purchase dated October 4, 1994, Incorporated by reference to Exhibit 10.8 contained among Trans World Gaming of Louisiana, Inc., in the registration statement on Form SB-2 (File No. Monarch, Lula Miller, Inc., Charles A. Jones 33-85446-A). III and Kelly McCoy Jones. 10.9 Memorandum of Agreement dated March 18, Incorporated by reference to Exhibit 10.9 contained 1994, between the Company and Yves Gouhier in the registration statement on Form SB-2 (File No. and Camille Costard to acquire shares of 33-85446-A). Casino 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. in the registration statement on Form SB-2 (File No. Edwards, as 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. 33-85446-A). 10.15 Form of 10% Secured Bridge Incorporated by reference to Exhibit 10.15 contained in the registration statement on Form SB-2 (File No. 33-85446-A). 37 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 Incorporated by reference to Exhibit 10.17 contained 22, 1994 between the Company and in the Form 10-KSB for the fiscal year ended Chrysolith relating to the Gold Coin. December 31, 1994 (File No. 0-25244). 10.18 Note in principal amount $75,000 payable by Incorporated by reference to Exhibit 10.18 contained Monarch (and assumed by the Company). in the Form 10-KSB for the fiscal year ended December 31, 1994 (File No. 0-25244). 10.19 Lease Agreement dated May 1, 1993 between Incorporated by reference to Exhibit 10.19 contained National Auto/Truck Stops, Inc. and Prime in the Form 10-KSB for the fiscal year ended Properties with respect to the 76 Plaza December 31, 1995 (File No. 0-25244). 10.20 Agreement and General Release dated as of Incorporated by reference to Exhibit 10.20 contained March 6, 1996 between the Company and R. in the Form 10-KSB for the fiscal year ended K. Merkey. December 31, 1995 (File No. 0-25244). 10.21 Forbearance Agreement dated January 19, Incorporated by reference to Exhibit 10.21 contained 1996 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 Incorporated by reference to Exhibit 10.22 contained between the Company and Chrysolith in the Form 10-KSB for the fiscal year ended regarding forbearance payments December 31, 1995 (File No. 0-25244). 10.23 Consulting Agreement dated January 1, 1997 Incorporated by reference to Exhibit 10.23 contained between the Company and Stanley in the Form 10-KSB for the fiscal year ended Kohlenberg December 31, 1996 (File No. 0-25244). 10.24 Employment Agreement dated December 26, Incorporated by reference to Exhibit 10.24 contains 1996 between the Company and Andrew in Form 10-KSB for the fiscal year ended December 31, Tottenham 1996 (File No. 0-25244). 10.25 Employment Agreement date February 1, Incorporated by reference to Exhibit 10.25 contained 1997 between the Company and Christopher in Form 10-KSB for the fiscal year ended December Moore 31, 1996 (File No. 0-25244). 38 10.26 Cancellation Agreement dated as of October 3, Incorporated by reference to Exhibit 10.26 contained 1996 between the Company and Mid-City in the Form 10-KSB for the fiscal year ended Associates December 31, 1996 (File No. 0-25244). 10.27 Agreement of Lease dated as of October 2, Incorporated by reference to Exhibit 10.27 contained 1996 between the Company and Mid-City in the Form 10-KSB for the fiscal year ended Associates December 31, 1996 (File No. 0-25244). 10.28 Stock Purchase Agreement dated as of January Incorporated by reference to Exhibit 10.28 contained 1, 1997 among the Company, Andrew in the Form 10-KSB for the fiscal year ended Tottenham and Robin Tottenham December 31, 1996 (File No. 0-25244). 10.29 Employment Agreement dated April 15, 1997 Incorporated by reference to Exhibit 10.29 contained between the Company and James Hardman in Form 10-KSB for the fiscal year ended December 31, 1997 filed on March 30, 1998. (File No. 0-25244) 10.30 Stock Purchase Agreement dated as of January Incorporated by reference to Exhibit 10.30 contained 20, 1998 between the Company and 21st in Form 10-KSB for the fiscal year ended December Century Resorts 31, 1997 filed on March 31, 1998. (File No. 0-25244) 10.31 Form of the Subscription Agreement for the Incorporated by reference to Exhibit 10.31 contained Private Placement in Form 10-KSB for the fiscal year ended December 31, 1997 filed on March 31, 1998. (File No. 0-5244) 10.32 Escrow Agreement dated March 17, 1998 Incorporated by reference to Exhibit 10.32 contained among the Company, TWG Finance Corp., in Form 10-KSB for the fiscal year ended December TWG International U.S. Corporation as Issuer 31, 1997 filed on March 30, 1998. (File No. 0-25244) and U.S. Trust Company of Texas, N.A., as Trustee 10.33 Consulting Agreement between Chrysolith, Incorporated by reference to Exhibit 10 contained in L.L.C. and Lee Young dated January 1, 1997 the Form 10-QSB for the quarter ended June 30, 1996 filed on August 14, 1996 (File No. 0-25244) 10.34 Purchase Agreement dated as of April 15, Incorporated by reference to Exhibit 10.34 contained 1997 among the Company, James R. in the Form 10-Q for the quarter ended March 31, Hardman, Jr. and Multiple Application 1997, filed on May 9, 1997 (File No. 0-25244) Tracking System 39 10.35 License Agreement dated as of April 15, 1997 Incorporated by reference to Exhibit 10.35 contained between the Company and James R. Hardman, in the Form 10-Q for the quarter ended March 31, Jr. 1997, filed on May 9, 1997 (File No. 0-25244) 10.36 Loan Agreement dated June 11, 1997 between Incorporated by reference to Exhibit 10.36 contained the Company and Value Partners in the Form 8-K filed on June 17, 1997 (File No. 0-25244) 10.37 $350,000 Senior Promissory Note dated June Incorporated by reference to Exhibit 10.37 contained 11, 1997 in the Form 8-K filed on June 17, 1997 (File No. 0-25244) 10.38 Joint Activity Agreement dated March 31, Incorporated by reference to Exhibit 10.38 contained 1997 between Mr. Mahmud Avdiyev and in the Form 8-K filed on June 17, 1997 (File No. Tottenham & Co., d/b/a Art Marketing Ltd. 0-25244) 10.39 Loan Agreement dated October 27, 1997, Incorporated by reference to Exhibit 10.39 contained between Value Partners, and the Company in the Form 10-QSB for the quarter ended September 30, 1997, filed on November 12, 1997 (File No. 0-25244) 10.40 $262,500 Senior Promissory Note dated Incorporated by reference to Exhibit 10.40 contained October 27, 1997 in the Form 10-QSB for the quarter ended September 30, 1997, filed on November 12, 1997 (File No. 0-25244) 10.41 Warrant to Purchase Common Stock dated Incorporated by reference to Exhibit 10.41 contained November 27, 1997 in the Form 10-QSB for the quarter ended September 30, 1997, filed on November 12, 1997 (File No. 0-25244) 10.42 Employment Agreement between the Incorporated by reference to Exhibit 10.42 contained Company and Rami S. Ramadan dated July in the Form 8-K filed on July 13, 1999 (File No. 12, 1999 0-25244) 10.43 Severance Agreement between the Company Incorporated by reference to Exhibit 10.43 contained and Stanley Kohlenberg dated May 23, 1999 in the Form 8-K filed on July 13, 1999 (File No. 0-25244) 40 10.44 Severance Agreement among the Company, Incorporated by reference to Exhibit 10.44 Trans World Gaming of Louisiana, TWG contained in the Form 8-K filed on July 13, 1999 International U.S. Corporation and TWG (File No. 0-25244) Finance Corp. and Dominick J. Valenzano dated July 12, 1999 10.45 Form of Lease Agreement between London Incorporated by reference to Exhibit 10.45 Investments s.r.o. and the Company contained in the Form 8-K filed on July 13, 1999 (File No. 0-25244) 10.46 1998 Incentive Stock Option Plan Filed herewith. (File No. 0-25244) 10.47 1999 Non-Employee Director Stock Option Filed herewith. (File No. 0-25244) Plan 10.48 Form 12% Secured Senior Note due March Filed herewith. (File No. 0-25244) 2005 10.49 Form of Warrant to Purchase Common Stock Filed herewith. (File No. 0-25244) dated October 15, 1999 16.1 Letter from Bederson & Co. (the Company's Incorporated by reference to Exhibit 16.1 former independent public accountants) contained in the Form 10-QSB for the fiscal year relating to a change of accountants ended December 31, 1995, filed on November 12, 1997 (File No. 0-25244) 16.2 Letter from Pannell, Kerr, Forster PC (the Incorporated by reference to Exhibit 16.2 Company's former independent public contained in the Form 8-K filed on February 25, accountants) relating to a change of 1999 (File No. 0-25244) accountants 21.0 Subsidiaries Filed herewith (File No. 0-25244) 27.1 Financial Data Schedule Filed herewith
41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Issuer has duly caused this Amended Report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANS WORLD GAMING CORP. (registrant) Dated: May 26, 2000 By: /s/ Rami S. Ramadan ----------------------------- Rami S. Ramadan Chief Executive Officer/ Chief Financial Officer (Principal Executive and Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Amended Report has been signed below by the following persons on behalf of the Issuer on May 26, 2000 in the capacities indicated. SIGNATURE AND TITLE /s/ Andrew Tottenham ----------------------------- Andrew Tottenham President and Director /s/ Geoffrey B. Baker ----------------------------- Director /s/ Malcolm M.B. Sterrett ----------------------------- Director /s/ Julio E. Heurtematte, Jr. ----------------------------- Director 42 TRANS WORLD GAMING CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report F-1 Consolidated Balance Sheet F-2 Consolidated Statements of Operations and Comprehensive Loss F-3 Consolidated Statements of Stockholders' Deficit F-4 Consolidated Statements of Cash Flows F5-6 Notes to Consolidated Financial Statements F7-23
43 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1999 AND 1998 INDEPENDENT AUDITORS' REPORT Board of Directors Trans World Gaming Corp. We have audited the accompanying consolidated balance sheet of Trans World Gaming Corp. and Subsidiaries as of December 31, 1999, and the related consolidated statements of operations and comprehensive loss, stockholders' deficit and cash flows for the years ended December 31, 1999 and 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of a wholly-owned subsidiary, which statements reflect total assets of approximately $1,636,000 as of December 31, 1999, and total revenues of approximately $3,877,000 and $3,481,000 for the years ended December 31, 1999 and 1998, respectively. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the wholly-owned subsidiary, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our report and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trans World Gaming Corp. and Subsidiaries as of December 31, 1999, and the consolidated results of their operations and their cash flows for the years ended December 31, 1999 and 1998, in conformity with generally accepted accounting principles. 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 suffered significant losses from operations and has a working capital deficit and a stockholders' deficit at December 31, 1999. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those 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. Roseland, New Jersey February 17, 2000, except for Note 15, for which the date is March 28, 2000 F-1 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1999 (in thousands, except for per share data) ASSETS CURRENT ASSETS Cash $ 934 Accounts receivable 38 Prepaid expenses and other current assets 770 ---------- TOTAL CURRENT ASSETS 1,742 ---------- PROPERTY AND EQUIPMENT, net 5,112 ---------- OTHER ASSETS Goodwill and other intangible assets, less accumulated amortization of $3,999 10,429 Deposits and other assets 710 ---------- 11,139 ---------- $ 17,993 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Short-term debt $ 146 Accounts payable 1,804 Accrued expenses and other current liabilities 3,768 ---------- TOTAL CURRENT LIABILITIES 5,718 ---------- LONG-TERM LIABILITIES Long-term debt 20,549 Other long-term liabilities 5,970 ---------- 26,519 ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT Preferred stock, $.001 par value, 2,000 shares authorized, none issued Common stock $.001 par value, 50,000 shares authorized, 5,365 shares issued and outstanding 5 Additional paid-in capital 10,104 Stock warrants outstanding 4,912 Accumulated other comprehensive income 1,035 Accumulated deficit (30,300) ---------- TOTAL STOCKHOLDERS' DEFICIT (14,244) ---------- $ 17,993 ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-2 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS December 31, 1999 (in thousands, except for per share data)
1999 1998 ----------- ----------- REVENUES $ 12,294 $ 9,016 ----------- ----------- COSTS AND EXPENSES Cost of revenues 8,149 7,458 Depreciation and amortization 2,839 2,485 Selling, general and administrative 4,349 2,486 Provision for impairment 4,000 Write-offs 559 ----------- ----------- 15,337 16,988 ----------- ----------- LOSS FROM OPERATIONS (3,043) (7,972) ----------- ----------- OTHER INCOME (EXPENSE) Interest income 40 85 Interest expense (3,025) (2,465) Foreign exchange gain (loss) (217) 148 Other 58 (296) ----------- ----------- (3,144) (2,528) ----------- ----------- LOSS BEFORE INCOME TAXES (6,187) (10,500) INCOME TAXES, foreign (191) ----------- ----------- LOSS FROM CONTINUING OPERATIONS (6,187) (10,691) DISCONTINUED OPERATIONS, loss from operations of discontinued truckstop segment (222) (38) ----------- ----------- NET LOSS $ (6,409) $ (10,729) =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, basic and diluted 3,598 3,044 =========== =========== LOSS PER COMMON SHARE, basic and diluted From continuing operations $ (1.72) $ (3.51) From discontinued operations (0.06) (0.01) ----------- ----------- Net loss $ (1.78) $ (3.52) =========== =========== COMPREHENSIVE LOSS NET LOSS $ (6,409) $ (10,729) OTHER COMPREHENSIVE INCOME, foreign currency translation adjustment 923 112 ----------- ----------- COMPREHENSIVE LOSS $ (5,486) $ (10,617) =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-3 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 1999 AND 1998 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Common Stock Additional Stock Other --------------- Paid-in Warrants Comprehensive Stockholders' Shares Amount Capital Outstanding Income Deficit Deficit ------ ------ ------- ----------- ------ ------- ------- BALANCES, January 1, 1998 3,044 $3 $ 8,896 $ 537 $ - $(13,162) $(3,726) ISSUANCE OF STOCK WARRANTS 4,700 4,700 ISSUANCE OF COMMON STOCK IN SETTLEMENT OF NOTES PAYABLE AND ACCRUED INTEREST 320 240 240 FOREIGN CURRENCY TRANSLATION 112 112 ADJUSTMENT NET LOSS (10,729) (10,729) ----- -- ------- ------- ---------- -------- --------- BALANCES, December 31, 1998 3,364 3 9,136 5,237 112 (23,891) (9,403) ISSUANCE OF WARRANTS 625 625 EXERCISE OF WARRANTS 2,001 2 968 (950) 20 FOREIGN CURRENCY TRANSLATION ADJUSTMENT 923 923 NET LOSS (6,409) (6,409) ----- -- ------- ------- ---------- -------- --------- BALANCES, December 31, 1999 5,365 $5 $10,104 $ 4,912 $ 1,035 $(30,300) $ (14,244) ===== == ======= ======= ========== ======== =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-4 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999 and 1998 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1999 1998 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (6,409) $(10,729) Add: loss from discontinued operations (222) (38) -------- -------- Loss from continuing operations (6,187) (10,691) Adjustments to reconcile net loss from continuing operations to net cash used in continuing operations: Provision for allowance for doubtful accounts 252 Depreciation and amortization 2,839 2,485 Noncash interest 542 610 Provision for impairment 4,000 Write-offs 559 Other 8 Increase (decrease) in cash attributable to changes in operating assets and liabilities: Accounts and other receivables 186 (25) Prepaid expenses and other current assets (331) (540) Other assets (85) (612) Accounts payable, accrued expenses and other liabilities 2,369 2,590 -------- -------- Net cash used in continuing operations (667) (1,364) Net cash provided by (used in) discontinued operations (197) 28 -------- -------- NET CASH USED IN OPERATING ACTIVITIES (864) (1,336) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of Resorts and CDZ, net of cash acquired (12,754) Purchases of property and equipment (2,422) (1,476) Payment for deposit (34) Proceeds from the sale of property of discontinued operations 379 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (2,077) (14,230) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term debt 450 1,250 Payments of short-term debt (1,360) (194) Proceeds from long-term debt 3,000 17,525 Payments of long-term debt (1,312) Proceeds from exercise of warrants 20 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,110 17,269 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (190) 54 -------- -------- NET INCREASE (DECREASE) IN CASH (1,021) 1,757 CASH Beginning of year 1,955 198 -------- -------- End of year $ 934 $ 1,955 ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1999 1998 ------ ------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash paid during the year for: Interest $2,515 $1,706 ====== ====== Income taxes, foreign $ 162 $ 346 ====== ====== SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Common stock issued in settlement of notes payable and accrued interest $ -- $ 240 ====== ====== Issuance of stock warrants with debt $ 625 $4,700 ====== ====== Note payable forgiven in connection with sale of subsidiary $ 206 $ -- ====== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) NOTE 1 - NATURE OF BUSINESS AND GOING CONCERN CONSIDERATION OVERVIEW Trans World Gaming Corp. and Subsidiaries (the "Company"), a Nevada corporation, is primarily engaged in the gaming business in the United States, the Czech Republic and Spain. Its United States gaming operations ceased as of June 30, 1999 (SEE NOTE 14). GAMING OPERATIONS - UNITED STATES Until March 1998, the Company's only gaming operations were two video poker parlors ("Gold Coin" and "Toledo Palace") situated at truck stops in Louisiana. The Company's video poker operations in Louisiana were managed by Chrysolith, LLC ("Chrysolith"), a Louisiana-licensed video gaming operator in which the Company owns 49% of its Class B membership units. As a result of parish (county) votes to eliminate video poker in the parishes in Louisiana where the Company's video poker operations are located, the Company ceased its video poker operations on June 30, 1999. The Company, together with other companies operating video poker parlors in the affected parishes, continue to challenge the votes through the courts. The viability of such challenge is uncertain. GAMING OPERATIONS - CZECH REPUBLIC In March 1998, the Company acquired a company operating two casinos in the western Czech Republic, close to the border of the German State of Bavaria (SEE NOTE 3). The larger casino, located in Ceska Kubice, currently has fifteen table games and seventy slot machines. The smaller casino, located in Rozvadov, currently has seven table games and thirty-eight slot machines. As part of the March 1998 transaction, the Company also acquired land in the southern Czech Republic, close to the border of Austria. In December 1999, construction of the Company's third Czech casino was completed on the land and operations commenced. The newly-opened casino, located in Hate (near Snojmo), currently has eleven table games and forty-two slot machines. GAMING OPERATIONS - SPAIN In April 1998, the Company acquired a company that owns the license to operate the only casino in the Spanish province of Aragon (SEE NOTE 3). The casino, with nine table games and twenty-four slot machines, is currently situated fifteen miles outside of Zaragoza. The Company had reached an understanding with an agency of the provincial government, the Diputacion General de Aragon ("DGA"), to allow the casino to move to the center of Zaragoza, subject to the issuance of a decree. However, instead of a decree, in February 2000, the DGA introduced a law that would allow the casino to relocate. The law is expected to be presented to local Spanish parliament in June 2000. Management has indicated that, based on its discussions with Spanish authorities, the law has little opposition and is expected to pass. F-7 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 1 - NATURE OF BUSINESS AND GOING CONCERN CONSIDERATION (CONTINUED) OTHER - In March 1997, the Company, through a wholly-owned subsidiary, signed a twenty-year consulting agreement with the owner and operator of Boxer Casino located in Gyandja, Azerbaijan Republic (a former member of the Soviet Union). In January 1998, the Company, through a wholly-owned subsidiary, entered into a twenty-year management agreement with Jockey Club Casinos LLC for the management and operation of a casino in Bishkek, Kyrgyz Republic (a former member of the Soviet Union). Both of these arrangements were abruptly halted by local governments' decisions to cease casino operations and written off by the Company during the year ended December 31, 1998 (SEE NOTE 9). GOING CONCERN CONSIDERATION The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered significant losses from operations and has a working capital deficit of $3,976 and a stockholders' deficit of $14,244 as of December 31, 1999. Furthermore, the Company is highly leveraged with debt (SEE NOTE 5). These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has taken steps to improve its situation including the December 1999 opening of its third Czech casino and certain cost cutting measures. Further, management's plans include an expansion strategy to counter the affects of seasonality on the Company's cash flows. The goals of the expansion strategy are to diversify the Company's portfolio of operations in terms of geographical location and to add hotels to the mix of operations. In implementing its expansion strategy, the Company is seeking management or joint venture agreements and leased space arrangements that will avoid further indebtedness. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions 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 which, at times, may exceed Federal Deposit Insurance Corporation ("FDIC") insured limits. In addition, the Company's foreign cash, aggregating $818 at December 31, 1999, is not insured by the FDIC. The Company has not incurred any losses in such accounts and believes it is not exposed to any significant credit risk on cash. PROPERTY AND EQUIPMENT - Property and equipment is stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the straight-line method over the following estimated useful lives: F-8 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATED ASSETS USEFUL LIFE Building and improvements 45 years Gaming equipment 4-12 years Furniture, fixtures and other equipment 3-8 years
PRE-OPENING AND DEVELOPMENT COSTS - Pre-opening and development costs incurred in connection with the pursuit and development of new gaming projects in various jurisdictions are expensed as incurred. GOODWILL - Goodwill, which represents the excess of cost of acquired companies over the fair value of their net assets at dates of acquisition, is being amortized on a straight-line basis over 7 years. The carrying value of goodwill is periodically reviewed by the Company based upon the expected future undiscounted operating cash flows of the related business (SEE NOTE 9). FOREIGN CURRENCY TRANSLATION - For foreign subsidiaries whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the year and statement of operations accounts and cash flows are translated at average exchange rates for the year. Resulting translation adjustments are included in accumulated other comprehensive income. LOSS PER COMMON SHARE - Loss per common share is based on the weighted average number of common shares outstanding. The Company complies with Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share", which requires dual presentation of basic and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average common shares outstanding for the year. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Since the effect of outstanding warrants and options is antidilutive, they have been excluded from the Company's computation of loss per common share. INCOME TAXES - The Company complies with SFAS 109, "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. CASINO REVENUE - Casino revenue is the net win from gaming activities, which is the difference between gaming wagers less the amount paid out to patrons. F-9 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROMOTIONAL ALLOWANCES - Promotional allowances primarily consist of food and beverages furnished gratuitously to customers. For the years ended December 31, 1999 and 1998, revenues do not include the retail amount of food and beverage of $128 and $194, respectively, provided gratuitously to customers. The cost of these items of $55 and $82, respectively, is included in cost of revenues. FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair values of the Company's assets and liabilities which qualify as financial instruments under SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," approximate their carrying amounts presented in the consolidated balance sheet at December 31, 1999. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically reviews the carrying value of its long-lived assets in relation to historical results, as well as management's best estimate of future trends, events and overall business climate. If such reviews indicate that the carrying value of such assets may not be recoverable, the Company would then estimate the future cash flows (undiscounted and without interest charges). If such future cash flows are insufficient to recover the carrying amount of the assets, then impairment is triggered and the carrying value of any impaired assets would then be reduced to fair value. RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform to the 1999 presentation. INVESTMENT CARRIED AT EQUITY - The Company's investment in Chrysolith is being accounted for under the equity method of accounting. Accordingly, the investment is recorded at cost and adjusted for the Company's proportionate share of undistributed earnings or losses (SEE NOTE 13). DEBT ISSUANCE COSTS - Costs incurred in connection with certain of the Company's debt financing were deferred and amortized on a straight-line basis over the term of the related debt. Amortization of debt issuance costs were $145 and $279 for the years ended December 31, 1999 and 1998, respectively. NOTE 3 - BUSINESS COMBINATIONS On March 31, 1998, the Company acquired substantially all of the voting and non-voting interests of 21st Century Resorts a.s. ("Resorts"), a Czech Republic joint stock company, Resorts' subsidiaries and certain assets of companies affiliated with Resorts in a business combination accounted for as a purchase. Resorts, through its subsidiaries, operates three casinos in the Czech Republic including its newly-opened casino near Snojmo. The results of operations of Resorts have been included in the accompanying consolidated financial statements since the date of acquisition. The total cost of the acquisition of $12,356 (including acquisition costs of $1,584) was allocated to the assets acquired and liabilities assumed based on their estimated fair values. F-10 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 3 - BUSINESS COMBINATIONS (CONTINUED) The excess of the total cost over the fair value of the net assets acquired (goodwill), $10,537, is being amortized on the straight-line basis over seven years. On April 17, 1998, the Company acquired 90% of the shares of Casino de Zaragoza, S.A. ("CDZ") in a business combination accounted for as a purchase. The results of operations of CDZ have been included in the accompanying consolidated financial statements since the date of acquisition. The total cost of the acquisition of $1,458 (including acquisition costs of $678) was allocated to the assets acquired and liabilities assumed based on their estimated fair values. Goodwill of $7,367 is being amortized on the straight-line basis over seven years. During the fourth quarter of 1998, the Company adjusted the carrying amount of goodwill as it relates to the Resorts and CDZ acquisitions by $2,500 and $1,500, respectively (SEE NOTE 9). The following summarized unaudited 1998 consolidated pro forma information assumes the 1998 acquisitions had occurred on January 1, 1998. Revenues $ 11,370 ============ Loss from continuing operations $ (11,705) ============ Loss per common share from continuing operations, basic and diluted $ (3.85) ============
