<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
MTR GAMING GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
MTR GAMING GROUP, INC.
STATE ROUTE 2
CHESTER, WEST VIRGINIA 26034
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
MTR Gaming Group, Inc. to be held on August 23, 1999, at 8:30 a.m. local time,
at the Princeton Club, 15 West 43rd Street, New York, New York 10036.
The Notice of Annual Meeting and Proxy Statement which follow describe the
business to be conducted at the meeting. There will also be a brief report on
the current status of our business.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the Notice of Annual
Meeting and Proxy Statement, please complete, sign and date your proxy ballot,
and return it in the envelope provided.
On behalf of the Officers and Directors of MTR Gaming Group, Inc., I thank
you for your interest in the Company and hope that you will be able to attend
our Annual Meeting.
For the Board of Directors,
[SIGNATURE]
EDSON R. ARNEAULT
CHAIRMAN OF THE BOARD OF
DIRECTORS AND PRESIDENT
July 23, 1999
<PAGE>
MTR GAMING GROUP, INC.
STATE ROUTE 2
CHESTER, WEST VIRGINIA 26034
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MTR Gaming
Group, Inc. will be held on August 23, 1999 at 8:30 a.m. local time, at the
Princeton Club, 15 West 43rd Street, New York, New York 10036 for the following
purposes:
1. To elect five persons to serve as directors of the Corporation until the
next annual meeting of stockholders;
2. To ratify the adoption of the Corporation's 1999 Stock Incentive Plan;
3. To ratify the selection of BDO Seidman, LLP as the Corporation's
accountants and independent auditors; and
4. To transact such other business as may properly come before the meeting.
Stockholders entitled to notice and to vote at the meeting will be
determined as of the close of business on July 20, 1999, the record date fixed
by the Board of Directors for such purposes.
By order of the Board of Directors,
Rose Mary Williams, SECRETARY
July 23, 1999
Please sign the enclosed proxy and return it promptly in the enclosed
envelope.
If mailed in the United States, no postage is required.
<PAGE>
MTR GAMING GROUP, INC.
STATE ROUTE 2
CHESTER, WEST VIRGINIA 26034
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of MTR Gaming Group, Inc. (the "Company") for
use at the Annual Meeting of Stockholders to be held on August 23, 1999.
A copy of the Company's report with financial statements for the year ended
December 31, 1998 accompanies this Proxy Statement. This proxy statement and
form of proxy were first sent to stockholders on or about the date stated on the
accompanying Notice of Annual Meeting of Stockholders.
Only stockholders of record as of the close of business on July 20, 1999
will be entitled to notice of and to vote at the meeting and any postponement or
adjournments thereof. As of that date, 20,871,163 shares of Common Stock of the
Company were issued and outstanding. Each share outstanding as of the record
date will be entitled to one vote, and stockholders may vote in person or by
proxy. Execution of a proxy will not in any way affect a stockholder's right to
attend the meeting and vote in person. Any stockholder giving a proxy has the
right to revoke it at any time before it is exercised by written notice to the
Secretary of the Company or by submission of another proxy bearing a later date.
In addition, stockholders attending the meeting may revoke their proxies at any
time before they are exercised.
If no contrary instructions are indicated, all properly executed proxies
returned in time to be cast at the meeting will be voted FOR: (i) the election
of the directors nominated herein, (ii) the ratification of the adoption of the
Company's 1999 Stock Incentive Plan, and (iii) the ratification of the auditors.
Members of the Company's management intend to vote their shares in favor of each
of the proposals. A quorum for the meeting requires the presence in person or by
proxy of stockholders entitled to cast a majority of the votes entitled to be
cast at the meeting, but in no event less than 33 and 1/3 percent of the
outstanding shares of the Company's voting stock. The election of directors
requires a plurality of the votes cast at the meeting. The ratification of the
adoption of the Company's 1999 Stock Incentive Plan and the confirmation of the
auditors require the affirmative vote of a majority of the shares present at the
meeting.
Stockholders will vote at the meeting by ballot and votes cast at the
meeting in person or by proxy will be tallied by the Company's transfer agent.
Shares held by stockholders present in person at the meeting who do not vote and
Ballots marked "abstain" or "withheld" will be counted as present at the meeting
for quorum purposes, but will not be counted as part of the vote necessary to
approve the proposals for the election of directors or the confirmation of the
auditors.