The summarized unaudited 1998 consolidated pro forma results are not necessarily indicative of results which actually would have occurred if the acquisitions had actually occurred on January 1, 1998. Further, the summarized unaudited 1998 consolidated pro forma results are not intended to be a projection of future results and do not reflect any integration costs or cost savings resulting from synergistic opportunities. NOTE 4 - PROPERTY AND EQUIPMENT At December 31, 1999, property and equipment consists of the following: Land $ 1,121 Building and improvements 1,519 Gaming equipment 1,650 Furniture, fixtures and other equipment 1,732 Construction in progress 217 ------------- 6,239 Less accumulated depreciation and amortization 1,127 ------------- $ 5,112 =============
F-11 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 5 - LONG-TERM DEBT At December 31, 1999, long-term debt consists of the following: 12% Senior Secured Promissory Notes (a) (d) $ 17,000 12% Secured Convertible Senior Bonds (b) 4,800 12% Senior Secured Note due March 17, 2005 (c) (d) 3,000 ------------- 24,800 Less unamortized debt discount (4,251) ------------- $ 20,549 =============
(a) In March 1998, the Company borrowed $17,000 ($9,000 from Value Partners, Ltd. - "Value Partners") in a private placement ("March 1998 Private Placement"). The loan is represented by 12% Senior Secured Notes ("March 1998 Senior Notes") issued pursuant to indentures by and among the Company and an independent indenture trustee. The March 1998 Senior Notes, which are due March 2005, require mandatory prepayments based upon excess cash flows generated from Resorts. The March 1998 Senior Notes are collateralized by substantially all of Resort's gaming equipment and a majority interest in the capital stock of all of the Company's subsidiaries (except CDZ). In addition to the March 1998 Senior Notes, each investor received a proportionate share of warrants to purchase 7,087 shares of the Company's common stock (SEE NOTE 11). The indentures were amended in October 1998 in connection with the restructuring of the Company's ownership of Resorts as a result of a 1998 change in Czech gaming law which restricted foreign ownership of Czech casinos. The amended indentures did not alter the underlying basis of the March 1998 Senior Notes. Of the $17,000 principal amount of notes and warrants issued in the March 1998 Private Placement, the Company has allocated approximately $4,700 as the estimated value of the warrants issued with the notes. This amount is being amortized as additional interest expense with a corresponding increase to notes payable over the lives of the respective notes using the effective interest method until such notes are repaid. At December 31, 1999 approximately $1,054 has been amortized and the remaining balance of approximately $3,646 at December 31, 1999 is reflected as a reduction of notes payable. (b) As a condition to the March 1998 Private Placement, the Company was required to renegotiate the terms and conditions of the 12% Secured Convertible Senior Bonds ("Senior Bonds") originally due June 30, 1999. In March 1998, the Company and the holders of the Senior Bonds agreed to amend such indebtedness as follows: (i) the principal and interest obligations was to be paid only from excess cash flow generated from the terminated Louisiana operations and Bishkek operations; (ii) the maturity date was extended to December 31, 2005; (iii) the ability to convert the Senior Bonds into the Company's common stock was terminated; (iv) the holders of the Senior Bonds received Series A warrants and Series B warrants (SEE NOTE 11). Value Partners hold $3,000 of the Senior Bonds. The Senior Bonds were collateralized by all of the Company's Louisiana assets. F-12 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 5 - LONG-TERM DEBT (CONTINUED) (c) In October 1999, the Company borrowed $3,000 ($2,700 from Value Partners) in a private placement ("October 1999 Private Placement"). The loan is represented by 12% Senior Secured Notes ("October 1999 Senior Notes") issued pursuant to indentures by and among the Company and an independent indenture trustee. The October 1999 Senior Notes, which are due March 2005, require mandatory prepayments based upon excess cash flows generated from Resorts. The October 1999 Senior notes are collateralized by primarily all of Resort's gaming equipment and a majority interest in the capital stock of all of the Company's subsidiaries (except CDZ). In addition to the October 1999 Senior Notes, each investor received a proportionate share of warrants to purchase 1,251 shares of the Company's common stock (SEE NOTE 11). Of the $3,000 principal amount of notes and warrants issued in the October 1999 Private Placement, the Company has allocated approximately $625 as the estimated value of the warrants issued with the notes. This amount is being amortized as additional interest expense with a corresponding increase to notes payable over the lives of the respective notes using the effective interest method until such notes are repaid. At December 31, 1999, approximately $20 has been amortized and the remaining balance of approximately $605 at December 31, 1999 is reflected as a reduction to notes payable. (d) The Company was not in compliance with certain covenants in certain of its long-term debt obligations. In March 2000, the Company received waivers on the defaults from the holder of the majority in interest of those debt instruments (Value Partners) (SEE NOTE 15). NOTE 6 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES At December 31, 1999, accrued expenses and other current liabilities consists of the following: Taxes payable to Spanish Taxing Authorities (SEE NOTE 7) $ 1,315 Accrued interest 1,399 Other 1,054 ------------- $ 3,768 =============
NOTE 7 - COMMITMENTS AND CONTINGENCIES LEASE OBLIGATIONS - The Company is obligated under operating leases relative to its various facilities expiring through 2010. Future aggregate minimum annual rental payments under all of these leases for the next five years are as follows: 2000 464 2001 442 2002 444 2003 418 2004 410
F-13 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED) Rent expense under these leases amounted to approximately $120 for each of the years ended December 31, 1999 and 1998. EMPLOYMENT AGREEMENTS - The Company has entered into employment agreements with certain of its executives which provide for annual compensation plus, in most cases, participation in future benefit programs and stock option plans. Future annual compensation under these employment agreements is as follows: 2000 $ 733 2001 590 2002 157 ------------ $ 1,480 ============
CONSULTING AGREEMENTS - The Company is obligated to pay a certain percentage of future revenues of its newly-opened Czech casino pursuant to a thirty year consulting contract. CONTINGENCIES - The Company is involved in certain legal actions that arose in the normal course of business. In the opinion of the Company's management, the resolution of these matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. FOREIGN ACTIVITIES - During the years ended December 31, 1999 and 1998, a substantial amount of the Company's operations are outside of the United States (SEE NOTE 13). Operating internationally involves additional risks relating to such things as currency exchange rates, different legal and regulatory environments, political and economic risks relating to the stability or predictability of foreign governments, differences in the manner in which different cultures do business, difficulties in staffing and managing foreign operations, differences in financial reporting, operating difficulties, different types of criminal threats and other factors. The occurrence of any of these risks, if severe enough, could have a material adverse effect on the consolidated financial condition, results of operations and cash flows of the Company. COLLECTIVE AGREEMENT - The Company has yet to sign the collective agreement with its Spanish workforce for the years 1994 through 1999. In the opinion of the Company's management, the resolution of this matter will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. TEMPORARY RECEIVERSHIP - On January 25, 1997 (prior to the Company's acquisition of 90% of CDZ), the directors of CDZ filed an application in Court of First Instance number 11 of Zaragoza to declare CDZ in temporary receivership. Temporary receivership was granted on June 23, 1997. F-14 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED) On April 17, 1998 (the date of the Company's acquisition of 90% of CDZ), CDZ signed a composition with creditors, most notably the DGA, the Spanish Social Security Authorities and the City Council of Alfajarin ("Spanish Taxing Authorities"-SEE NOTES 6 AND 9), which set the terms of payment to the Spanish Taxing Authorities and other creditors for debts existing as of January 25, 1997. The composition with the Spanish Taxing Authorities and other creditors resulted in a debt reduction of approximately $1,743. This reduction was accounted for as a reduction of goodwill. During the years ended December 31, 1999 and 1998, DGA granted the Company a deferral of approximately $1,784 in taxes on gaming winnings accruing during 1997-1999. Furthermore, in April 1999, the Company reached an agreement with the Spanish Social Security Authorities to defer approximately $1,211 related to all debts generated in 1997 and the first quarter of 1998. At December 31, 1999, taxes payable to Spanish Taxing Authorities consists of the following: Gaming tax $ 4,369 Property tax 683 Social security 1,470 Other 553 ------------- 7,075 Less current portion 1,315 ------------- Long-term portion $ 5,760 =============
Included in deposits and other assets on the accompanying December 31, 1999 consolidated balance sheet is $61 of restricted cash guaranteeing the social security tax obligation. Future aggregate payments to the Spanish Taxing Authorities are due as follows (excluding interest): YEAR ENDING DECEMBER 31, 2000 $ 1,315 2001 1,258 2002 468 2003 468 2004 1,249 Thereafter (through 2009) 2,317 ------------- $ 7,075 =============
If the Company does not make its payments according to the schedule and is unable to obtain further deferral from the Spanish Taxing Authorities, the debt would become immediately payable and revert to pre-receivership levels. Management has indicated that, based on its discussions with Spanish Taxing Authorities, further deferral of payments until April 2001 is anticipated. F-15 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED) TAXING JURISDICTION - The Czech Republic currently has a number of laws related to various taxes imposed by governmental authorities. Applicable taxes include value added tax ("VAT"), corporate tax, and payroll (social) taxes, together with others. In addition, laws related to these taxes have not been in force for significant periods, in contrast to more developed market economies; therefore, regulations are often unclear or nonexistent. Accordingly, few precedents with regard to issues have been established. Often, differing opinions regarding legal interpretations exist both among and within government ministries and organizations, thus, creating uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (as examples, customs and currency control matters) are subject to review and investigation by a number of authorities, who are enabled by law to impose extremely severe fines, penalties and interest charges. These facts create tax risks in the Czech Republic substantially more significant than typically found in countries with more developed tax systems. Management believes that it has adequately provided for tax liabilities. NOTE 8 - STOCKHOLDERS' DEFICIT In December 1998, the Company issued 320 shares of its common stock in settlement of unsecured notes payable, and accrued interest to its president and chief executive officer and his spouse aggregating $240. In March 1998 and October 1999, in connection with the issuance of certain debt instruments (SEE NOTE 5), the Company has allocated $4,700 and $625, respectively, as the estimated value of the warrants issued with the debt instruments. Upon surrender of a warrant, the holder is entitled to purchase one share of the Company's common stock for $.01. The warrants expire on various dates through March 31, 2008. During 1999, certain Series C and Series E warrant holders exercised warrants to purchase 2,001 shares of the Company's common stock. NOTE 9 - OTHER MATTERS PREPAID EXPENSES AND OTHER CURRENT ASSETS - Included in prepaid expenses and other current assets at December 31, 1999 is a VAT receivable from the Czech taxing authorities of $452 and other items aggregating $318. LICENSE BOND - Included in deposits and other assets at December 31, 1999 is approximately $612 in restricted deposits relating to Czech license bond requirements. SHORT-TERM DEBT - At December 31, 1999, short-term debt consisted of a working capital loan payable in installments through April 2000. The debt, which is collateralized by the Company's casino in Rozvadov and guaranteed by Resorts, bears interest at approximately 10% and is subject to certain covenants. OTHER LONG-TERM LIABILITIES - Included in other long-term liabilities at December 31, 1999 are taxes payable to Spanish Taxing Authorities of $5,760 (see Note 7) and other items aggregating $210. F-16 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 9 - OTHER MATTERS (CONTINUED) SETTLEMENTS - In connection with various legal proceedings related to the Company's sublease agreement with Prime Properties, Inc. (the lessor of the Gold Coin facility) which includes the right to operate its gaming license, the Company negotiated settlements by and amongst the involved parties. Under the terms of the settlement, the Company made a settlement payment of $450. In connection with an action brought by a former affiliate, alleging the Company's breach of a management contract, the Company executed a Mutual Release and Settlement Agreement whereby the Company paid the former affiliate $100 in exchange for release of all claims against it. Settlement charges in connection with the preceding legal proceedings have been reflected in selling, general and administrative expenses in the accompanying 1998 consolidated statement of operations. PROVISION FOR IMPAIRMENT - In light of certain 1998 developments, in accordance with its policy on impairment of long-lived assets, the Company adjusted the carrying amounts of its goodwill as it relates to the Resorts and CDZ acquisitions by $2,500 and $1,500, respectively, during the fourth quarter of 1998. However, the Company's management believes that, as a result of (i) improved revenues in all of its Czech and Spanish casinos, (ii) the December 1999 opening of its third Czech casino and (iii) positive developments regarding the relocation of the Spanish casino, further adjustment is not warranted in 1999. In 1998, the Company further wrote-down the value of its DeRidder, Louisiana land by $192. During the year ended December 31, 1999, the Company sold this land and related property for $295. WRITE-OFFS - During 1998, the President of the Azerbaijan Republic ordered the closure of all casinos in the Republic resulting in the write-off of the Company's unamortized investment in the Boxer Casino of approximately $295. Additionally, during 1998, in light of mounting losses and unrealistic future prospects, the Company wrote-off its investment in the Bishkek Casino of approximately $264. Other 1998 write-offs include $204 of receivables from Chrysolith. RECAPITALIZATION - Pursuant to Spanish law, in order to maintain solvency, a Spanish entity must maintain a defined minimum capitalization. In October 1999, the Company adjusted CDZ's capital to zero and simultaneously increased it to 250,000 pesetas (approximately $1,576). As a result of the October 1999 recapitalization, the Company owns 99.92% of CDZ, as a result of CDZ's prior owner not subscribing to the new shares in the recapitalization process. NOTE 10 - INCOME TAXES At December 31, 1999, the Company's deferred income tax asset is comprised of the tax benefit (cost) associated with the following based on the statutory tax rates currently in effect: F-17 TRANS WORLD GAMING CORP. AND SUBSIDIARIES
U.S. FOREIGN TOTAL ---- ------- ----- Deferred tax assets Loss carryforwards $ 3,407 $ 4,492 $ 7,899 Impairment 2,801 2,801 Other 52 52 ----------- ----------- ----------- 6,208 4,544 10,752 Deferred tax liabilities (11) (11) ----------- ----------- ----------- Deferred tax asset, gross 6,208 4,533 10,741 Valuation allowances (6,208) (4,533) (10,741) ----------- ----------- ----------- Deferred tax asset, net $ -- $ -- $ -- =========== =========== ===========
The following table presents the U.S. and foreign components of pretax loss from continuing operations before income taxes for the years ended December 31, 1999 and 1998: 1999 1998 ---- ---- U.S $ (4,400) $ (8,562) Foreign (1,787) (1,938) ----------- ----------- $ (6,187) $ (10,500) =========== ===========
The 1998 provision for income taxes of $191 relates to earnings from certain of Resorts' wholly-owned subsidiaries, recognized under Czech tax laws, as separate reporting entities. The following table presents the principal reasons for the differences between the effective tax rate and the U.S. federal statutory income tax rate for the years ended December 31, 1999 and 1998: U.S federal statutory income tax rate (34%) (34%) Effect of nondeductibility of goodwill amortization and impairment 10 19 Effect of net operating loss carryforwards and valuation allowances, net 29 15 Other (5) 2 ---- ---- - % 2% ==== ====
F-18 TRANS WORLD GAMING CORP. AND SUBSIDIARIES At December 31, 1999, the Company had net operating loss carryforwards available for income tax reporting purposes of approximately: U.S $ 8,735 Foreign 12,857 ------- $21,592 =======
The U.S. net operating loss carryforwards expire between 2009 and 2019. The foreign net operating loss carryforwards expire between 2002 and 2009. NOTE 11 - WARRANTS AND STOCK OPTIONS WARRANTS In connection with the October 1999 Private Placement (SEE NOTE 5), the Company issued Series G Warrants to purchase 1,251 shares of the Company's common stock with an exercise price of $.01 per share expiring March 31, 2008. In connection with the March 1998 Private Placement including the restructuring of certain long-term debt obligations (SEE NOTE 5), the Company issued the following series of warrants to purchase the Company's common stock: Series A Warrants - consists of warrants to purchase 960 shares of the Company's common stock with an exercise price of $1.00 per share expiring on December 31, 2005. These warrants were issued to replace warrants in connection with the issuance of convertible senior bonds dated July 1, 1996. Series B Warrants - consists of warrants to purchase 3,200 shares of the Company's common stock with an exercise price of $1.50 per share expiring on December 31, 2005. These warrants were issued to replace conversion rights in connection with the convertible senior bonds dated July 1, 1996. Series C Warrants - consists of warrants to purchase 7,087 shares of the Company's common stock with an exercise price of $.01 per share expiring on March 31, 2008. These warrants were issued pursuant to the March 1998 Private Placement. Series D Warrants - consists of warrants to purchase 2,052 shares of the Company's common stock with an exercise price of $.01 per share expiring on March 31, 2008. These warrants were issued to replace 500 warrants containing anti-dilution provisions issued in connection with a September 1996 financing. Series E Warrants - consists of warrants to purchase 354 shares of the Company's common stock with an exercise price of $.01 per share expiring on March 31, 2008. F-19 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 11 - WARRANTS AND STOCK OPTIONS (CONTINUED) These warrants were issued to the placement agent and its affiliates pursuant to the March 1998 Private Placement. In connection with a March 1998 debt financing to fund the Bishkek Casino transaction (SEE NOTE 1), the Company issued warrants to purchase 104 shares of the Company's common stock with an exercise price of $.01 per share expiring on March 31, 2008. All of the warrants issued in 1998 contain certain demand registration rights provided that the holders of such warrants hold in excess of 100 shares. The Series C and E Warrants also contain anti-dilution provisions. For the years ended December 31, 1999 and 1998, warrant activity is as follows:
PRICE BALANCE, BALANCE, BALANCE, PER JANUARY 1, GRANTED EXPIRED DECEMBER 31, GRANTED EXERCISED EXPIRED DECEMBER 31, SHARE 1998 1998 1998 1998 1999 1999 1999 1999 ------ ---------- ------- ------- ------------ ------- --------- ------- ------------ $ 13.50 151 151 (151) 11.55 151 151 (151) 8.50 1,511 1,511 (1,511) 1.50 3,200 3,200 3,200 1.00 960 960 (960) 960 960 0.59 250 250 250 0.50 131 90 221 (221) 0.01 500 9,598 (500) 9,598 1,251 (2,001) 8,848 ----- ------ ------ ------ ----- ------ ------ ------ 3,654 13,848 (1,460) 16,042 1,251 (2,001) (2,034) 13,258 ===== ====== ====== ====== ===== ====== ====== =======
All warrants outstanding at December 31, 1999 are exercisable. STOCK OPTION PLANS The Company has incentive and nonstatutory stock option plans under which certain key employees may purchase up to a total of 2,000 common shares of the Company. Under the incentive stock option plan, the exercise price cannot 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 addition, the incentive stock option plan provided for automatic grant of an option to purchase 2 shares of common stock to non-employee directors on a quarterly basis. 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. During 1999, in light of diminishing shares remaining available for grant to non-employee directors, the Company's Board of Directors approved the 1999 Non-Employee Director Stock Option Plan (the "1999 Plan"). Under the 1999 Plan, an aggregate of 250 shares of the Company's common stock were reserved for issuance pursuant to options issued pursuant to the 1999 Plan. The 1999 Plan provides for an automatic grant of an option to purchase 2 shares of common stock to non-employee directors on a quarterly basis. Under the 1999 Plan, the exercise price shall equal the fair F-20 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 11 - WARRANTS AND STOCK OPTIONS (CONTINUED) market value of the Company's common stock on the date of grant. Options issued under the 1999 Plan shall be immediately exercisable over ten years. The activity in the stock option plans is as follows:
EXERCISE PRICE PER SHARE NUMBER OF WEIGHTED OPTIONS RANGE AVERAGE ------- ----- ------- Balance outstanding, January 1, 1997 573 $ .91-9.00 $ 4.64 Granted 267 .30-2.00 0.56 Expired (320) 7.00 7.00 --- ---------- ------- Balance outstanding, January 1, 1998 520 .30-9.00 1.09 Granted 125 .24-.63 0.25 Expired (6) .30-1.59 0.80 --- ---------- ------- Balance outstanding, December 31, 1998 639 .24-9.00 0.93 Granted 131 .24-.83 0.50 --- ---------- ------- Balance outstanding, December 31, 1999 770 $ .24-9.00 $ 0.86 === ========== ======== Exercisable, December 31, 1999 639 $ .24-9.00 $ 0.93 === ========== ========
There were no options exercised during 1999 or 1998. The option price per share was equal to or above the market value of the underlying stock on the date of grant. Options generally expire between five and ten years after the date of grant or earlier upon termination as defined in the plans. The Company complies with the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation". F-21 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 11 - WARRANTS AND STOCK OPTIONS (CONTINUED) 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 or above the market value of the underlying stock at date of grant. Had compensation expenses been determined as provided by SFAS 123 using the Black-Scholes option-pricing model, the pro forma effect on the Company's net loss and per share amounts would have been:
1999 1998 Net loss As reported $ (6,409) $ (10,729) Pro forma (6,469) (10,759) Loss per common share, basic and diluted As reported $ (1.78) $ (3.52) Pro forma (1.80) (3.53)
The fair value of each option grant is calculated using the following weighted average assumptions:
1999 1998 Expected life (years) 5 5 Risk-free rate 5% 5% Volatility 154% 275% Dividend yield 0% 0%
NOTE 12 - INFORMATION CONCERNING GEOGRAPHIC AREAS During the years ended December 31, 1999 and 1998, the Company operated principally in three geographic areas: the United States, the Czech Republic and Spain. The following table presents information about the Company by geographic area. There were no material amounts of sales or transfers among geographic areas.
UNITED CZECH STATES REPUBLIC SPAIN OTHER ELIMINATIONS CONSOLIDATED --------- --------- -------- -------- ------------ ------------ 1999 Revenues $ 5,549 $ 8,250 $ 3,877 $ 167 $ (2,519) $ 15,324 Long-lived assets 9 10,475 4,711 346 15,541 1998 Revenues $ 6,114 $ 5,466 $ 2,778 $ 1,080 $ (359) $ 15,079 Long-lived assets 184 10,524 5,444 441 16,593
F-22 TRANS WORLD GAMING CORP. AND SUBSIDIARIES NOTE 13 - 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 operated (through June 30, 1999) the video lottery terminals at the Gold Coin and Toledo Palace properties. Prior to July 1, 1999, the Company received 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 establishments. Further, the Company paid a management fee to Chrysolith in an amount equal to the direct operating expenses of the gaming establishment. A summary of the December 31, 1999 and 1998 financial information of Chrysolith is as follows:
1999 1998 ---- ---- Assets $291 $442 Liabilities 216 367 Stockholders' equity 75 75 Net income - -
NOTE 14 - DISCONTINUED OPERATIONS The Company's United States gaming operations ceased as of June 30, 1999. Summary operating results of discontinued operations for the years ended December 31, 1999 and 1998 is as follows: REVENUES $ 3,030 $ 6,063 ------- ------- COSTS AND EXPENSES Cost of revenues 1,506 2,879 Depreciation and amortization 145 285 Selling general and administrative 1,025 1,903 Provision for impairment 192 Write-offs 204 ------- ------- 2,676 5,463 ------- ------- INCOME FROM OPERATIONS 354 600 INTEREST 576 638 ------- ------- $ (222) $ (38) ======= =======
NOTE 15- SUBSEQUENT EVENTS In March 2000, the Company received waivers on all defaults under the March 1998 Senior Notes and October 1999 Senior Notes. In March 2000, the Company executed an approximate $550,000 Czech bank note payable in equal monthly payments through September 2001. The bank note bears interest at approximately 10.5% per annum and is collateralized by certain Czech property. F-23 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CASINO DE ZARAGOZA, S.A. - ------------------------------------------------------------------------------- CONSOLIDATED ANNUAL ACCOUNTS AS OF DECEMBER 31, 1999 TOGETHER WITH AUDITORS' REPORT - ------------------------------------------------------------------------------- F-24 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
U.S. THOUSANDS DOLLARS OF PESETAS ---------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents 165,457 27,403 Short-Term financial investments 65,560 10,858 Due from affiliates (within TWG Group) 3,743 620 Accounts receivable (Note 4) 22,480 3,723 Inventories 13,803 2,286 Prepaid expenses and other receivables 5,585 925 ---------- ---------- TOTAL CURRENT ASSETS 276,628 45,815 ---------- ---------- NON-CURRENT ASSETS Intangible assets, net (Note 5) 3,339 553 Gross tangible assets (Note 6) 395,260 65,463 Due from affiliates (within TWG Group) (Note 7) 900,000 149,058 Other long-term 60,862 10,080 ---------- ---------- TOTAL NON-CURRENT ASSETS 1,359,461 225,154 ---------- ---------- TOTAL ASSETS 1,636,089 270,969 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable, trade 190,195 31,500 Accounts payable, affiliates (within TWG Group) (Note 7) 184,603 30,574 Taxes (Note 8) 1,315,325 217,844 Other current liabilities 135,539 22,448 ---------- ---------- TOTAL CURRENT LIABILITIES 1,825,662 302,366 ---------- ---------- NON-CURRENT LIABILITIES Taxes (Notes 8 and 14) 5,760,524 954,058 Long-term debt 110,349 18,276 ---------- ---------- TOTAL LONG-TERM DEBT 5,870,873 972,334 ---------- ---------- COMMITMENTS AND CONTINGENCIES (NOTE 9) 135,877 22,504 ---------- ---------- MINORITY INTERESTS (NOTE 10) 74,121 12,276 ---------- ---------- SHAREHOLDERS' EQUITY Common Shares (Note 11) 1,509,480 250,000 Accumulated losses (7,087,349) (997,973) Accumulative translation adjustment 1,167,380 -- Profit/Loss (1,859,955) (290,538) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY (6,270,444) (1,038,511) ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,636,089 270,969 ========== ==========
F-25 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AS OF DECEMBER 31, 1999
U.S. THOUSANDS DOLLARS OF PESETAS ------- ---------- REVENUES (NOTE 1) Gaming 3,579,475 559,139 Other revenues 297,330 46,445 ------------- --------------- 3,876,805 605,584 ------------- --------------- COSTS AND EXPENSES Operating departments (Note 1) (3,304,347) (516,162) Selling, general and administrative (Note 7) (1,753,897) (273,971) Depreciation and amortization (78,210) (12,217) ------------- --------------- (5,136,454) (802,350) ------------- --------------- LOSS FROM OPERATIONS (1,259,649) (196,766) ------------- --------------- OTHER INCOME (EXPENSE) Interest expenses (161,273) (25,192) Interest income 5,397 843 Other, net 71,745 11,207 ------------- --------------- (84,131) (13,142) ------------- --------------- INCOME TAXES - - NET LOSS BEFORE EXTRAORDINARY ITEM (1,343,781) (209,908) ------------- --------------- EXTRAORDINARY ITEMS, NET OF RELATED TAX EFFECT (NOTE 12) (516,251) (80,642) ------------- --------------- NET INCOME (1,860,032) (290,550) ============= =============== LOSS ATTRIBUTABLE TO MINORITY INTERESTS 0,072 12 INCOME ATTRIBUTABLE TO THE GROUP (1,859,955) (290,538) LOSS PER SHARE BEFORE EXTRAORDINARY ITEM (537.51) (83.96) EXTRAORDINARY LOSS PER SHARE (206.52) (32.26) LOSS PER SHARE (WEIGHTED AVERAGE SHARES: 2,500) (744.01) (116.22)
F-26 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS AS OF DECEMBER 31, 1999
US DOLLARS PESETAS ---------- ------- CASH FLOW FROM OPERATING ACTIVITIES Net income (loss) before extraordinary items (1,343,781) (209,908) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for allowance for doubtful accounts (22,124) (3,456) Depreciation and amortization 78,210 12,217 Unrealized net depreciation (appreciation) on investments - - (Gain) loss from investments in affiliates - - Deferred income taxes - - Minority interest 72 12 Changes in operating assets and liabilities: (Increase) decrease in investments (858,097) (142,118) (Increase) decrease in account receivable 153,858 25,482 (Increase) decrease in account receivable, affiliates 350 58 (Increase) decrease in inventories (13,803) (2,286) (Increase) decrease in other current assets 1,183 196 (Increase) decrease in other assets 58,562 9,699 Increase (decrease) in account payable (5,042) (835) Increase (decrease) in account payable affiliates (136,034) (22,530) Increase (decrease) in accrued expenses and other current liabilities 484,682 80,273 Increase (decrease) in other long terms liabilities 649,777 107,616 ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (952,186) (145,580) ---------- ---------- CASH FLOW FROM OPERATING ACTIVITIES Payment for purchase of fixed assets (188,993) (31,301) Proceeds form sale of fixed assets - - Payment for purchase of intangible assets (3,369) (558) Payment for purchase of investments - - ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (192,362) (31,859) ---------- ---------- CASH FLOW FROM FINANCIAL ACTIVITIES Proceeds from issuance of common stock 1,509,479 250,000 Minority interest 74,121 12,276 ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCIAL ACTIVITIES 1,583,600 262,276 ---------- ---------- CASH FLOW FROM EXTRAORDINARY ACTIVITIES (Increase) decrease in extraordinary items (486,910) (80,642) ---------- ---------- NET CASH PROVIDED BY (USED IN) EXTRAORDINARY ACTIVITIES (486,910) (80,642) ---------- ---------- TRANSLATION ADJUSTMENT 73,186 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,329 4,195 CASH AND CASH EQUIVALENTS Beginning of the year 140,128 23,208 ---------- ---------- End of the year 165,457 27,403 ========== ==========
F-27 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 (1) DESCRIPTION OF BUSINESS Casino de Zaragoza, S.A. (hereinafter referred to as the Casino) was founded in 1978 and is located in Alfajarin (Zaragoza). The second article of the Casino's bylaws defines its corporate purpose, basically, as the operation of a gambling casino and appurtenant services, namely bar, restaurant, sitting rooms, show halls, night clubs, athletic facilities and shopping establishments located in the casino's building complex. Details of the Casino's holdings are as follows:
-------------------------------------------------------------------------------------- Name Catering y Gestion, S.L. Los Albares, S.A. -------------------------------------------------------------------------------------- Location Ctra. Nacional II Ctra. Nacional II Km. 343,250 Km. 343,250 Alfajarin (Zaragoza) Alfajarin (Zaragoza) Line of business Lodging Inoperative U.S. Dollars Proportion of stock held as of December 31, 1999 100% 50.31% Capital stock as of December 31, 1999 458,882 448,315 Earnings/(Accumulated losses) as of December 31, 1999 (835,648) (299,004) Losses for the year ended December 31, 1999 (271,748) (144) Thousands of Pesetas Proportion of stock held as of December 31, 1999 100% 50.31% Capital stock as of December 31, 1999 76,000 74,250 Earnings/(Accumulated losses) as of December 31, 1999 (138,400) (49,521) Losses for the year ended December 31, 1999 (45,007) (24) --------------------------------------------------------------------------------------
F-28 TRANS WORLD GAMING CORP. AND SUBSIDIARIES This data was supplied by the Group companies, and their net worth is as shown in their unaudited annual accounts as of December 31, 1999. Up until October 1997, the properties and other assets needed to manage Catering y Gestion, S.L. were owned by and included in the book fixed assets of Casino de Zaragoza, S.A., which did not charge Catering y Gestion, S.L. for the use of those assets. In October 1997, Diputacion General de Aragon (the Aragon Provincial Council) acquired all of the properties that belonged to Casino de Zaragoza, S.A. through an auction (see Note 6). On May 28, 1998, the Company entered into a lease agreement with Diputacion General de Aragon in relation to the assets mentioned in the previous paragraph. This agreement is effective for six months from April 17, 1998, and automatically renewable for consecutive six-month periods unless either of the parties repudiates the agreement with a minimum of two months' notice. The amount was set at Ptas. 2,500,000 thousand per month (including VAT). The Casino is subject to the regulations set forth in the Ministerial Order of January 9, 1979, which approved the Gambling Casino Regulations. The Casino holds a ten-year business license that is valid until December 23, 2000. (2) BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS a) ACCOUNTING POLICIES The accompanying financial statements as of December 31, 1999 were obtained from the accounting records and are presented in accordance with accounting principles generally accepted in the United States, which required certain adjustments and reclassifications to adapt the financial statements to US GAAP. All amounts are reported in local currency (thousands of pesetas) and in U.S. dollars. Assets and liabilities are translated using exchange rates published by Bank of Spain in effect at December 31, 1999. Revenues and expenses are translated using a monthly average exchange rate for the period. Resulting translation adjustments are recorded as a separate component of shareholders' equity. The following exchange rates were used to translate the financial statements as of December 31, 1999:
-------------------------------------------------------------- Ptas./U.S. Dollars ------------------ Balance Sheet Exchange Rate 165,620 Profit and Loss Exchange Rate 156,207 --------------------------------------------------------------
b) CONSOLIDATION PRINCIPLES The accompanying consolidated accounts have been prepared from the accounting records of Casino de Zaragoza, S.A. and of the companies included in the consolidation (listed in Note 1), whose respective annual accounts were prepared by the directors of each company in accordance with accounting principles generally accepted in the United States, and give a true and fair view of the net worth, financial position and results of the Group. These consolidated accounts, which have been prepared by the directors of Casino de Zaragoza, S.A., and the F-29 TRANS WORLD GAMING CORP. AND SUBSIDIARIES individual accounts of Casino de Zaragoza, S.A. and of each of the consolidated companies will be submitted to the respective Meetings of Shareholders for approval. It is anticipated that they will be approved without changes. All major intercompany balances and transactions have been eliminated on consolidation. The results of companies over which there is effective control through a majority of votes in their representative and decision-making bodies have been fully consolidated. Minority interests in the net worth and income of the consolidated companies are shown under "Minority interests" in the consolidated balance sheet and "Income (loss) attributable to minority interests" in the statement of consolidated income, respectively. The consolidated accounts do not provide for the tax effect of including in the parent company's books the results and reserves of the companies, because it is considered that reserves not taxable at source will not be transferred but used as funds to self-finance each consolidated company. (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. b) CURRENT ASSETS AND LIABILITIES Current assets are those assets which expect to be received within one year. Current liabilities are those liabilities which are expected to be paid within one year. c) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in hand and cash in bank current accounts, with original maturities of three months or less. d) TANGIBLE FIXED ASSETS Tangible fixed assets are shown at cost. Expenditure on expansion, modernization or improvement is capitalized as an increased cost of the related assets provided that it increases productivity, capacity or efficiency, or extends the useful lives of these assets. Upkeep and maintenance costs are expensed currently. The Company depreciates its tangible fixed assets on a straight-line basis over the years of estimated useful life of each asset as follows: F-30 TRANS WORLD GAMING CORP. AND SUBSIDIARIES
------------------------------------------------------------ Years of estimated useful life ------------------ Gaming equipment 10 to 12 Tools 6 to 8 Furniture and fixtures 8 to 25 Data processing equipment 4 ------------------------------------------------------------
e) NON-TRADE LOANS Long-term loans are recorded on the basis of the amount delivered. The difference between said amount and the face value of the loan is recorded according to the effective interest method as interest revenue. Interest receivable is recognized under assets in the balance sheet until actual collection. f) INCOME TAXES Period corporate income tax is computed on the basis of book income before tax adjusted by the corresponding permanent differences with regard to the income for tax purposes, i.e. the corporate income tax base, less any abatements and tax credits, excluding withholdings and payments on account. The Casino accounts for income taxes in accordance with Statement of Financial Accounting Standards (`SFAS') No. 109 `Accounting for Income Taxes'. SFAS 109 requires an asset and liability approach for financial accounting and reporting for income tax purposes. Under the asset and liability method, deferred income taxes are recognized on account of the consequences of timing differences and net operating carryforwards by applying the statutory tax rates applicable to future years. Valuation allowances are recorded when it is determined that realization of such amounts is not deemed more likely than not. g) DEFERRED INDEMNITIES The Casino is obligated to compensate employees whom it dismisses, in certain circumstances, pursuant to ruling labor legislation. In 1997 and 1998 the Casino dismissed some employees, as a result of which it is involved in various legal actions. The balance sheet as of December 31, 1999 does include provisions for Ptas. 10.4 million (US$ 62,855) for the liability which may result from the aforesaid dismissals (Note 9). h) CASINO REVENUE Casino revenue is the net win from gaming activities, which is the difference between gaming wagers less the amount paid out to patrons, and the portion of customers' tips due to the Casino. i) FOREIGN CURRENCY TRANSACTIONS Credits and debits denominated in foreign currency are translated into pesetas at the exchange rate ruling at the transaction date, and at year-end are valued at the rates of exchange then prevailing. Gains or losses from foreign currency transactions are reported in "Other income - Other, net". F-31 TRANS WORLD GAMING CORP. AND SUBSIDIARIES (4) ACCOUNTS RECEIVABLE Accounts receivable (debtors) as of December 31, 1999 consist of the following:
--------------------------------------------------------------------------- U.S. Thousands Dollars of Pesetas --------------------------------------------------------------------------- Accounts Receivable 518,506 85,875 Less: Allowance for Doubtful Accounts (496,026) (82,152) -------- ---------- 22,480 3,723 ---------------------------------------------------------------------------
The rollforward of the allowance for doubtful accounts is as follows:
---------------------------------------------------------------------------- U.S. Thousands Dollars of Pesetas ---------------------------------------------------------------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS AS OF DECEMBER 31, 1998 1,303,740 185,092 Bad debt expense for the period ended December 31, 1999 - - Recoveries/other for the period ended December 31, 1999 (20,867) (3,456) Effect of consolidation (599,596) (99,305) Other (1,080) (179) Translation adjustment (186,171) - --------- ------- ALLOWANCE FOR DOUBTFUL ACCOUNTS AS OF DECEMBER 31, 1999 496,026 82,152 ----------------------------------------------------------------------------
(5) INTANGIBLE ASSETS Movement in the cost of the assets and the related accumulated depreciation was as follows:
--------------------------------------------------------------------------------------- December Translation December U.S. Dollars 31, 1998 Additions Adjustment 31, 1999 --------------------------------------------------------------------------------------- Software 144,291 3,369 (20,604) 127,056 Accumulated depreciation (117,039) (23,391) 16,713 (123,717) -------- -------- -------- -------- 27,252 (20,022) (3,891) 3,339 -------- -------- -------- -------- Other 725 - (103) 622 Accumulated depreciation (725) - 103 (622) -------- -------- -------- -------- - - - - -------- -------- -------- -------- TOTAL: Cost 145,016 3,369 (20,707) 127,678 Accumulated depreciation (117,764) (23,391) 16,816 (124,339) -------- -------- -------- -------- TOTAL INTANGIBLE ASSETS - NET 27,252 (20,022) (3,891) 3,339 ---------------------------------------------------------------------------------------
F-32 TRANS WORLD GAMING CORP. AND SUBSIDIARIES
------------------------------------------------------------------ December December Thousands of Pesetas 31, 1998 Additions 31, 1999 ------------------------------------------------------------------ Software 20,485 558 21,043 Accumulated depreciation (16,616) (3,874) (20,490) ------- ------ ------- 3,869 (3,316) 553 ------- ------ ------- Other 103 - 103 Accumulated depreciation (103) - (103) ------- ------ ------- - - - ------- ------ ------- TOTAL: Cost 20,588 558 21,146 Accumulated depreciation (16,719) (3,874) (20,593) ------------------------------------------------------------------ TOTAL INTANGIBLE ASSETS - NET 3,869 (3,316) 553 ------------------------------------------------------------------
(6) PROPERTY AND EQUIPMENT Movement in the cost of the assets and the related accumulated depreciation was as follows:
------------------------------------------------------------------------------------------------- December Translation December U.S. Dollars 31, 1998 Additions adjustment 31, 1999 ------------------------------------------------------------------------------------------------- Land 89,948 88,383(*) (12,844) 165,487 ---------- ---------- ---------- ---------- Gaming equipment 335,063 93,727 (47,846) 380,944 Accumulated depreciation (229,464) (23,747) 32,767 (220,444) ---------- ---------- ---------- ---------- 105,599 69,980 (15,079) 160,500 ---------- ---------- ---------- ---------- Tools 158,554 -- (22,640) 135,914 Accumulated depreciation (149,110) (4,196) 21,293 (132,013) ---------- ---------- ---------- ---------- 9,444 (4,196) (1,347) 3,901 ---------- ---------- ---------- ---------- Furniture 1,406,881 0,211 (200,897) 1,206,195 Accumulated depreciation (1,321,908) (16,018) 188,759 (1,149,167) ---------- ---------- ---------- ---------- 84,973 (15,807) (12,138) 57,028 ---------- ---------- ---------- ---------- Data Processing Equipment 137,373 6,672 (19,616) 124,429 Accumulated depreciation (131,993) (2,940) 18,848 (116,085) ---------- ---------- ---------- ---------- 5,380 3,732 (768) 8,344 ---------- ---------- ---------- ---------- Other 500 - (71) 500 Accumulated depreciation (500) - 71 (500) ---------- ---------- ---------- ---------- - - - - ---------- ---------- ---------- ---------- TOTAL: Cost 2,128,319 188,993 (303,914) 2,013,398 Accumulated depreciation (1,832,975) (46,901) 261,738 (1,618,138) ------------------------------------------------------------------------------------------------- TOTAL TANGIBLE ASSETS - NET 295,344 142,092 (42,176) 395,260 -------------------------------------------------------------------------------------------------
(*) The effect of applying global integration procedures in the consolidation process F-33 TRANS WORLD GAMING CORP. AND SUBSIDIARIES
---------------------------------------------------------------------------------- December 31, December 31, Thousands of Pesetas 1998 Additions 1999 ---------------------------------------------------------------------------------- Land 12,770 14,638(*) 27,408 -------- -------- -------- Gaming equipment 47,569 15,523 63,092 Accumulated depreciation (32,577) (3,933) (36,510) -------- -------- -------- 14,992 11,590 26,582 -------- -------- -------- Tools 22,510 22,510 Accumulated depreciation (21,169) (695) (21,864) -------- -------- -------- 1,341 (695) 646 -------- -------- -------- Furniture 199,735 35 199,770 Accumulated depreciation (187,672) (2,653) (190,325) -------- -------- -------- 12,063 (2,618) 9,445 -------- -------- -------- Data Processing Equipment 19,503 1,105 20,608 Accumulated depreciation (18,739) (487) (19,226) -------- -------- -------- 764 618 1,382 -------- -------- -------- Other 71 - 71 Accumulated depreciation (71) - (71) -------- -------- -------- - - - -------- -------- -------- TOTAL: Cost 302,158 31,301 333,459 Accumulated depreciation (260,228) (7,768) (267,996) ---------------------------------------------------------------------------------- TOTAL TANGIBLE ASSETS - NET 41,930 23,533 65,463 ----------------------------------------------------------------------------------
(*) The effect of applying global integration procedures in the consolidation process In October 1997 Diputacion General de Aragon (the Aragon Provincial Council) auctioned off all the properties of the Casino, that had been mortgaged or which secured its debt in respect of gambling tax. The properties were auctioned off to settle debt for Ptas. 865 million (US$ 6.1 million), while their net book value for the Casino was Ptas. 396 million (US$ 2.8 million). Ptas. 469 million (US$ 3.9 million) in extraordinary revenues obtained on the auction were recorded in 1997 financial statements. (7) INTERCOMPANY TRANSACTIONS Intercompany accounts receivable and payable as of December 31, 1999 were as follows:
------------------------------------------------------------------------------ U.S. Dollars Thousands of Pesetas ------------- ------------- ------------- ------------ Accounts Accounts Accounts Accounts receivable payable receivable payable ------------------------------------------------------------------------------ Transworld Gaming 900,000 184,603 149,058 30,574 ------------------------------------------------------------------------------ 900,000 184,603 149,058 30,574 ------------------------------------------------------------------------------
In 1999, Casino de Zaragoza, S.A. granted a loan of US$ 900,000 (Ptas. 142,738,000) to Trans World Gaming, its parent company. This loan falls due in 2002 and bears 3% interest. The difference between the amount granted and the amount recorded in the financial statements relates to variations in the exchange rate (Note 3-i). F-34 TRANS WORLD GAMING CORP. AND SUBSIDIARIES The account payable relates to the outstanding balance of certain payments that the parent company made on behalf of Casino de Zaragoza, and payables in respect of services provided by the parent company, comprising management, internal audit, management control and the company's marketing under an agreement entered into between the parties on October 1, 1999 for the period running from April 1, 1998. The amount recorded in this respect in 1999 amounted to Ptas. 73,789 and is recorded under the "Costs and expenses - Selling, general and administrative" caption in the accompanying statement of income. (8) TAX MATTERS Set out below are the balances payable to the Spanish tax authorities:
--------------------------------------------------------------------------------------------------------------------- U.S. Dollars ---------------------------------------------------------------------- Long term Short term ---------------------------------------------------------------------- Temporary Temporary receivership Other Total receivership Other --------------------------------------------------------------------------------------------------------------------- Diputacion General de Aragon - Gambling tax 2,159,920 1,783,764 3,943,684 195,737 229,170 City Council of Alfajarin: - Tax on business activities, property tax 176,632 - 176,632 19,623 485,793 Central tax authorities: - Personal income tax - 428,090 428,090 - 122,503 - Value added tax Social Security authorities 719,684 490,985 1,210,669 - 260,427 Other - 1,449 1,449 - 2,072 ------------------------------------------------------------------- 3,056,236 2,704,288 5,760,524 215,360 1,099,965 ---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------- Thousands of Pesetas ---------------------------------------------------------------------- Long term Short term ---------------------------------------------------------------------- Temporary Temporary receivership Other Total receivership Other --------------------------------------------------------------------------------------------------------------------- Diputacion General de Aragon - Gambling tax 357,728 295,427 653,153 32,418 37,955 City Council of Alfajarin: - Tax on business activities, property tax 29,254 - 29,254 3,250 80,457 Central tax authorities: - Personal income tax - 70,900 70,900 - 20,289 - Value added tax Social Security authorities 119,194 81,317 200,511 - 43,132 Other - 240 240 - 343 ------------------------------------------------------------------- 506,174 447,884 954,058 35,668 182,176 ---------------------------------------------------------------------------------------------------------------------