The solicitation of proxies will be made primarily by mail. Proxies may also
be solicited personally and by telephone or telegraph by regular employees of
the Company, without any additional remuneration. The cost of soliciting proxies
will be borne by the Company. In addition, the Company may also retain a proxy
solicitation firm to solicit proxies, in which case, the Company will pay the
solicitation firm's fees. The Company will also make arrangements with brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
material to beneficial owners of stock held of record by such persons, and the
Company will reimburse such persons for their reasonable out-of-pocket expenses
in forwarding solicitation material.
1
<PAGE>
The Company knows of no other matter to be presented at the meeting. If any
other matter should be presented at the meeting upon which a vote properly may
be taken, then the persons named as proxies will use their own judgment in
voting shares represented by proxies.
ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office until the
next annual meeting and until their successors have been elected and have
qualified. The Company's Board of Directors (the "Board") has fixed the number
of Directors at seven. However, the Board has nominated five candidates for
service, each of whom serves for a term of one year, or until their successors
are elected and qualify. PROXIES CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS
THAN THE NUMBER OF NOMINEES NAMED.
Any stockholder submitting a proxy has the right to withhold authority to
vote for an individual nominee to the Board by writing that nominee's name in
the space provided on the proxy. Shares represented by all proxies received by
the Company and not marked to withhold authority to vote for any individual
director or for all directors will be voted FOR the election of all of the
nominees named below. The Company knows of no reason why any nominee would be
unable to serve, but if such should be the case, proxies will be voted for the
election of some other person.
NOMINEES FOR DIRECTORS
The Board has nominated the following persons to serve as the Company's
directors, and all proxies not marked otherwise will be voted for the nominees
for a term expiring at the Annual Meeting in 2000:
EDSON R. ARNEAULT has been a director of the Company since January 1992 and
has served as the Company's President and Chief Executive Officer since April
26, 1995. He also serves as Chairman of the Company's Audit Committee. He is
also an officer and director of the Company's subsidiaries, Mountaineer Park,
Inc., Golden Palace Casinos, Inc., ExCal Energy Corp., Speakeasy Gaming of Reno
Inc. ("Speakeasy Reno") and Speakeasy Gaming of Las Vegas, Inc. ("Speakeasy Las
Vegas"). Mr. Arneault is also a principal in numerous ventures directly or
indirectly engaged in the development, production and transportation of oil and
gas. Since becoming the President of the Company and Mountaineer Park, however,
Mr. Arneault has devoted virtually all his time and attention to the business of
the Company. Mr. Arneault is a certified public accountant, and has served as a
tax partner with Seidman and Seidman (now "BDO Seidman"), a public accounting
firm, in Grand Rapids, Michigan, from 1977 to 1980. Mr. Arneault was employed as
a certified public account by Arthur Andersen in the tax department of its
Cleveland office from 1972 to 1976. Mr. Arneault is a member of the Independent
Producers Association of America, the Ohio Oil and Gas Association, the Michigan
Oil and Gas Association and the Michigan Association of Certified Public
Accountants. Mr. Arneault received his Bachelor of Science in Business
Administration from Bowling Green University in 1969, his Master of Arts from
Wayne State University in 1971, and his Masters in Business Administration from
Cleveland State University in 1978. Mr. Arneault also serves as a member of the
Hospitality and Tourism Management Board of Visitors of Robert Morris College in
Pittsburgh, Pennsylvania.
ROBERT L. RUBEN has been a director of the Company since September 1995 and
a Vice President since February 1999. He also serves as Assistant Secretary of
the Company, is Chairman of the Company's Compensation Committee, and serves as
a Director and Assistant Secretary of Mountaineer Park. He is a partner in Ruben
& Aronson, LLP, a Washington, D.C. law firm. Previously, Mr. Ruben was a
principal in Freer, McGarry, Bodansky & Rubin, P.C., a Washington, D.C. law
firm, where he practiced from 1991 until 1997. From 1986 to 1988, Mr. Ruben was
associated with the firm of Bishop, Cook, Purcell & Reynolds, which later merged
with Winston & Strawn, and from 1989 to 1991, Mr. Ruben was associated with the
firm of Wickens, Koches & Brooks. Mr. Ruben practices principally in the areas
of commercial litigation and securities regulation. Mr. Ruben received his
Bachelor of Arts from the University of Virginia in 1983 and his Juris Doctor
from the Dickinson School of Law in 1986. He is a member of the bars of the
District
2
<PAGE>
of Columbia and the Commonwealth of Pennsylvania (inactive). Ruben & Aronson,
LLP currently serves as counsel to the Company, and Mr. Ruben has represented
Mr. Arneault and various of his affiliates since 1987.