F-35 TRANS WORLD GAMING CORP. AND SUBSIDIARIES On April 17, 1998, the Company signed a composition with creditors (Diputacion General de Aragon, the Social Security authorities and the City Council of Alfajarin) which set the terms of payment for the Casino's debts as of January 25, 1997, which is the date of the Company's application for temporary receivership (see Note 14). In 1998 and 1999 Diputacion General de Aragon granted the Company a deferral of Ptas. 295.4 million (US$ 1.784 million) in taxes on game winnings accruing during 1997, 1998 and 1999. These taxes will begin to fall due between 2001 and 2006. Likewise, in April 1999 the Casino reached an agreement with the Social Security authorities to defer payment of debts affected by the temporary receivership and the debts generated in 1997 and in the first quarter of 1998, with a combined total of Ptas. 200.5 million (US$ 1.211 million), maturing between 2002 and 2009. Corporate income tax is calculated on the basis of book income, which is determined in accordance with generally accepted accounting principles. Such income need not be equal to the income for tax purposes, i.e. the corporate income tax base. The reconciliation of 1999 results per books to the corporate income tax base is as follows:
----------------------------------------------------------------------------- U.S. Thousands Dollars of Pesetas ----------------------------------------------------------------------------- Results per books (loss) (after tax) (1,859,955) (290,538) Permanent differences 6,683 1,107 ------------------------------------------- ---------- ---------- TAX BASE (1,853,272) (289,431) ------------------------------------------- ---------- ----------
The tax loss carryforwards and maximum terms (under Spanish tax legislation) allowed for offset are as follows:
----------------------------------------------------------------------------- U.S. Thousands Last year for Year Dollars of Pesetas offset ----------------------------------------------------------------------------- 1992 360,899 56,375 2002 1993 305,883 47,781 2003 1994 1,534,579 239,712 2004 1995 1,726,504 269,692 2005 1996 1,060,068 165,590 2006 1997 3,162,137 493,948 2007 1998 2,488,781 388,765 2008 1999 2,008,815 313,791 2009 ----------------------------------------------------------------------------- 12,647,666 1,975,654 ---------- ---------
Under current legislation, losses incurred in a given year can be offset against taxable income in the following ten years. However, the ultimate amount to carry forward may depend on the outcome of a tax inspection of the years in which losses were incurred. The accompanying balance sheet does not reflect the possible impact of offsetting such tax losses. The last four years are open for review of all applicable taxes by the tax authorities. (9) COMMITMENTS AND CONTINGENCIES The main legal disputes in which the Casino is involved are set out below: F-36 TRANS WORLD GAMING CORP. AND SUBSIDIARIES - - Complaint filed on March 9, 1998 by the Casino against HERALDO DE ARAGON (a newspaper) in Court of First Instance no. 11 of Zaragoza, for infringement and violation of the right to honor, claiming Ptas. 1,456 million (US$ 8.79 million) in damages. The case is currently at the discovery stage. No amounts have been recorded in respect of this gain contingency. - - An appeal for reversal filed by the Casino against the Superior Court of Justice of Aragon in November 1998 against a judgment handed down by Labor Court no. 1 of Zaragoza in October 1998 sentencing the Casino to compensate an ex-employee. In 1998 the Casino booked Ptas. 10.4 million (US$ 0.06 million) for the compensation in question in case it is finally sentenced to pay the ex-employee. On November 8, 1999, the Supreme Court discharged Casino de Zaragoza, S.A. from its payment obligations relating to back pays amounting to Ptas. 4.2 million (US$ 0.03 million). - - The Group's parent company has yet to sign the collective agreement with the workers for the years 1994 through 1999, inclusive, and this matter must be arranged with the Works' Committee. In addition, the last collective agreement signed by the Company provided for the payment of retirement bonuses to employees who retire before age 65. The balance sheet as of December 31, 1999 does not include any provision for the liabilities that could result from pay raises, the aforementioned retirement bonus or any other item that could come to light once the collective agreements have been settled. - - As a result of the different interpretations to which ruling tax legislation lends itself and the Company's tax treatment of certain transactions, tax contingencies that cannot be objectively quantified could arise in respect of the years still open to inspection. - - Net worth as per the accompanying balance sheet as of December 31, 1999 is negative by Ptas. 1,063 million (US$ 6.3 million). This situation constitutes a cause for compulsory dissolution unless capital is increased or decreased accordingly, pursuant to the Revised Spanish Corporations Law, and it raises substantial doubt about its ability to continue as a going concern. In addition, as indicated in Note 14, in the first few months of 1998 the Company signed a composition with creditors in connection with the application for temporary receivership that Casino de Zaragoza, S.A. filed in January 1997. Note 13 indicates the sums and terms agreed for the partial acquittance and deferral with the Company's creditors. In April 1998, the majority of the Company's capital stock was acquired by a new shareholder who plans to undertake a process of recapitalization and to relocate the Company's premises in order to boost the Company's operations and increase earnings. On February 1, 2000, in accordance with the terms of the letter of intent signed as of that date between the Aragon Provincial Council and the new shareholder, the Aragon Provincial Council passed the Gaming Bill, which will enable the Company to relocate its premises to the center of the city of Zaragoza. The aforesaid Bill is currently at the stage of being considered at the Aragon Parliament. The accompanying financial statements as of December 31, 1999 were prepared on a going concern basis, although, considering the above circumstances, the Company's ability to continue as a going concern is dependent on the success of its future operations and on the continued support of its shareholders so as to enable it to realize its assets and settle its liabilities for the amounts and according to the classification in the financial statements referred to above, which have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. F-37 TRANS WORLD GAMING CORP. AND SUBSIDIARIES (10) MINORITY INTERESTS This caption reflects the value of minority shareholdings in fully consolidated companies. Furthermore, the balance in the accompanying statement of consolidated income represents the minority shareholders' equity in results. The entire balance of this caption of the balance sheet relates to minority shareholdings in the equity of Los Albares, S.A. (11) CAPITAL STOCK As of December 31, 1999 the Company's capital stock consisted of 2,500 fully subscribed and paid registered shares of Ptas. 100,000 (US$ 604) par value each. On November 18, 1999 the resolutions adopted by the Company's Annual and Special Shareholders' Meeting held on July 21, 1998 were recorded in a public deed. At that meeting, it was agreed that the Company's capital stock be reduced from Ptas. 250 million (US$ 1.760 million) to zero in order to offset losses through the redemption of the 2,500 registered shares representing the Company's capital for Ptas. 250 million by means of cash contributions and to increase it by Ptas. 250 million (US$ 1.509 million) by issuing 2,500 new registered shares of Ptas. 100,000 (US$ 604) each. In addition and as of the same date, the Company offset losses against reserves of an amount totaling Ptas. 580.8 million (US$ 3.5 million). The list of all shareholders by ownership percentage as of December 31, 1999 was as follows: -------------------------------------------- Trans World Gaming Corp. 99.92% Andrew Tottenham 0.04% Jaime Vaca de Arrazola 0.04% --------------------------------------------
(12) EXTRAORDINARY ITEMS The composition of Extraordinary items as of December 31, 1999 is as follows:
-------------------------------------------------------------------------- U.S. Thousands Dollars of Pesetas -------------------------------------------------------------------------- Parent company charges for expenses 458,539 71,627 Other 57,712 9,015 ------- ------ 516,251 80,642 --------------------------------------------------------------------------
(13) SEGMENT DISCLOSURES SFAS 131 requires disclosures of segment information provided that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. A breakdown of net sales for ordinary Group operations, by activity, is provided below: F-38 TRANS WORLD GAMING CORP. AND SUBSIDIARIES
----------------------------------------------------------- U.S. Thousands Dollars of Pesetas ----------------------------------------------------------- Games 3,579,475 559,139 Rooms 164,532 25,701 Restaurant 56,675 8,853 Beverages 73,953 11,552 Other 2,170 339 ----------------------------------------------------------- 3,876,806 603,584 -----------------------------------------------------------
All of the Group's activities are carried out within Spain. As of December 31, 1999, no customer represents more than 10% of net sales. (14) TEMPORARY RECEIVERSHIP On January 25, 1997, the directors of the Company filed an application in Court of First Instance number 11 of Zaragoza to declare Casino de Zaragoza, S.A. in temporary receivership, which was granted on June 23, 1997. On April 17, 1998, the secondary creditors listed as such in the list of creditors approved by the court and the preferred creditors who attended the Meeting of Creditors voted for the proposed composition, in which Casino de Zaragoza, S.A. agreed to make the following payments:
----------------------------------------------------------------------------- Thousands of Pesetas US Dollars ----------------------------------------------------------------------------- Social Security authorities (Note 8) 119,194 719,684 Partial acquittance of 35.75% of the credits of the rest of the creditors of the composition 206,529 1,247,005 Repayment schedule for the remaining 64.25% of the credits of the rest of the creditors of the composition: Year 1 - - Year 2 39,518 238,606 Year 3 36,840 222,437 Year 4 36,840 222,437 Year 5 36,840 222,437 Year 6 110,520 667,311 Year 7 110,520 667,311 ----------------------------------------------------------------------------- TOTAL CREDIT OF THE CREDITORS WHO SIGNED THE COMPOSITION 696,801 4,207,228 -----------------------------------------------------------------------------
If the Casino does not make its payments according to the schedule, the debt would go back to pre-composition levels. In addition, there are Ptas 102.7 million (US$ 0.62 million) due to other privileged creditors that are subject to the same payment and acquittance conditions conditions as described for the rest of the creditors in the composition. F-39 TRANS WORLD GAMING CORP. AND SUBSIDIARIES CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES STATEMENT OF SHAREHOLDERS' EQUITY AS OF DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------------------------------------------- US Dollars -------------------------------------------------------------------------------- Accumulated Subscribed Other Capital Accumulated Income Comprehensive Comprehensive Stock Losses for the year Income Income - -------------------------------------------------------------------------------------------------------------------------------- OPENING BALANCE AS OF DECEMBER 31, 1998 1,760,935 (9,413,115) 564,831 23,075 - Transfer to accumulated losses - 564,831 (564,831) - - Capital reduction charged against reserves (1,760,935) 1,760,935 - - - Capital increase 1,509,479 - - - - Translation adjustment - - - 1,114,466 1,114,466 Income (loss) for the year - - (1,859,955) - (1,859,955) Other - - - 29,839 29,839 - -------------------------------------------------------------------------------------------------------------------------------- CLOSING BALANCE AS OF DECEMBER 31, 1999 1,509,479 (7,087,349) (1,859,955) 1,167,380 (715,650) - --------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------- Thousands of Pesetas ------------------------------------------- Subscribed Income Capital Accumulated for the Stock Losses Year ----------------------------------------------------------------------------------------- OPENING BALANCE AS OF DECEMBER 31, 1998 250,000 (1,336,380) 83,465 ----------------------------------------------------------------------------------------- Transfer to accumulated losses -- 83,465 (83,465) Capital reduction charged against reserves (250,000) 250,000 -- Capital increase 250,000 -- -- Income (loss) for the year -- -- (290,538) Other -- 4,942 -- ----------------------------------------------------------------------------------------- CLOSING BALANCE AS OF DECEMBER 31, 1999 250,000 (997,973) (290,538) -----------------------------------------------------------------------------------------
F-40 EX-10.46 2 ex-1046.txt EXHIBIT 10.46 EXHIBIT 10.46 TRANS WORLD GAMING CORP. 1998 STOCK OPTION PLAN ARTICLE I ESTABLISHMENT OF THE PLAN Trans World Gaming Corp. (the "Company") hereby establishes this 1998 Stock Option Plan (the "Plan") upon the terms and conditions hereinafter stated. ARTICLE II PURPOSE OF THE PLAN The purpose of this Plan is to improve the growth and profitability of the Company by providing Employees with a proprietary interest in the Company as an incentive to contribute to the success of the Company, and rewarding those Employees for outstanding performance and the attainment of targeted goals. All Incentive Stock Options issued under this Plan are intended to comply with the requirements of Section 422 of the Code, and the regulations thereunder, and all provisions hereunder shall be read, interpreted and applied with that purpose in mind. ARTICLE III DEFINITIONS 3.01 "Board" means the Board of Directors of the Company. 3.02 "Code" means the Internal Revenue Code of 1986, as amended. 3.03 "Committee" means a committee of two or more directors appointed by the Board pursuant to Article IV hereof, each of whom shall be a "non-employee director" as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. 3.04 "Common Stock" means shares of the common stock, $.001 par value per share, of the Company. 3.05 "Disability" means any physical or mental impairment which qualifies an Employee for disability benefits under the applicable long-term disability plan maintained by the Company or, if no such plan applies, which would qualify such Employee for disability benefits under the Federal Social Security System. 3.06 "Effective Date" means the date upon which the Board approves this Plan. 3.07 "Employee" means any person who is employed by the Company. 3.08 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 3.09 "Fair Market Value" shall be equal to the fair market value per share of the Company's Common Stock on the date an Option is granted. For purposes hereof, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices that day on the principal market then in use, or if no such quotations are available, the fair market value on the date in question of a share as determined by a majority of the Board in good faith. 3.10 "Incentive Stock Option" means any Option granted under this Plan which the Board intends (at the time it is granted) to be an incentive stock option within the meaning of Section 422 of the Code or any successor thereto. 3.11 "Non-Qualified Stock Option" means any Option granted under this Plan which is not an Incentive Stock Option. 3.12 "Officer" means an Employee whose position in the Company is that of a corporate officer, as determined by the Board. 3.13 "Option" means a right granted under this Plan to purchase Common Stock. 3.14 "Optionee" means an Employee or former Employee to whom an Option is granted under the Plan. 3.15 "Retirement" means a termination of employment which constitutes a "retirement" under any applicable qualified pension benefit plan maintained by the Company or as otherwise determined by the Committee. 3.16 "Stock Option Agreement" means the written agreement pursuant to Section 8.01 hereof that sets forth the terms, conditions, restrictions and privileges for an Incentive Stock Option. ARTICLE IV ADMINISTRATION OF THE PLAN 4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and interpreted by the Committee, as appointed from time to time by the Board pursuant to Section 4.02. The Committee shall have the authority in its absolute discretion to adopt, amend and rescind such rules, regulations and procedures as, in its opinion, may be advisable in the administration of the Plan, including, without limitation, rules, regulations and procedures which (i) deal with satisfaction of an Optionee's tax withholding obligation pursuant to Section 12.02 hereof, (ii) include arrangements to facilitate the Optionee's ability to borrow funds for payment of the exercise or purchase price of an Option, if applicable, from securities brokers and dealers, and (iii) include arrangements which provide for the payment of some or all of such exercise or purchase price by delivery of previously owned shares of Common Stock or other property and/or by withholding some of the shares of Common Stock which are being acquired. The interpretation and construction by the Committee of any provisions of the Plan, any rule, regulation or procedure adopted by it pursuant thereto or of any Option shall be final and binding. 4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the Committee shall be appointed by, and will serve at the pleasure of, the Board. The Board from time to time may remove members from, or add members to, the Committee, provided the Committee shall continue to consist of two or more members of the Board, each of whom shall be a "non-employee director" as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. The Committee shall act by vote or written consent of a majority of its members. Subject to the express provisions and limitations of the Plan, the Committee may adopt such rules, regulations and procedures as it deems appropriate for the conduct of its affairs. It may appoint one of its members to be chairman and any person, whether or not a member, to be its secretary or agent. The Committee shall report its actions and decisions to the Board at the next regularly scheduled meeting of the Board following each meeting of the Committee. 4.03 REVOCATION FOR MISCONDUCT. The Committee may by resolution immediately revoke, rescind and terminate any Option, or portion thereof, to the extent not yet vested, previously granted or awarded under this Plan to an Employee who is discharged from the employ of the Company for cause, which, for purposes hereof, shall mean termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, or willful violation of any law, rule, or regulation (other than traffic violations or similar offenses). 4.04 LIMITATION ON LIABILITY. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan, any rule, regulation or procedure adopted by it pursuant thereto or any Options granted under it. If a member of the Committee is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, by reason of anything done or not done by him in such capacity under or with respect to the Plan, the Company shall indemnify him to the extent permitted by the Company's Articles of Incorporation and Bylaws and by the Nevada General Corporation Law. 4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Options granted hereunder shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of or obtaining of consents or approvals with respect to such shares under any federal or state law or any rule or regulation of any government body, which the Company shall, in its sole discretion, determine to be necessary or advisable. Moreover, no Option may be exercised if such exercise would be contrary to applicable laws and regulations. 4.06 RESTRICTIONS ON TRANSFER. The Company may place a legend upon any certificate representing shares acquired pursuant to an Option granted hereunder noting that the transfer of such shares may be restricted by applicable laws and regulations. ARTICLE V ELIGIBILITY Options may be granted to such Employees of the Company as may be designated from time to time by the Committee, pursuant to guidelines, if any, which may be adopted by the Committee from time to time. ARTICLE VI COMMON STOCK COVERED BY THE PLAN 6.01 OPTION SHARES. The aggregate number of shares of Common Stock which may be issued pursuant to this Plan, subject to adjustment as provided in Article IX, shall be 2,000,000 shares of Common Stock. None of such shares shall be the subject of more than one Option at any time, but if an Option as to any shares is surrendered before exercise, or expires or terminates for any reason without having been exercised in full, or for any other reason ceases to be exercisable, the number of shares covered thereby shall again become available for grant under the Plan as if no Options had been previously granted with respect to such shares. 6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan may be authorized but unissued shares, treasury shares or shares purchased by the Company on the open market or from private sources for use under the Plan. ARTICLE VII DETERMINATION OF OPTIONS, NUMBER OF SHARES, ETC. The Committee shall, in its discretion, determine from time to time which Employees will be granted Options under the Plan, the number of shares of Common Stock subject to each Option, whether each Option will be an Incentive Stock Option or a Non-Qualified Stock Option and the exercise price of an Option. In making all such determinations there shall be taken into account the duties, responsibilities and performance of each respective Employee, his present and potential contributions to the growth and success of the Company, his salary and such other factors as the Committee shall deem relevant to accomplishing the purposes of the Plan. ARTICLE VIII OPTIONS Each Option granted hereunder shall be on the following terms and conditions: 8.01 STOCK OPTION AGREEMENT. The proper Officers or a member of the Committee on behalf of the Company and each Optionee shall execute a Stock Option Agreement which shall set forth the total number of shares of Common Stock to which it pertains, the exercise price, whether it is a Non-Qualified Stock Option or an Incentive Stock Option and such other terms, conditions, restrictions and privileges as the Committee in each instance shall deem appropriate, provided they are not inconsistent with the terms, conditions and provisions of this Plan. Each Optionee shall receive a copy of his executed Stock Option Agreement. 8.02 OPTION EXERCISE PRICE. (a) INCENTIVE STOCK OPTIONS. The per share price at which the subject Common Stock may be purchased upon exercise of an Incentive Stock Option shall be no less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock at the time such Incentive Stock Option is granted, except as provided in Section 8.09(b). (b) NON-QUALIFIED STOCK OPTIONS. The per share price at which the Common Stock may be purchased upon exercise of a Non-Qualified Stock Option shall be no less than eighty-five percent (85%) of the Fair Market Value of a share of Common Stock at the time such Non-Qualified Option is granted. 8.03 VESTING AND EXERCISE OF OPTIONS (a) GENERAL RULES. Incentive Stock Options and Non-Qualified Stock Options granted to Employees shall become vested and exercisable at the rate, to the extent and subject to such limitations as may be specified by the Committee. Notwithstanding the foregoing, no vesting shall occur on or after an Employee's employment with the Company is terminated for any reason other than his death, Disability or Retirement. In determining the number of shares of Common Stock with respect to which Options are vested and/or exercisable, fractional shares will be rounded up to the nearest whole number if the fraction is 0.5 or higher, and down if it is less. (b) VESTING UPON TERMINATION OF EMPLOYMENT, DEATH, DISABILITY OR RETIREMENT. Unless the Committee shall specifically state otherwise at the time an Option is granted, only those Options granted to Employees under this Plan which are vested and exercisable on the date an Optionee terminates his employment with the Company because of his termination of employment under certain circumstances as set forth in the Optionee's Stock Option Agreement, or because of his death, Disability or Retirement shall be vested and exercisable by the Optionee thereafter as set forth in Section 8.04. (c) ACCELERATED VESTING FOR CHANGES IN CONTROL. Notwithstanding the general rule described in Section 8.03(a), all outstanding Options shall become immediately vested and exercisable in the event there is a change in control of the Company. A "change in control of the Company" for this purpose shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or any successor thereto, whether or not the Company in fact is required to comply with Regulation 14A thereunder. 8.04 DURATION OF OPTIONS. (a) GENERAL RULE. Except as provided in Sections 8.04(b) and 8.09, each Option granted to Employees shall be exercisable at any time on or after it vests and becomes exercisable until the earlier of (i) ten (10) years after its date of grant or (ii) three (3) months after the date on which the Optionee ceases to be employed by the Company, unless the Committee in its discretion decides at the time of grant or thereafter to extend such period of exercise upon termination of employment from three (3) months to a period not exceeding five (5) years. (b) EXCEPTION FOR TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. If an Employee dies while in the employ of the Company or terminates employment with the Company as a result of Disability or Retirement without having fully exercised his Options, the Optionee or his legal representative or guardian, or the executors, administrators, legatees or distributees of his estate shall have the right, during the twelve-month period following the earlier of his death, Disability or Retirement, to exercise such Options to the extent vested on the date of such death, Disability or Retirement. In no event, however, shall any Option be exercisable within six (6) months after the date of grant or more than ten (10) years from the date it was granted. 8.05 NONASSIGNABILITY. Options shall not be transferable by an Optionee except by will or the laws of descent or distribution, and during an Optionee's lifetime shall be exercisable only by such Optionee or the Optionee's guardian or legal representative. Notwithstanding the foregoing, or any other provision of this Plan, an Optionee who holds Non-Qualified Stock Options may transfer such Options to his or her spouse, lineal ascendants, lineal descendants, or to a duly established trust for the benefit of one or more of these individuals. Options so transferred may thereafter be transferred only to the Optionee who originally received the grant or to an individual or trust to whom the Optionee would have initially transferred the Option pursuant to this Section 8.05. Options which are transferred pursuant to this Section 8.05 shall be exercisable by the transferee according to the same terms and conditions as applied to the Optionee. 8.06 MANNER OF EXERCISE. Options may be exercised in part or in whole and at one time or from time to time. The procedures for exercise shall be set forth in the written Stock Option Agreement provided for in Section 8.01 above. 8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for shares of Common Stock purchased pursuant to the exercise of any Option shall be made to the Company upon exercise of the Option. All shares sold under the Plan shall be fully paid and nonassessable. Payment for shares may be made by the Optionee in cash or, at the discretion of the Committee, by delivering shares of Common Stock (including shares acquired pursuant to the exercise of an Option) or other property equal in Fair Market Value to the purchase price of the shares to be acquired pursuant to the Option, by withholding some of the shares of Common Stock which are being purchased upon exercise of an Option, or any combination of the foregoing. Notwithstanding the foregoing payment may also be made by delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price. 8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or dividend rights or other rights of a shareholder in respect of any shares of Common Stock covered by an Option prior to the time that his name is recorded on the Company's shareholder ledger as the holder of record of such shares acquired pursuant to an exercise of an Option. 8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All Options issued under the Plan as Incentive Stock Options will be subject, in addition to the terms detailed in Sections 8.01 to 8.08 above, to those contained in this Section 8.09. (a) $100,000 LIMITATION. Notwithstanding any contrary provisions contained elsewhere in this Plan and as long as required by Section 422 of the Code, the aggregate Fair Market Value, determined as of the time an Incentive Stock Option is granted, of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year, under this Plan and stock options that satisfy the requirements of Section 422 of the Code under any other stock option plan or plans maintained by the Company, shall not exceed $100,000. (b) LIMITATION ON TEN PERCENT SHAREHOLDERS. The price at which shares of Common Stock may be purchased upon exercise of an Incentive Stock Option granted to an individual who, at the time such Incentive Stock Option is granted, owns, directly or indirectly, more than ten percent (10%) of the total combined voting power of all classes of stock issued to shareholders of the Company, shall be no less than one hundred and ten percent (110%) of the Fair Market Value of a share of the Common Stock of the Company at the time of grant, and such Incentive Stock Option shall by its terms not be exercisable after the earlier of the date determined under Section 8.03 or the expiration of five (5) years from the date such Incentive Stock Option is granted. (c) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee shall immediately notify the Company in writing of any sale, transfer, assignment or other disposition (or action constituting a disqualifying disposition within the meaning of Section 421 of the Code) of any shares of Common Stock acquired through exercise of an Incentive Stock Option, within two (2) years after the grant of such Incentive Stock Option or within one (1) year after the acquisition of such shares, setting forth the date and manner of disposition, the number of shares disposed of and the price at which such shares were disposed. The Company shall be entitled to withhold from any compensation or other payments then or thereafter due to the Optionee such amounts as may be necessary to satisfy any withholding requirements of federal or state law or regulation and, further, to collect from the Optionee any additional amounts which may be required for such purpose. The Committee may, in its discretion, require shares of Common Stock acquired by an Optionee upon exercise of an Incentive Stock Option to be held in an escrow arrangement for the purpose of enabling compliance with the provisions of this Section 8.09(c). ARTICLE IX ADJUSTMENTS FOR CAPITAL CHANGES The aggregate number of shares of Common Stock available for issuance under this Plan, the number of shares to which any Option relates and the exercise price per share of Common Stock under any Option shall be proportionately adjusted for any increase or decrease in the total number of outstanding shares of Common Stock issued subsequent to the effective date of this Plan resulting from a split, subdivision or consolidation of shares or any other capital adjustment, the payment of a stock dividend, or other increase or decrease in such shares effected without receipt or payment of consideration by the Company. If, upon a merger, consolidation, reorganization, liquidation, recapitalization or the like of the Company, the shares of the Company's Common Stock shall be exchanged for other securities of the Company or of another corporation, each recipient of an Option shall be entitled, subject to the conditions herein stated, to purchase or acquire such number of shares of Common Stock or amount of other securities of the Company or such other corporation as were exchangeable for the number of shares of Common Stock of the Company which such optionees would have been entitled to purchase or acquire except for such action, and appropriate adjustments shall be made to the per share exercise price of outstanding Options. ARTICLE X AMENDMENT AND TERMINATION OF THE PLAN The Board may, by resolution, at any time terminate or amend the Plan with respect to any shares of Common Stock as to which Options have not been granted, subject to any required shareholder approval or any shareholder approval which the Board may deem to be advisable for any reason, such as for the purpose of obtaining or retaining any statutory or regulatory benefits under tax, securities or other laws or satisfying any applicable stock exchange listing requirements. The Board may not, without the consent of the holder of an Option, alter or impair any Option previously granted or awarded under this Plan as specifically authorized herein. ARTICLE XI EMPLOYMENT RIGHTS Neither the Plan nor the grant of any Options hereunder nor any action taken by the Committee or the Board in connection with the Plan shall create any right on the part of any Employee of the Company to continue in such capacity. ARTICLE XII WITHHOLDING 12.01 TAX WITHHOLDING. The Company may withhold from any cash payment made under this Plan sufficient amounts to cover any applicable withholding and employment taxes, and if the amount of such cash payment is insufficient, the Company may require the Optionee to pay to the Company the amount required to be withheld as a condition to delivering the shares acquired pursuant to an Option. The Company also may withhold or collect amounts with respect to a disqualifying disposition of shares of Common Stock acquired pursuant to exercise of an Incentive Stock Option, as provided in Section 8.09(c). 12.02 METHODS OF TAX WITHHOLDING. The Committee is authorized to adopt rules, regulations or procedures which provide for the satisfaction of an Optionee's tax withholding obligation by the retention of shares of Common Stock to which the Employee would otherwise be entitled pursuant to an Option and/or by the Optionee's delivery of previously owned shares of Common Stock or other property. ARTICLE XIII EFFECTIVE DATE OF THE PLAN; TERM 13.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the Effective Date, and Options may be granted hereunder as of or after the Effective Date and prior to the termination of the Plan, provided that no Incentive Stock Option issued pursuant to this Plan shall qualify as such unless this Plan is approved by the requisite vote of the holders of the outstanding voting shares of the Company at a meeting of shareholders of the Company held within twelve (12) months before or after the Effective Date. 13.02 TERM OF PLAN. Unless sooner terminated, this Plan shall remain in effect for a period of ten (10) years ending on the tenth anniversary of the Effective Date. Termination of the Plan shall not affect any Options previously granted and such Options shall remain valid and in effect until they have been fully exercised or earned, are surrendered or by their terms expire or are forfeited. ARTICLE XIV MISCELLANEOUS 14.01 GOVERNING LAW. To the extent not governed by Federal law, this Plan shall be construed under the laws of the State of Nevada. 14.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall include the feminine pronoun, and the singular shall include the plural. EX-10.47 3 ex-1047.txt EXHIBIT 10.47 EXHIBIT 10.47 TRANS WORLD GAMING CORP. 1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN The following constitute the provisions of the 1999 Non-Employee Director Stock Option Plan of Trans World Gaming Corp. 1. PURPOSE The purpose of the Plan is to provide an investment opportunity to the Company's Non-employee Directors by granting them Options to purchase shares of Common Stock as compensation for their service on the Board. 2. DEFINITIONS As used in this Plan, the following words and phrases shall have the meanings indicated: "BOARD" shall mean the Company's Board of Directors. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMITTEE" shall mean the Compensation Committee appointed by the Board, consisting of not less than two Non-Employee Directors. "COMMON STOCK" shall mean the shares of common stock, $.001 par value per share, of the Company. "COMPANY" shall mean Trans World Gaming Corp. and its Subsidiaries. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FAIR MARKET VALUE" shall mean the closing price of a share of the Common Stock as of a specified date as reported on the principal securities exchange on which such shares of Common Stock are traded on the day immediately preceding the date as of which the Fair Market Value is being determined, or on the next preceding date on which such shares of Common Stock are traded if no shares of Common Stock were traded on such immediately preceding day, or if the shares of Common Stock are not traded on a securities exchange, the Fair Market Value shall be deemed to be the average of the high bid and low asked prices of the shares of Common Stock in the over-the-counter market on the day immediately preceding the date as of which the Fair Market Value is being determined or on the next preceding date on which such high bid and low asked prices were recorded. If the shares of Common Stock are not publicly traded, the Fair Market Value shall be determined by the Committee or the Board. In no case shall the Fair Market Value be less then the par value of a share of Common Stock. "FORM S-8 REGISTRATION STATEMENT" shall mean a registration statement filed on Form S-8 with and declared effective by the Securities and Exchange Commission under the Securities Act covering the offer and sale of the Options and the underlying Common Stock. "NON-EMPLOYEE DIRECTOR" shall mean any member of the Company's Board who is a "Non-Employee Director" as such term is defined under Rule 16b-3(b)(3)(i) promulgated under the Exchange Act. "OPTION" shall mean any option issued pursuant to this Plan. "OPTIONEE" shall mean any person to whom an Option is granted under this Plan. "PARENT" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of granting an Option or the sale of any Common Stock, each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PLAN" shall mean this 1999 Non-employee Director Stock Option Plan. "REORGANIZATION" shall mean any merger, reorganization, consolidation or sale of all or substantially all of the Company's assets. "REGISTERED" shall mean a Form S-8 Registration Statement shall be in effect covering the purchase of the Options or the underlying shares. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "STOCK OPTION AGREEMENT" shall mean the agreement evidencing the Options granted to Optionees pursuant to the Plan containing the terms and conditions specified in Section 7 below. "SUBSIDIARY" shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting an Option, each of the corporations, other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. GENERAL ADMINISTRATION The Plan shall be administered by the Committee. The Committee shall have the authority in its discretion to administer the Plan and to interpret the Plan and to prescribe, amend and rescind rules and regulations relating to the operation of the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan; provided, however, that the Committee may not alter, amend or modify the express provisions of the Plan. The Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. No member of the Board or the Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any action taken thereunder. 4. TERM OF PLAN The Plan became effective upon its adoption by the Company's Board on September 21, 1999, subject to stockholder approval, and shall continue in effect for a term of ten (10) years unless sooner terminated under Section 10 hereof. Any Options outstanding under the Plan on such date shall continue to be exercisable pursuant to their terms, except as provided by Section 7 hereof. 5. ELIGIBILITY Options may be granted to any Non-employee Director of the Company as compensation for service on the Board. 6. STOCK SUBJECT TO THE PLAN An aggregate of 250,000 shares of Common Stock shall be reserved for issuance pursuant to Options issued pursuant to the Plan. If any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full, the shares of Common Stock allocable to the unexercised portion of such Option shall (unless the Plan shall have been terminated) become available for subsequent issuance of Options under the Plan. 7. TERMS AND CONDITIONS OF OPTIONS All Options issued pursuant to the Plan shall be non-statutory options not entitled to special tax treatment under Section 422 of the code and evidenced by a Stock Option Agreement containing the terms and conditions specified in this Section 7. GRANT OF OPTIONS. Each Non-Employee Director shall be granted an Option to purchase 2,000 shares of Common Stock on the first business day following the end of each fiscal quarter during which service on the Board is rendered commencing with the year 2000. OPTION EXERCISE PRICE. The exercise price of each Option (the "Option Exercise Price") shall equal the Fair Market Value of the Common Stock on the day immediately preceding the date of grant of each Option. The Option Exercise Price shall be subject to adjustment as provided in this Section 7. TERM AND EXERCISE OF OPTIONS. Options shall be exercisable in whole or in part at any time over the exercise period, but in no event shall such period exceed ten years from the date of the grant of each such Option. The exercise period shall be subject to earlier termination as provided in this Section 7. An Option may be exercised by giving prior written notice of such exercise to the Company and by paying the Option Exercise Price to the Company either by delivering on the date of exercise (i) a check in the amount of the Option Exercise Price, (ii) Common Stock having a Fair Market Value on the day immediately preceding the date of exercise equal to or less than the Option Exercise Price, or (iii) a combination thereof. If the Optionee tenders shares of Common Stock having a Fair Market Value which exceeds the Option Exercise Price, the Company shall return to the Optionee any and all whole shares of Common Stock which exceed the Option Exercise Price and the Company shall pay the Optionee any additional amount which exceeds the Option Exercise Price in cash in lieu of issuing the Optionee a fractional share for such amount. VESTING AND RESTRICTIONS ON TRANSFERABILITY. Options issued under the Plan shall vest immediately upon grant and shall not be transferable other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act ("ERISA") or the rules thereunder. DEATH OR DISABILITY OF OPTIONEE. If an Optionee shall die or become disabled, all Options theretofore issued to such Optionee may, unless earlier terminated in accordance with their terms, be exercised at any time during the term of the Option by the personal representative of the Optionee or by the person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of the death or disability of the Optionee. TERMINATION OF DUTIES FOR ANY OTHER REASON. In the event an Outside Director's membership on the Board ceases for any reason other than one described in Section 7(E) hereof, any Options then held by such Outside Director shall be terminated within twelve (12) months following his cessation of Board membership. SERVICES AS AN EMPLOYEE. If an Outside Director becomes an employee of the Company or any of its subsidiaries, the Outside Director shall be treated as continuing in service for purposes of this Outside Director Plan, but shall not be eligible to receive future grants while an employee. If the Outside Director's services as an employee terminate without his again becoming an Outside Director, the provisions of Section 7(F) shall apply as though such termination of employment were the termination of the Outside Director's membership on the Board. RECLASSIFICATION; RECAPITALIZATION; AND REORGANIZATIONS. (1) DIVIDENDS AND STOCK SPLITS. If there is any change in the number of shares of Common Stock through the declaration of stock dividends, recapitalization resulting in stock splits, or combinations or exchanges of such shares, then the number of shares of Common Stock available for Options, the number of such shares covered by outstanding Options and the Option Exercise Price shall be proportionately adjusted to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. (2) SPIN-OFFS AND LIQUIDATIONS. In the event of the proposed dissolution or liquidation of the Company, or in the event of any corporate separation or division, including, but not limited to, a split-up, a split-off or spin-off, each Option granted under the Plan shall terminate as of a date to be fixed by the Board, provided, however, that no less than thirty (30) days' written notice of the date so fixed shall be given to each Optionee, who shall have the right during the period of thirty (30) days preceding such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby. (3) REORGANIZATIONS. If, while unexercised Options remain outstanding under the Plan, the Company executes a definitive Reorganization agreement, the Committee may provide that each Option granted under the Plan shall (i) terminate as of a date to be fixed by the Board, provided, however, that no less than thirty (30) days' written notice of the date so fixed shall be given to each Optionee, who shall have the right, during the period of thirty (30) days preceding such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby or (ii) remain outstanding and be adjusted so that on exercise the Optionee shall receive the securities, cash or property that would have been issued with respect to the shares of Common Stock had the Option been exercised immediately prior to the Reorganization. The Committee may also, in its discretion, permit the cancellation of outstanding Options in exchange for a cash payment to the Optionee equal to the difference between the exercise price of the Option and the value of the consideration that would have been paid had the Option been exercised immediately prior to the Reorganization. (4) EXEMPTIONS. This Section 7(H) shall not apply to a Reorganization in which the Company is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any Reorganization in which the Company is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or property) of the shares of 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, but including any changes in such shares into two or more classes series of shares), the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect Parent of the Company), property, cash or any combination thereof receivable by the holder of the number of shares of Common Stock for which such Option might have been exercised upon such Reorganization or reclassification. In the event of a change in the Common Stock as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. Except as herein expressly provided, the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, or Reorganization, and any assurance by the Company of shares of stock of any class, and no adjustment by reason thereof shall be made with respect to the number of shares of Common Stock subject to an Option or to the Option Price. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, Reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. 8. RIGHTS AS A SHAREHOLDER No Optionee shall have any rights as a shareholder with respect to any shares until the stock certificate evidencing such shares has been issued evidencing such shares. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 7(H) hereof. 9. GENERAL RESTRICTIONS INVESTMENT REPRESENTATIONS. The Company may require an Optionee to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effect as the Company deems necessary or appropriate in order to comply with applicable federal and applicable state securities laws. COMPLIANCE WITH SECURITIES LAWS. Each Option shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject thereto on any securities exchange or any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance of Options, such Options may not be sold or exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Board. The Company plans to register the shares subject to the Options on a Form S-8 Registration Statement. However, nothing herein shall be deemed to require the Company to obtain an effective Form S-8 Registration Statement or to apply for or to obtain any listing, registration or qualification of the Options or Common Stock to be issued pursuant thereto. 10. AMENDMENT AND TERMINATION OF THE PLAN The Board may at any time and from time to time suspend, terminate, modify or amend the Plan, provided that no suspension, termination, modification or amendment of the Plan may adversely affect any rights under the Plan unless the written consent of those affected is obtained. EX-10.48 4 ex-1048.txt EXHIBIT 10.48 Exhibit 10.48 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. 3 $100,000.00 TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORPORATION TWG FINANCE CORP. 12% Senior Secured Notes Due March 17, 2005, Series 1999 Date: October 15, 1999 New York, New York Trans World Gaming Corp. ("TWG"), a Nevada corporation, and its wholly-owned subsidiaries, TWG International U.S. Corporation ("TWG International"), a Nevada corporation and TWG Finance Corp., a Delaware corporation ("TWG Finance"), which are collectively referred to herein as the "Issuer"), for value received, hereby promise to pay jointly and severally to, Geoffrey B. Baker or its registered assigns, the principal sum of $100,000.00 Dollars, at the Issuer's office or agency for said purpose, on March 17, 2005, 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 March 17 and September 17 (each an "Interest Payment Date") of each year, commencing with March 17, 2000, on said principal sum in like coin or currency at 12% simple interest 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. To the extent lawful, the Issuer promises to pay interest on any interest payment past due but unpaid on such unpaid principal amount at a rate of 17% per annum compounded semi-annually. 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 on the 15th day of the month next preceding the month in which such interest payment falls, whether or not a Business Day (each an "Interest Record Date"), PROVIDED that interest may be paid, at the option of the Issuer, by mailing a check therefor payable on the Interest Payment Date to the registered Holder entitled thereto at his last address as it appears on the Security register. If interest on the Securities is in default, the Trustee shall, prior to the payment of interest, establish a special record date (the "Special Record Date") for such payment, which Special Record Date shall be not more than fifteen (15) nor less than ten (10) days prior to the date of the proposed payment. Payment of such defaulted interest shall then be made by check, as provided herein and in the Indenture, mailed or remitted to the persons in whose names the Securities are registered on the Special Record Date at the 1 addresses or accounts of such persons shown on the security register. 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, each Issuer has caused this instrument to be duly executed under its corporate seal. [Seal] TRANS WORLD GAMING CORP. By: ------------------------------- Its: Chief Executive Officer [Seal] TWG INTERNATIONAL U.S. CORPORATION By: ------------------------------- Its: Vice President [Seal] TWG FINANCE CORP. By: ------------------------------- Its: Vice President 2 [REVERSE OF SECURITY] TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORPORATION TWG FINANCE CORP. 12% Senior Secured Notes Due March 17, 2005, Series 1999 This Security is one of a series of duly authorized debt securities of the Issuer designated as "12% Senior Secured Notes Due March 17, 2005, Series 1999", issued in an aggregate principal amount of $3,000,000, and issued pursuant to that certain Second Supplemental Trust Indenture ("Supplemental Indenture") dated as of October 15, 1999, duly executed and delivered by the Issuer to U.S. Trust Company of Texas, N.A., as Trustee (hereinafter referred to as the "Trustee"), which Supplemental Indenture supplements the Indenture ("Original Indenture") dated as of March 31, 1998 and supplemented on October 29, 1998, duly executed and delivered by the Issuer to the Trustee. The Original Indenture and the Supplemental Indenture are hereinafter referred to as the "Indenture." 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 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 50% 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 50% 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 3 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 50% 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, TWG International shall be required to make mandatory prepayments equal to Excess Cash Flow until the Obligations are fully defeased pursuant to Section 10.2 or until one hundred percent (100%) of the principal amount of the Securities, together with accrued and unpaid interest, is paid. The Securities may also be redeemed by the Issuer, in whole, or in part, 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. If there is a Change of Control (as defined in the Indenture), the Issuer shall be required to offer to purchase all outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued unpaid interest, if any, through the date of such purchase. 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. 4 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). 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: October 15, 1999 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 Issuer. The agent may substitute another to act for him. If you want the Note 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) 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) 6 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. 4 $100,000.00 TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORPORATION TWG FINANCE CORP. 12% Senior Secured Notes Due March 17, 2005, Series 1999 Date: October 15, 1999 New York, New York Trans World Gaming Corp. ("TWG"), a Nevada corporation, and its wholly-owned subsidiaries, TWG International U.S. Corporation ("TWG International"), a Nevada corporation and TWG Finance Corp., a Delaware corporation ("TWG Finance"), which are collectively referred to herein as the "Issuer"), for value received, hereby promise to pay jointly and severally to, Julio E. Heurtematte Jr. or its registered assigns, the principal sum of $100,000.00 Dollars, at the Issuer's office or agency for said purpose, on March 17, 2005, 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 March 17 and September 17 (each an "Interest Payment Date") of each year, commencing with March 17, 2000, on said principal sum in like coin or currency at 12% simple interest 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. To the extent lawful, the Issuer promises to pay interest on any interest payment past due but unpaid on such unpaid principal amount at a rate of 17% per annum compounded semi-annually. 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 on the 15th day of the month next preceding the month in which such interest payment falls, whether or not a Business Day (each an "Interest Record Date"), PROVIDED that interest may be paid, at the option of the Issuer, by mailing a check therefor payable on the Interest Payment Date to the registered Holder entitled thereto at his last address as it appears on the Security register. If interest on the Securities is in default, the Trustee shall, prior to the payment of interest, establish a special record date (the "Special Record Date") for such payment, which Special Record Date shall be not more than fifteen (15) nor less than ten (10) days prior to the date of the proposed payment. Payment of such defaulted interest shall then be made by check, as provided herein and in the Indenture, mailed or remitted to the persons in whose names the Securities are registered on the Special Record Date at the 1 addresses or accounts of such persons shown on the security register. 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, each Issuer has caused this instrument to be duly executed under its corporate seal. [Seal] TRANS WORLD GAMING CORP. By: ------------------------------- Its: Chief Executive Officer [Seal] TWG INTERNATIONAL U.S. CORPORATION By: ------------------------------- Its: Vice President [Seal] TWG FINANCE CORP. By: ------------------------------- Its: Vice President 2 [REVERSE OF SECURITY] TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORPORATION TWG FINANCE CORP. 12% Senior Secured Notes Due March 17, 2005, Series 1999 This Security is one of a series of duly authorized debt securities of the Issuer designated as "12% Senior Secured Notes Due March 17, 2005, Series 1999", issued in an aggregate principal amount of $3,000,000, and issued pursuant to that certain Second Supplemental Trust Indenture ("Supplemental Indenture") dated as of October 15, 1999, duly executed and delivered by the Issuer to U.S. Trust Company of Texas, N.A., as Trustee (hereinafter referred to as the "Trustee"), which Supplemental Indenture supplements the Indenture ("Original Indenture") dated as of March 31, 1998 and supplemented on October 29, 1998, duly executed and delivered by the Issuer to the Trustee. The Original Indenture and the Supplemental Indenture are hereinafter referred to as the "Indenture." 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 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 50% 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 50% 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 3 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 50% 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, TWG International shall be required to make mandatory prepayments equal to Excess Cash Flow until the Obligations are fully defeased pursuant to Section 10.2 or until one hundred percent (100%) of the principal amount of the Securities, together with accrued and unpaid interest, is paid. The Securities may also be redeemed by the Issuer, in whole, or in part, 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. If there is a Change of Control (as defined in the Indenture), the Issuer shall be required to offer to purchase all outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued unpaid interest, if any, through the date of such purchase. 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. 4 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). 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: October 15, 1999 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 Issuer. The agent may substitute another to act for him. If you want the Note 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) 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) 6 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. 2 $100,000.00 TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORPORATION TWG FINANCE CORP. 12% Senior Secured Notes Due March 17, 2005, Series 1999 Date: October 15, 1999 New York, New York Trans World Gaming Corp. ("TWG"), a Nevada corporation, and its wholly-owned subsidiaries, TWG International U.S. Corporation ("TWG International"), a Nevada corporation and TWG Finance Corp., a Delaware corporation ("TWG Finance"), which are collectively referred to herein as the "Issuer"), for value received, hereby promise to pay jointly and severally to, Malcolm M.B. Sterrett or its registered assigns, the principal sum of $100,000.00 Dollars, at the Issuer's office or agency for said purpose, on March 17, 2005, 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 March 17 and September 17 (each an "Interest Payment Date") of each year, commencing with March 17, 2000, on said principal sum in like coin or currency at 12% simple interest 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. To the extent lawful, the Issuer promises to pay interest on any interest payment past due but unpaid on such unpaid principal amount at a rate of 17% per annum compounded semi-annually. 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 on the 15th day of the month next preceding the month in which such interest payment falls, whether or not a Business Day (each an "Interest Record Date"), PROVIDED that interest may be paid, at the option of the Issuer, by mailing a check therefor payable on the Interest Payment Date to the registered Holder entitled thereto at his last address as it appears on the Security register. If interest on the Securities is in default, the Trustee shall, prior to the payment of interest, establish a special record date (the "Special Record Date") for such payment, which Special Record Date shall be not more than fifteen (15) nor less than ten (10) days prior to the date of the proposed payment. Payment of such defaulted interest shall then be made by check, as provided herein and in the Indenture, mailed or remitted to the persons in whose names the Securities are registered on the Special Record Date at the 1 addresses or accounts of such persons shown on the security register. 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, each Issuer has caused this instrument to be duly executed under its corporate seal. [Seal] TRANS WORLD GAMING CORP. By: ------------------------------- Its: Chief Executive Officer [Seal] TWG INTERNATIONAL U.S. CORPORATION By: ------------------------------- Its: Vice President [Seal] TWG FINANCE CORP. By: ------------------------------- Its: Vice President 2 [REVERSE OF SECURITY] TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORPORATION TWG FINANCE CORP. 12% Senior Secured Notes Due March 17, 2005, Series 1999 This Security is one of a series of duly authorized debt securities of the Issuer designated as "12% Senior Secured Notes Due March 17, 2005, Series 1999", issued in an aggregate principal amount of $3,000,000, and issued pursuant to that certain Second Supplemental Trust Indenture ("Supplemental Indenture") dated as of October 15, 1999, duly executed and delivered by the Issuer to U.S. Trust Company of Texas, N.A., as Trustee (hereinafter referred to as the "Trustee"), which Supplemental Indenture supplements the Indenture ("Original Indenture") dated as of March 31, 1998 and supplemented on October 29, 1998, duly executed and delivered by the Issuer to the Trustee. The Original Indenture and the Supplemental Indenture are hereinafter referred to as the "Indenture." 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 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 50% 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 50% 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 3 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 50% 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, TWG International shall be required to make mandatory prepayments equal to Excess Cash Flow until the Obligations are fully defeased pursuant to Section 10.2 or until one hundred percent (100%) of the principal amount of the Securities, together with accrued and unpaid interest, is paid. The Securities may also be redeemed by the Issuer, in whole, or in part, 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. If there is a Change of Control (as defined in the Indenture), the Issuer shall be required to offer to purchase all outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued unpaid interest, if any, through the date of such purchase. 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. 4 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). 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: October 15, 1999 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 Issuer. The agent may substitute another to act for him. If you want the Note 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) 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) 6 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. 1 $2,700,000.00 TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORPORATION TWG FINANCE CORP. 12% Senior Secured Notes Due March 17, 2005, Series 1999 Date: October 15, 1999 New York, New York Trans World Gaming Corp. ("TWG"), a Nevada corporation, and its wholly-owned subsidiaries, TWG International U.S. Corporation ("TWG International"), a Nevada corporation and TWG Finance Corp., a Delaware corporation ("TWG Finance"), which are collectively referred to herein as the "Issuer"), for value received, hereby promise to pay jointly and severally to, Value Partners, Ltd. or its registered assigns, the principal sum of $2,700,000.00 Dollars, at the Issuer's office or agency for said purpose, on March 17, 2005, 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 March 17 and September 17 (each an "Interest Payment Date") of each year, commencing with March 17, 2000, on said principal sum in like coin or currency at 12% simple interest 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. To the extent lawful, the Issuer promises to pay interest on any interest payment past due but unpaid on such unpaid principal amount at a rate of 17% per annum compounded semi-annually. 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 on the 15th day of the month next preceding the month in which such interest payment falls, whether or not a Business Day (each an "Interest Record Date"), PROVIDED that interest may be paid, at the option of the Issuer, by mailing a check therefor payable on the Interest Payment Date to the registered Holder entitled thereto at his last address as it appears on the Security register. If interest on the Securities is in default, the Trustee shall, prior to the payment of interest, establish a special record date (the "Special Record Date") for such payment, which Special Record Date shall be not more than fifteen (15) nor less than ten (10) days prior to the date of the proposed payment. Payment of such defaulted interest shall then be made by check, as provided herein and in the Indenture, mailed or remitted to the persons in whose names the Securities are registered on the Special Record Date at the 1 addresses or accounts of such persons shown on the security register. 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, each Issuer has caused this instrument to be duly executed under its corporate seal. [Seal] TRANS WORLD GAMING CORP. By: ------------------------------- Its: Chief Executive Officer [Seal] TWG INTERNATIONAL U.S. CORPORATION By: ------------------------------- Its: Vice President [Seal] TWG FINANCE CORP. By: ------------------------------- Its: Vice President 2 [REVERSE OF SECURITY] TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORPORATION TWG FINANCE CORP. 12% Senior Secured Notes Due March 17, 2005, Series 1999 This Security is one of a series of duly authorized debt securities of the Issuer designated as "12% Senior Secured Notes Due March 17, 2005, Series 1999", issued in an aggregate principal amount of $3,000,000, and issued pursuant to that certain Second Supplemental Trust Indenture ("Supplemental Indenture") dated as of October 15, 1999, duly executed and delivered by the Issuer to U.S. Trust Company of Texas, N.A., as Trustee (hereinafter referred to as the "Trustee"), which Supplemental Indenture supplements the Indenture ("Original Indenture") dated as of March 31, 1998 and supplemented on October 29, 1998, duly executed and delivered by the Issuer to the Trustee. The Original Indenture and the Supplemental Indenture are hereinafter referred to as the "Indenture." 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 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 50% 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 50% 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 3 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 50% 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, TWG International shall be required to make mandatory prepayments equal to Excess Cash Flow until the Obligations are fully defeased pursuant to Section 10.2 or until one hundred percent (100%) of the principal amount of the Securities, together with accrued and unpaid interest, is paid. The Securities may also be redeemed by the Issuer, in whole, or in part, 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. If there is a Change of Control (as defined in the Indenture), the Issuer shall be required to offer to purchase all outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued unpaid interest, if any, through the date of such purchase. 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. 4 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). 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: October 15, 1999 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 Issuer. The agent may substitute another to act for him. If you want the Note 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) 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) 6 EX-10.49 5 ex-1049.txt EXHIBIT 10.49 Exhibit 10.49 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 PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE COMMON STOCK Series G No. 3 TRANS WORLD GAMING CORP. (a Nevada corporation) Dated: October 15, 1999 THIS CERTIFIES that Geoffrey B. Baker (together with its successors or permitted assigns, the "Holder") is entitled to purchase from Trans World Gaming Corp., a Nevada corporation ("Company") up to 41,691 shares of the Company's common stock, par value $.001 per share (the "Common Stock"), at a purchase price of $.01 per share of Common Stock (the "Warrant Price"), subject to adjustment as hereafter provided. This Warrant is issued pursuant to that certain Subscription Agreement dated as of October 15, 1999 (the "Agreement"), between the Company and the Holder. 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 March 31, 2008, in whole or in part, by (i) the surrender of this Warrant (with the purchase form at the end 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 -1- 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 subparagraph (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 Common Stock 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. If at any time this Warrant is exercised as to less than the total number of shares for which it may be exercised, and this Warrant shall not have expired, the Company shall promptly issue to the Holder a new Warrant identical in form as to this Warrant as to the remaining shares hereunder. 2. TRANSFER. Subject to the legend set forth at the top of the first page hereof, 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 9(b), 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, for Company obligations, 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 authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. 4. NO RIGHTS OF 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 -2- 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. Upon the written request of any combination of the holders of Common Stock or of Warrants issued by the Company and collectively exercisable into not less than 100,000 shares of Common Stock (as such number may be adjusted under Paragraph 7), and on a one-time basis, the Company shall file, within ninety (90) days after written request such registration, and use its best efforts to cause to be declared effective ninety (90) days thereafter, 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 the Common Stock issuable upon exercise of this Warrant or any portion hereof (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 hereto. 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 two years following the expiration of the exercisability of this Warrant, or until shares owned by the Holder are eligible for sale without restriction under Rule 144. (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. (d) In addition the Company shall: (i) furnish to the Holder such numbers of copies of a summary prospectus or other prospectus, including a preliminary prospectus or any amendment or supplement to any prospectus, in conformity with the requirements of the 1933 Act, and such -3- other documents, as the Holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by the Holder; (ii) use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as the Holder shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such Holder to consummate the public sale or other disposition in such jurisdictions of the securities owned by such Holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (iii) use its best efforts to list such securities on any securities exchange on which any securities of the Company is then listed, if the listing of such securities is then permitted under the rules of such exchange; (iv) enter into and perform its obligations under an underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering; (v) notify the Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the 1933 Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (vi) furnish, at the request of the Holder on the date such Registrable Securities are delivered to the underwriters for sale pursuant to such registration or, if such Registrable Securities are not being sold through underwriters, on the date the registration statement with respect to such Registrable Securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purpose of such registration, addressed to the underwriters, if any, and to the Holder making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as the Holder of such Registrable Securities may reasonably request and are customarily included in such an opinion and (ii) letters, dated, respectively, (1) the effective date of the registration statement and (2) the date such Registrable Securities are delivered to the underwriters, if any, for sale pursuant to such registration, from a firm of independent certified public accountants of recognized standing selected by the Company, addressed to the underwriters, if any, and to the Holder making such request, covering such financial, statistical and accounting matters with respect to the registration in respect of which such letters are being given as the Holder of such Registrable Securities may reasonably request and are customarily included in such letters; and -4- (vii) take such other actions as shall be reasonably requested by any Holder to facilitate the registration and sale of the Registrable Securities. 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, director, 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, director, 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 described above 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 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 an underwriter or any other such person 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. (b) Whenever pursuant to Paragraph 5 a registration statement relating to the Registerable Securities is filed, amended or supplemented under the Act, the Distributing Holder will indemnify and hold harmless the Company and each underwriter, each of their respective directors, each of their respective officers, employees, partners and agents 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, employees, partners and agents or controlling person may become subject under the Act or otherwise, insofar -5- 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, employees, partners and agents 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 indemnified 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 indemnifying party, and after notice from the indemnified party to such indemnifying 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. (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: -6- (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 provision 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. Any such adjustment shall become effective at the time such subdivision or combination shall become effective. (iii) In case the Company shall at any time or from time to time issue or sell shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock, or any options, warrants or other rights to acquire shares of Common Stock) at a price per share less than the Market Price per share of Common Stock (treating the price per share of any security exchangeable or exercisable into Common Stock as equal to (x) the sum of the price for such security convertible, exchangeable or exercisable into Common Stock plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such security into Common Stock divided by (y) the number of shares of Common Stock initially underlying such convertible, exchangeable or exercisable security), other than issuance or sales of Common Stock pursuant to any employee benefit plan, then, and in each such case, the number of shares of Common Stock thereafter purchasable upon exercise of a Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of each Warrant by a fraction (A) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such date plus the number of additional shares of Common Stock issued (or the maximum number into which such convertible or -7- exchangeable securities initially may convert or exchange or for which such options, warrants or other rights initially may be exercised) and (B) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such date plus the number of shares of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued (or into which such convertible or exchangeable securities may convert or exchange or for which such options, warrants or other rights may be exercised plus the aggregate amount of any additional consideration initially payable upon conversion, exchange or exercise of such security) would purchase at the Market Price per share of Common Stock on such date. Such adjustment shall be made whenever such shares, securities, options, warrants or other rights are issued, and shall become effective retroactively immediately after the close of business on the record date for the determination of stockholders entitled to receive such shares, securities, options, warrants or other rights; PROVIDED, that the determination as to whether an adjustment is required to be made pursuant to this Section 7(a) shall only be made upon the issuance of such shares or such convertible or exchangeable securities, options, warrants or other rights, and not upon the issuance of the security into which such convertible or exchangeable security converts or exchanges, or the security underlying such option, warrant or other right. Notwithstanding the foregoing, in the event of such issuance or sale of Common Stock at a cash price less than the Market Price, no such adjustment under this Section 7(a) need be made to the number of shares underlying the Warrant unless such adjustment would require an increase or decrease of at least 1% of the number of shares underlying the Warrant. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% of number of shares underlying the Warrant. For the purpose of this Agreement, the term "Market Price" shall mean (i) if the Common Stock is traded in the over-the-counter market or on the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"), the average per share closing prices of the Common Stock on the 20 consecutive trading days immediately preceding the date in question as reported by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the Common Stock is traded on a national securities exchange, the average for the 20 -8- consecutive trading days immediately preceding the date in question of the daily per share closing prices of the Common Stock on the principal stock exchange on which it is listed, as the case may be. The closing price referred to above shall be the last reported sales price or in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange or automated quotation system on which the Common Stock is then listed. Whenever the number of shares of Common Stock purchasable upon exercise of each Warrant is adjusted, the Warrant Price for each share of Common Stock payable upon exercise of each Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such adjustment and the denominator of which shall be the number of shares of Common Stock purchasable immediately after such adjustment. (iv) Within a reasonable time after the close of each quarterly fiscal period of the Company during which the Warrant Price or number of shares issuable upon exercise of this Warrant has been adjusted as herein provided, the Company shall 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) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend or distribution payable in Common Stock or by a subdivision of the outstanding Common Stock, then, from and after the record date thereof, by reason of such dividend, distribution 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 record date thereof, 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 -9- 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 or expiration 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, desire to declare a dividend or make any distribution of its assets to holders of its Common Stock, whether as a liquidating or a partial liquidating dividend or for any other purpose, the Company shall provide the holder of the Warrant with written notice of such intent not less than thirty (30) days prior to the record date to determine holders of Common Stock entitled to receive such distribution and the holder of this Warrant shall have until 5:00 p.m. EST on the twentieth (20th) day following the actual receipt of such notice to elect whether to exercise this Warrant in accordance with the terms herein. In the event of proper election to exercise the Warrant, the holder of this Warrant shall be deemed to be a holder of Common Stock as of the record date for such distribution. Should the holder of the Warrant elect to exercise his Warrant within 20 days after the record date for the determination of those holders of Common Stock entitled to such dividend or distribution, 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. (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 hereof 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 -10- the books shall be closed or record date fixed with respect to such offer of subscription and the right of the holder hereof 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 provisions 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 adjustment in the Warrant Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants previously or hereafter issued may continue to express the same price and number and kind of shares as are stated in this Warrant. (i) The Company shall 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. The Company shall not be required to issue fractions of shares of Common Stock 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, if the fraction is equal to or greater than .5, and down if the fraction is less than .5. 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, Suite 1503, New York, NY 10119. -11- (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 other than Section 6 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, and this Warrant is for the sole and exclusive benefit of the Company and the Holder or Holders. 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 October 15, 1999. TRANS WORLD GAMING CORP. By: ---------------------- Its: ---------------------- -12- FORM OF NOTICE OF EXERCISE (To be executed upon partial or full exercise of the Warrants represented hereby) The undersigned registered Holder of the Warrants represented by the attached Warrant Certificate irrevocably exercises such Warrant for and purchases ______________________ (___________) shares of Common Stock of Trans World Gaming Corp. (the "Company"). The undersigned herewith makes payment therefore in the amount of $ ____________, consisting of $ ____________ by wire transfer or certified or cashiers' check at a price of $_____ per share and requests that a certificate (or certificates) in denominations of ______________ (___________) shares of Common Stock of the Company hereby purchased be issued in the name of and delivered to the undersigned or such designee of the undersigned and, if such shares of Common Stock (together with any shares issued upon exercise of other Warrants or replacement Warrants) shall not include all of the shares of Common Stock issuable upon exercise of all Warrants represented by such Warrant Certificate (or if a new or replacement Warrant is otherwise to be provided pursuant to the Warrant Certificate), that a new or replacement Warrant Certificate of like tenor for the number of Warrants not being exercised (and not being surrendered) hereunder be issued in the name of and delivered to the undersigned, whose address is __________________________. Dated: __________ . -------------------------------- (Signature of Registered Holder) By: ----------------------------- Title: -------------------------- -13- 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 PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE COMMON STOCK Series G No. 4 TRANS WORLD GAMING CORP. (a Nevada corporation) Dated: October 15, 1999 THIS CERTIFIES that Julio E. Heurtematte Jr. (together with its successors or permitted assigns, the "Holder") is entitled to purchase from Trans World Gaming Corp., a Nevada corporation ("Company") up to 41,691 shares of the Company's common stock, par value $.001 per share (the "Common Stock"), at a purchase price of $.01 per share of Common Stock (the "Warrant Price"), subject to adjustment as hereafter provided. This Warrant is issued pursuant to that certain Subscription Agreement dated as of October 15, 1999 (the "Agreement"), between the Company and the Holder. 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 March 31, 2008, in whole or in part, by (i) the surrender of this Warrant (with the purchase form at the end 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 -1- 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 subparagraph (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 Common Stock 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. If at any time this Warrant is exercised as to less than the total number of shares for which it may be exercised, and this Warrant shall not have expired, the Company shall promptly issue to the Holder a new Warrant identical in form as to this Warrant as to the remaining shares hereunder. 2. TRANSFER. Subject to the legend set forth at the top of the first page hereof, 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 9(b), 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, for Company obligations, 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 authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. 4. NO RIGHTS OF 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 -2- 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. Upon the written request of any combination of the holders of Common Stock or of Warrants issued by the Company and collectively exercisable into not less than 100,000 shares of Common Stock (as such number may be adjusted under Paragraph 7), and on a one-time basis, the Company shall file, within ninety (90) days after written request such registration, and use its best efforts to cause to be declared effective ninety (90) days thereafter, 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 the Common Stock issuable upon exercise of this Warrant or any portion hereof (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 hereto. 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 two years following the expiration of the exercisability of this Warrant, or until shares owned by the Holder are eligible for sale without restriction under Rule 144. (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. (d) In addition the Company shall: (i) furnish to the Holder such numbers of copies of a summary prospectus or other prospectus, including a preliminary prospectus or any amendment or supplement to any prospectus, in conformity with the requirements of the 1933 Act, and such -3- other documents, as the Holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by the Holder; (ii) use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as the Holder shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such Holder to consummate the public sale or other disposition in such jurisdictions of the securities owned by such Holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (iii) use its best efforts to list such securities on any securities exchange on which any securities of the Company is then listed, if the listing of such securities is then permitted under the rules of such exchange; (iv) enter into and perform its obligations under an underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering; (v) notify the Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the 1933 Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (vi) furnish, at the request of the Holder on the date such Registrable Securities are delivered to the underwriters for sale pursuant to such registration or, if such Registrable Securities are not being sold through underwriters, on the date the registration statement with respect to such Registrable Securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purpose of such registration, addressed to the underwriters, if any, and to the Holder making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as the Holder of such Registrable Securities may reasonably request and are customarily included in such an opinion and (ii) letters, dated, respectively, (1) the effective date of the registration statement and (2) the date such Registrable Securities are delivered to the underwriters, if any, for sale pursuant to such registration, from a firm of independent certified public accountants of recognized standing selected by the Company, addressed to the underwriters, if any, and to the Holder making such request, covering such financial, statistical and accounting matters with respect to the registration in respect of which such letters are being given as the Holder of such Registrable Securities may reasonably request and are customarily included in such letters; and -4- (vii) take such other actions as shall be reasonably requested by any Holder to facilitate the registration and sale of the Registrable Securities. 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, director, 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, director, 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 described above 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 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 an underwriter or any other such person 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. (b) Whenever pursuant to Paragraph 5 a registration statement relating to the Registerable Securities is filed, amended or supplemented under the Act, the Distributing Holder will indemnify and hold harmless the Company and each underwriter, each of their respective directors, each of their respective officers, employees, partners and agents 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, employees, partners and agents or controlling person may become subject under the Act or otherwise, insofar -5- 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, employees, partners and agents 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 indemnified 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 indemnifying party, and after notice from the indemnified party to such indemnifying 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. (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: -6- (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 provision 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. Any such adjustment shall become effective at the time such subdivision or combination shall become effective. (iii) In case the Company shall at any time or from time to time issue or sell shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock, or any options, warrants or other rights to acquire shares of Common Stock) at a price per share less than the Market Price per share of Common Stock (treating the price per share of any security exchangeable or exercisable into Common Stock as equal to (x) the sum of the price for such security convertible, exchangeable or exercisable into Common Stock plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such security into Common Stock divided by (y) the number of shares of Common Stock initially underlying such convertible, exchangeable or exercisable security), other than issuance or sales of Common Stock pursuant to any employee benefit plan, then, and in each such case, the number of shares of Common Stock thereafter purchasable upon exercise of a Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of each Warrant by a fraction (A) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such date plus the number of additional shares of Common Stock issued (or the maximum number into which such convertible or -7- exchangeable securities initially may convert or exchange or for which such options, warrants or other rights initially may be exercised) and (B) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such date plus the number of shares of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued (or into which such convertible or exchangeable securities may convert or exchange or for which such options, warrants or other rights may be exercised plus the aggregate amount of any additional consideration initially payable upon conversion, exchange or exercise of such security) would purchase at the Market Price per share of Common Stock on such date. Such adjustment shall be made whenever such shares, securities, options, warrants or other rights are issued, and shall become effective retroactively immediately after the close of business on the record date for the determination of stockholders entitled to receive such shares, securities, options, warrants or other rights; PROVIDED, that the determination as to whether an adjustment is required to be made pursuant to this Section 7(a) shall only be made upon the issuance of such shares or such convertible or exchangeable securities, options, warrants or other rights, and not upon the issuance of the security into which such convertible or exchangeable security converts or exchanges, or the security underlying such option, warrant or other right. Notwithstanding the foregoing, in the event of such issuance or sale of Common Stock at a cash price less than the Market Price, no such adjustment under this Section 7(a) need be made to the number of shares underlying the Warrant unless such adjustment would require an increase or decrease of at least 1% of the number of shares underlying the Warrant. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% of number of shares underlying the Warrant. For the purpose of this Agreement, the term "Market Price" shall mean (i) if the Common Stock is traded in the over-the-counter market or on the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"), the average per share closing prices of the Common Stock on the 20 consecutive trading days immediately preceding the date in question as reported by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the Common Stock is traded on a national securities exchange, the average for the 20 -8- consecutive trading days immediately preceding the date in question of the daily per share closing prices of the Common Stock on the principal stock exchange on which it is listed, as the case may be. The closing price referred to above shall be the last reported sales price or in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange or automated quotation system on which the Common Stock is then listed. Whenever the number of shares of Common Stock purchasable upon exercise of each Warrant is adjusted, the Warrant Price for each share of Common Stock payable upon exercise of each Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such adjustment and the denominator of which shall be the number of shares of Common Stock purchasable immediately after such adjustment. (iv) Within a reasonable time after the close of each quarterly fiscal period of the Company during which the Warrant Price or number of shares issuable upon exercise of this Warrant has been adjusted as herein provided, the Company shall 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) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend or distribution payable in Common Stock or by a subdivision of the outstanding Common Stock, then, from and after the record date thereof, by reason of such dividend, distribution 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 record date thereof, 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 -9- 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 or expiration 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, desire to declare a dividend or make any distribution of its assets to holders of its Common Stock, whether as a liquidating or a partial liquidating dividend or for any other purpose, the Company shall provide the holder of the Warrant with written notice of such intent not less than thirty (30) days prior to the record date to determine holders of Common Stock entitled to receive such distribution and the holder of this Warrant shall have until 5:00 p.m. EST on the twentieth (20th) day following the actual receipt of such notice to elect whether to exercise this Warrant in accordance with the terms herein. In the event of proper election to exercise the Warrant, the holder of this Warrant shall be deemed to be a holder of Common Stock as of the record date for such distribution. Should the holder of the Warrant elect to exercise his Warrant within 20 days after the record date for the determination of those holders of Common Stock entitled to such dividend or distribution, 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. (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 hereof 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 -10- the books shall be closed or record date fixed with respect to such offer of subscription and the right of the holder hereof 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 provisions 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 adjustment in the Warrant Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants previously or hereafter issued may continue to express the same price and number and kind of shares as are stated in this Warrant. (i) The Company shall 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. The Company shall not be required to issue fractions of shares of Common Stock 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, if the fraction is equal to or greater than .5, and down if the fraction is less than .5. 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, Suite 1503, New York, NY 10119. -11- (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 other than Section 6 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, and this Warrant is for the sole and exclusive benefit of the Company and the Holder or Holders. 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 October 15, 1999. TRANS WORLD GAMING CORP. By: -------------------- Its: -------------------- -12- FORM OF NOTICE OF EXERCISE (To be executed upon partial or full exercise of the Warrants represented hereby) The undersigned registered Holder of the Warrants represented by the attached Warrant Certificate irrevocably exercises such Warrant for and purchases ______________________ (___________) shares of Common Stock of Trans World Gaming Corp. (the "Company"). The undersigned herewith makes payment therefore in the amount of $ ____________, consisting of $ ____________ by wire transfer or certified or cashiers' check at a price of $_____ per share and requests that a certificate (or certificates) in denominations of ______________ (___________) shares of Common Stock of the Company hereby purchased be issued in the name of and delivered to the undersigned or such designee of the undersigned and, if such shares of Common Stock (together with any shares issued upon exercise of other Warrants or replacement Warrants) shall not include all of the shares of Common Stock issuable upon exercise of all Warrants represented by such Warrant Certificate (or if a new or replacement Warrant is otherwise to be provided pursuant to the Warrant Certificate), that a new or replacement Warrant Certificate of like tenor for the number of Warrants not being exercised (and not being surrendered) hereunder be issued in the name of and delivered to the undersigned, whose address is __________________________. Dated: ------------- ----------------------------- (Signature of Registered Holder) By: -------------------------- Title: ----------------------- -13- 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 PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE COMMON STOCK Series G No. 2 TRANS WORLD GAMING CORP. (a Nevada corporation) Dated: October 15, 1999 THIS CERTIFIES that Malcolm M.B. Sterrett (together with its successors or permitted assigns, the "Holder") is entitled to purchase from Trans World Gaming Corp., a Nevada corporation ("Company") up to 41,691 shares of the Company's common stock, par value $.001 per share (the "Common Stock"), at a purchase price of $.01 per share of Common Stock (the "Warrant Price"), subject to adjustment as hereafter provided. This Warrant is issued pursuant to that certain Subscription Agreement dated as of October 15, 1999 (the "Agreement"), between the Company and the Holder. 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 March 31, 2008, in whole or in part, by (i) the surrender of this Warrant (with the purchase form at the end 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 -1- 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 subparagraph (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 Common Stock 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. If at any time this Warrant is exercised as to less than the total number of shares for which it may be exercised, and this Warrant shall not have expired, the Company shall promptly issue to the Holder a new Warrant identical in form as to this Warrant as to the remaining shares hereunder. 2. TRANSFER. Subject to the legend set forth at the top of the first page hereof, 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 9(b), 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, for Company obligations, 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 authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. 4. NO RIGHTS OF 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 -2- 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. Upon the written request of any combination of the holders of Common Stock or of Warrants issued by the Company and collectively exercisable into not less than 100,000 shares of Common Stock (as such number may be adjusted under Paragraph 7), and on a one-time basis, the Company shall file, within ninety (90) days after written request such registration, and use its best efforts to cause to be declared effective ninety (90) days thereafter, 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 the Common Stock issuable upon exercise of this Warrant or any portion hereof (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 hereto. 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 two years following the expiration of the exercisability of this Warrant, or until shares owned by the Holder are eligible for sale without restriction under Rule 144. (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. (d) In addition the Company shall: (i) furnish to the Holder such numbers of copies of a summary prospectus or other prospectus, including a preliminary prospectus or any amendment or supplement to any prospectus, in conformity with the requirements of the 1933 Act, and such -3- other documents, as the Holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by the Holder; (ii) use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as the Holder shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such Holder to consummate the public sale or other disposition in such jurisdictions of the securities owned by such Holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (iii) use its best efforts to list such securities on any securities exchange on which any securities of the Company is then listed, if the listing of such securities is then permitted under the rules of such exchange; (iv) enter into and perform its obligations under an underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering; (v) notify the Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the 1933 Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (vi) furnish, at the request of the Holder on the date such Registrable Securities are delivered to the underwriters for sale pursuant to such registration or, if such Registrable Securities are not being sold through underwriters, on the date the registration statement with respect to such Registrable Securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purpose of such registration, addressed to the underwriters, if any, and to the Holder making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as the Holder of such Registrable Securities may reasonably request and are customarily included in such an opinion and (ii) letters, dated, respectively, (1) the effective date of the registration statement and (2) the date such Registrable Securities are delivered to the underwriters, if any, for sale pursuant to such registration, from a firm of independent certified public accountants of recognized standing selected by the Company, addressed to the underwriters, if any, and to the Holder making such request, covering such financial, statistical and accounting matters with respect to the registration in respect of which such letters are being given as the Holder of such Registrable Securities may reasonably request and are customarily included in such letters; and -4- (vii) take such other actions as shall be reasonably requested by any Holder to facilitate the registration and sale of the Registrable Securities. 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, director, 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, director, 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 described above 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 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 an underwriter or any other such person 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. (b) Whenever pursuant to Paragraph 5 a registration statement relating to the Registerable Securities is filed, amended or supplemented under the Act, the Distributing Holder will indemnify and hold harmless the Company and each underwriter, each of their respective directors, each of their respective officers, employees, partners and agents 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, employees, partners and agents or controlling person may become subject under the Act or otherwise, insofar -5- 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, employees, partners and agents 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 indemnified 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 indemnifying party, and after notice from the indemnified party to such indemnifying 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. (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: -6- (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 provision 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. Any such adjustment shall become effective at the time such subdivision or combination shall become effective. (iii) In case the Company shall at any time or from time to time issue or sell shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock, or any options, warrants or other rights to acquire shares of Common Stock) at a price per share less than the Market Price per share of Common Stock (treating the price per share of any security exchangeable or exercisable into Common Stock as equal to (x) the sum of the price for such security convertible, exchangeable or exercisable into Common Stock plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such security into Common Stock divided by (y) the number of shares of Common Stock initially underlying such convertible, exchangeable or exercisable security), other than issuance or sales of Common Stock pursuant to any employee benefit plan, then, and in each such case, the number of shares of Common Stock thereafter purchasable upon exercise of a Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of each Warrant by a fraction (A) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such date plus the number of additional shares of Common Stock issued (or the maximum number into which such convertible or -7- exchangeable securities initially may convert or exchange or for which such options, warrants or other rights initially may be exercised) and (B) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such date plus the number of shares of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued (or into which such convertible or exchangeable securities may convert or exchange or for which such options, warrants or other rights may be exercised plus the aggregate amount of any additional consideration initially payable upon conversion, exchange or exercise of such security) would purchase at the Market Price per share of Common Stock on such date. Such adjustment shall be made whenever such shares, securities, options, warrants or other rights are issued, and shall become effective retroactively immediately after the close of business on the record date for the determination of stockholders entitled to receive such shares, securities, options, warrants or other rights; PROVIDED, that the determination as to whether an adjustment is required to be made pursuant to this Section 7(a) shall only be made upon the issuance of such shares or such convertible or exchangeable securities, options, warrants or other rights, and not upon the issuance of the security into which such convertible or exchangeable security converts or exchanges, or the security underlying such option, warrant or other right. Notwithstanding the foregoing, in the event of such issuance or sale of Common Stock at a cash price less than the Market Price, no such adjustment under this Section 7(a) need be made to the number of shares underlying the Warrant unless such adjustment would require an increase or decrease of at least 1% of the number of shares underlying the Warrant. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% of number of shares underlying the Warrant. For the purpose of this Agreement, the term "Market Price" shall mean (i) if the Common Stock is traded in the over-the-counter market or on the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"), the average per share closing prices of the Common Stock on the 20 consecutive trading days immediately preceding the date in question as reported by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the Common Stock is traded on a national securities exchange, the average for the 20 -8- consecutive trading days immediately preceding the date in question of the daily per share closing prices of the Common Stock on the principal stock exchange on which it is listed, as the case may be. The closing price referred to above shall be the last reported sales price or in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange or automated quotation system on which the Common Stock is then listed. Whenever the number of shares of Common Stock purchasable upon exercise of each Warrant is adjusted, the Warrant Price for each share of Common Stock payable upon exercise of each Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such adjustment and the denominator of which shall be the number of shares of Common Stock purchasable immediately after such adjustment. (iv) Within a reasonable time after the close of each quarterly fiscal period of the Company during which the Warrant Price or number of shares issuable upon exercise of this Warrant has been adjusted as herein provided, the Company shall 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) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend or distribution payable in Common Stock or by a subdivision of the outstanding Common Stock, then, from and after the record date thereof, by reason of such dividend, distribution 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 record date thereof, 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 -9- 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 or expiration 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, desire to declare a dividend or make any distribution of its assets to holders of its Common Stock, whether as a liquidating or a partial liquidating dividend or for any other purpose, the Company shall provide the holder of the Warrant with written notice of such intent not less than thirty (30) days prior to the record date to determine holders of Common Stock entitled to receive such distribution and the holder of this Warrant shall have until 5:00 p.m. EST on the twentieth (20th) day following the actual receipt of such notice to elect whether to exercise this Warrant in accordance with the terms herein. In the event of proper election to exercise the Warrant, the holder of this Warrant shall be deemed to be a holder of Common Stock as of the record date for such distribution. Should the holder of the Warrant elect to exercise his Warrant within 20 days after the record date for the determination of those holders of Common Stock entitled to such dividend or distribution, 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. (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 hereof 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 -10- the books shall be closed or record date fixed with respect to such offer of subscription and the right of the holder hereof 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 provisions 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 adjustment in the Warrant Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants previously or hereafter issued may continue to express the same price and number and kind of shares as are stated in this Warrant. (i) The Company shall 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. The Company shall not be required to issue fractions of shares of Common Stock 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, if the fraction is equal to or greater than .5, and down if the fraction is less than .5. 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, Suite 1503, New York, NY 10119. -11- (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 other than Section 6 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, and this Warrant is for the sole and exclusive benefit of the Company and the Holder or Holders. 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 October 15, 1999. TRANS WORLD GAMING CORP. By: ----------------------------- Its: ----------------------------- -12- FORM OF NOTICE OF EXERCISE (To be executed upon partial or full exercise of the Warrants represented hereby) The undersigned registered Holder of the Warrants represented by the attached Warrant Certificate irrevocably exercises such Warrant for and purchases ______________________ (___________) shares of Common Stock of Trans World Gaming Corp. (the "Company"). The undersigned herewith makes payment therefore in the amount of $ ____________, consisting of $ ____________ by wire transfer or certified or cashiers' check at a price of $_____ per share and requests that a certificate (or certificates) in denominations of ______________ (___________) shares of Common Stock of the Company hereby purchased be issued in the name of and delivered to the undersigned or such designee of the undersigned and, if such shares of Common Stock (together with any shares issued upon exercise of other Warrants or replacement Warrants) shall not include all of the shares of Common Stock issuable upon exercise of all Warrants represented by such Warrant Certificate (or if a new or replacement Warrant is otherwise to be provided pursuant to the Warrant Certificate), that a new or replacement Warrant Certificate of like tenor for the number of Warrants not being exercised (and not being surrendered) hereunder be issued in the name of and delivered to the undersigned, whose address is __________________________. Dated: __________. -------------------------------- (Signature of Registered Holder) By: ----------------------------- Title: -------------------------- -13- 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 PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE COMMON STOCK Series G No. 1 TRANS WORLD GAMING CORP. (a Nevada corporation) Dated: October 15, 1999 THIS CERTIFIES that Value Partners, Ltd. (together with its successors or permitted assigns, the "Holder") is entitled to purchase from Trans World Gaming Corp., a Nevada corporation ("Company") up to 1,125,655 shares of the Company's common stock, par value $.001 per share (the "Common Stock"), at a purchase price of $.01 per share of Common Stock (the "Warrant Price"), subject to adjustment as hereafter provided. This Warrant is issued pursuant to that certain Subscription Agreement dated as of October 15, 1999 (the "Agreement"), between the Company and the Holder. 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 March 31, 2008, in whole or in part, by (i) the surrender of this Warrant (with the purchase form at the end 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 -1- 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 subparagraph (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 Common Stock 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. If at any time this Warrant is exercised as to less than the total number of shares for which it may be exercised, and this Warrant shall not have expired, the Company shall promptly issue to the Holder a new Warrant identical in form as to this Warrant as to the remaining shares hereunder. 2. TRANSFER. Subject to the legend set forth at the top of the first page hereof, 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 9(b), 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, for Company obligations, 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 authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. 4. NO RIGHTS OF 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 -2- 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. Upon the written request of any combination of the holders of Common Stock or of Warrants issued by the Company and collectively exercisable into not less than 100,000 shares of Common Stock (as such number may be adjusted under Paragraph 7), and on a one-time basis, the Company shall file, within ninety (90) days after written request such registration, and use its best efforts to cause to be declared effective ninety (90) days thereafter, 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 the Common Stock issuable upon exercise of this Warrant or any portion hereof (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 hereto. 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 two years following the expiration of the exercisability of this Warrant, or until shares owned by the Holder are eligible for sale without restriction under Rule 144. (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. (d) In addition the Company shall: (i) furnish to the Holder such numbers of copies of a summary prospectus or other prospectus, including a preliminary prospectus or any amendment or supplement to any prospectus, in conformity with the requirements of the 1933 Act, and such -3- other documents, as the Holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by the Holder; (ii) use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as the Holder shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable such Holder to consummate the public sale or other disposition in such jurisdictions of the securities owned by such Holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (iii) use its best efforts to list such securities on any securities exchange on which any securities of the Company is then listed, if the listing of such securities is then permitted under the rules of such exchange; (iv) enter into and perform its obligations under an underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering; (v) notify the Holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the 1933 Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (vi) furnish, at the request of the Holder on the date such Registrable Securities are delivered to the underwriters for sale pursuant to such registration or, if such Registrable Securities are not being sold through underwriters, on the date the registration statement with respect to such Registrable Securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purpose of such registration, addressed to the underwriters, if any, and to the Holder making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as the Holder of such Registrable Securities may reasonably request and are customarily included in such an opinion and (ii) letters, dated, respectively, (1) the effective date of the registration statement and (2) the date such Registrable Securities are delivered to the underwriters, if any, for sale pursuant to such registration, from a firm of independent certified public accountants of recognized standing selected by the Company, addressed to the underwriters, if any, and to the Holder making such request, covering such financial, statistical and accounting matters with respect to the registration in respect of which such letters are being given as the Holder of such Registrable Securities may reasonably request and are customarily included in such letters; and -4- (vii) take such other actions as shall be reasonably requested by any Holder to facilitate the registration and sale of the Registrable Securities. 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, director, 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, director, 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 described above 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 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 an underwriter or any other such person 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. (b) Whenever pursuant to Paragraph 5 a registration statement relating to the Registerable Securities is filed, amended or supplemented under the Act, the Distributing Holder will indemnify and hold harmless the Company and each underwriter, each of their respective directors, each of their respective officers, employees, partners and agents 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, employees, partners and agents or controlling person may become subject under the Act or otherwise, insofar -5- 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, employees, partners and agents 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 indemnified 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 indemnifying party, and after notice from the indemnified party to such indemnifying 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. (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: -6- (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 provision 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. Any such adjustment shall become effective at the time such subdivision or combination shall become effective. (iii) In case the Company shall at any time or from time to time issue or sell shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock, or any options, warrants or other rights to acquire shares of Common Stock) at a price per share less than the Market Price per share of Common Stock (treating the price per share of any security exchangeable or exercisable into Common Stock as equal to (x) the sum of the price for such security convertible, exchangeable or exercisable into Common Stock plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such security into Common Stock divided by (y) the number of shares of Common Stock initially underlying such convertible, exchangeable or exercisable security), other than issuance or sales of Common Stock pursuant to any employee benefit plan, then, and in each such case, the number of shares of Common Stock thereafter purchasable upon exercise of a Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of each Warrant by a fraction (A) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such date plus the number of additional shares of Common Stock issued (or the maximum number into which such convertible or -7- exchangeable securities initially may convert or exchange or for which such options, warrants or other rights initially may be exercised) and (B) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such date plus the number of shares of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued (or into which such convertible or exchangeable securities may convert or exchange or for which such options, warrants or other rights may be exercised plus the aggregate amount of any additional consideration initially payable upon conversion, exchange or exercise of such security) would purchase at the Market Price per share of Common Stock on such date. Such adjustment shall be made whenever such shares, securities, options, warrants or other rights are issued, and shall become effective retroactively immediately after the close of business on the record date for the determination of stockholders entitled to receive such shares, securities, options, warrants or other rights; PROVIDED, that the determination as to whether an adjustment is required to be made pursuant to this Section 7(a) shall only be made upon the issuance of such shares or such convertible or exchangeable securities, options, warrants or other rights, and not upon the issuance of the security into which such convertible or exchangeable security converts or exchanges, or the security underlying such option, warrant or other right. Notwithstanding the foregoing, in the event of such issuance or sale of Common Stock at a cash price less than the Market Price, no such adjustment under this Section 7(a) need be made to the number of shares underlying the Warrant unless such adjustment would require an increase or decrease of at least 1% of the number of shares underlying the Warrant. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% of number of shares underlying the Warrant. For the purpose of this Agreement, the term "Market Price" shall mean (i) if the Common Stock is traded in the over-the-counter market or on the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"), the average per share closing prices of the Common Stock on the 20 consecutive trading days immediately preceding the date in question as reported by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the Common Stock is traded on a national securities exchange, the average for the 20 -8- consecutive trading days immediately preceding the date in question of the daily per share closing prices of the Common Stock on the principal stock exchange on which it is listed, as the case may be. The closing price referred to above shall be the last reported sales price or in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the national securities exchange or automated quotation system on which the Common Stock is then listed. Whenever the number of shares of Common Stock purchasable upon exercise of each Warrant is adjusted, the Warrant Price for each share of Common Stock payable upon exercise of each Warrant shall be adjusted by multiplying such Warrant Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such adjustment and the denominator of which shall be the number of shares of Common Stock purchasable immediately after such adjustment. (iv) Within a reasonable time after the close of each quarterly fiscal period of the Company during which the Warrant Price or number of shares issuable upon exercise of this Warrant has been adjusted as herein provided, the Company shall 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) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend or distribution payable in Common Stock or by a subdivision of the outstanding Common Stock, then, from and after the record date thereof, by reason of such dividend, distribution 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 record date thereof, 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 -9- 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 or expiration 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, desire to declare a dividend or make any distribution of its assets to holders of its Common Stock, whether as a liquidating or a partial liquidating dividend or for any other purpose, the Company shall provide the holder of the Warrant with written notice of such intent not less than thirty (30) days prior to the record date to determine holders of Common Stock entitled to receive such distribution and the holder of this Warrant shall have until 5:00 p.m. EST on the twentieth (20th) day following the actual receipt of such notice to elect whether to exercise this Warrant in accordance with the terms herein. In the event of proper election to exercise the Warrant, the holder of this Warrant shall be deemed to be a holder of Common Stock as of the record date for such distribution. Should the holder of the Warrant elect to exercise his Warrant within 20 days after the record date for the determination of those holders of Common Stock entitled to such dividend or distribution, 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. (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 hereof 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 -10- the books shall be closed or record date fixed with respect to such offer of subscription and the right of the holder hereof 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 provisions 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 adjustment in the Warrant Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants previously or hereafter issued may continue to express the same price and number and kind of shares as are stated in this Warrant. (i) The Company shall 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. The Company shall not be required to issue fractions of shares of Common Stock 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, if the fraction is equal to or greater than .5, and down if the fraction is less than .5. 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, Suite 1503, New York, NY 10119. -11- (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 other than Section 6 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, and this Warrant is for the sole and exclusive benefit of the Company and the Holder or Holders. 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 October 15, 1999. TRANS WORLD GAMING CORP. By: -------------------------- Its: -------------------------- -12- FORM OF NOTICE OF EXERCISE (To be executed upon partial or full exercise of the Warrants represented hereby) The undersigned registered Holder of the Warrants represented by the attached Warrant Certificate irrevocably exercises such Warrant for and purchases ______________________ (___________) shares of Common Stock of Trans World Gaming Corp. (the "Company"). The undersigned herewith makes payment therefore in the amount of $ ____________, consisting of $ ____________ by wire transfer or certified or cashiers' check at a price of $_____ per share and requests that a certificate (or certificates) in denominations of ______________ (___________) shares of Common Stock of the Company hereby purchased be issued in the name of and delivered to the undersigned or such designee of the undersigned and, if such shares of Common Stock (together with any shares issued upon exercise of other Warrants or replacement Warrants) shall not include all of the shares of Common Stock issuable upon exercise of all Warrants represented by such Warrant Certificate (or if a new or replacement Warrant is otherwise to be provided pursuant to the Warrant Certificate), that a new or replacement Warrant Certificate of like tenor for the number of Warrants not being exercised (and not being surrendered) hereunder be issued in the name of and delivered to the undersigned, whose address is __________________________. Dated: __________. -------------------------------- (Signature of Registered Holder) By: ----------------------------- Title: -------------------------- -13- EX-21 6 ex-21.txt EXHIBIT 21 EXHIBIT 21.0 WHOLLY OWNED SUBSIDIARIES OF THE ISSUER
NAME PLACE OF INCORPORATION - ---- ---------------------- Trans World Gaming of Louisiana, Inc. Louisiana, USA TWG International U.S. Corporation Nevada, USA TWG Finance Corp. Delaware, USA Art Marketing, Ltd. d/b/a Tottenham & Co. London, UK SC98A, s.r.o. Czech Republic 21st Century Resorts, a.s. Czech Republic LMJ Casino Rozvadov, a.s. Czech Republic LMJ Slots, s.r.o. Czech Republic Atlantic Properties, s.r.o. Czech Republic Casino de Zaragoza Zaragoza, Spain
EX-27 7 ex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOUND ON PAGES F-3 AND F-4 OF THE COMPANY'S 10KSB/A FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 DEC-31-1999 DEC-31-1998 934 0 0 0 38 0 0 0 770 0 1,742 0 21,377 0 (5,126) 0 17,993 0 5,718 0 26,519 0 0 0 0 0 5 0 (14,249) 0 17,993 0 0 0 12,294 9,016 0 0 (8,149) (7,458) (7,307) (9,593) 0 0 (3,025) (2,465) (6,187) (10,500) 0 (191) (6,187) (10,691) (222) (38) 0 0 923 112 (5,486) (10,617) (1.78) (3.52) (1.78) (3.52)
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