ROBERT A. BLATT has been a director of the Company since September 1995 and
a Vice President since February 1999. Mr. Blatt is also a Director and Assistant
Secretary of Mountaineer Park, Chairman of the Company's Finance Committee and a
member of the Company's Compensation Committee. Mr. Blatt is the Chief Executive
Officer and managing member of CGE Shattuck, L.L.C., and of New England
National, L.L.C. and a member of the board of directors of AFP Imaging
Corporation. Since 1979 he has been chairman and majority owner of CRC Group,
Inc., and related entities, a developer, owner, and operator of shopping centers
and other commercial properties, and since 1985, a member (seat owner) of the
New York Stock Exchange, Inc. From 1959 through 1991, Mr. Blatt served as
director, officer or principal of numerous public and private enterprises. Mr.
Blatt received his Bachelor of Science in Finance from the University of
Southern California in 1962 and his Juris Doctor from the University of
California at Los Angeles in 1965. He is a member of the State Bar of
California.
JAMES V. STANTON has been a director of the Company since February, 1998 and
serves on the Company's Audit Committee. Mr. Stanton has his own law and
lobbying firm, Stanton & Associates, in Washington, D.C. From 1971-1978, Mr.
Stanton represented the 20th Congressional District of Ohio in the United States
House of Representatives. While in Congress Mr. Stanton served on the Select
Committee on Intelligence, the Government Operations Committee, and the Public
Works and Transportation Committee. Mr. Stanton has held a wide variety of
public service positions, including service as the youngest City Council
President in the history of Cleveland, Ohio and membership on the Board of
Regents of the Catholic University of America in Washington, D.C. Mr. Stanton is
also former Executive Vice President of Delaware North, a privately held
international company which, during Mr. Stanton's tenure, had annual sales of
over $1 billion and became the leading parimutuel wagering company in the United
States, with worldwide operations including horse racing, harness racing, dog
racing, and Jai-Lai. Delaware North also owned the Boston Garden and the Boston
Bruins hockey team. From 1985-1994, Mr. Stanton was a principal and co-founder
of Western Entertainment Corporation, which pioneered one of the first Native
American Gaming operations in the United States, a 90,000 square foot bingo and
casino gaming operation located on the San Manuel Indian Reservation in
California, which generated annual revenues in excess of $50 million. Mr.
Stanton also serves on the boards of CCA Companies Incorporated, and Saf T Lok
Incorporated.
WILLIAM D. FUGAZY, JR. has been a director of the Company since February,
1998 and serves on the Company's Audit Committee. He is presently Chairman of
Camelot Ventures, Inc., which is a financial advisory firm based in New York
City, and is Chief Executive Officer of Summit Aviation Corporation, which is an
executive aviation services firm based at Republic Airport in East Farmingdale,
New York. Mr. Fugazy is a former Regional President of Koll Real Estate Service,
a company which provided real estate services throughout the United States and
internationally. Koll was one of the largest real estate services companies in
the world and in August, 1997, merged with CB Commercial Real Estate Group, Inc.
Prior to joining Koll, which he served from 1993-1998, Mr. Fugazy was President
of Tishman Management and Leasing Services Corporation, also a national real
estate service company, which was sold to Koll in 1992. Prior to joining
Tishman, Mr. Fugazy was Senior Vice President of Muller and Company, a national
investment banking and securities brokerage operation. Mr. Fugazy is also a
partner and officer of the Beacon Hotel and Resort Corporation, a hotel
management company with offices in New York, Los Angeles, California and Miami
Beach, Florida. Mr. Fugazy holds a B.S. Degree from Fordham University in New
York.
The Board held four regular meetings and two special meetings during the
fiscal year ended December 31, 1998. All directors attended at least 75% of the
total number of meetings of the Board. The Board does not have a standing
nominating committee. Mr. Ruben and Mr. Blatt make up the Board's Compensation
Committee. Mr. Blatt is the sole member of the Board's Finance Committee.
3
<PAGE>
Messrs. Arneault, Stanton, and Fugazy make up the Board's Audit Committee. The
Compensation Committee makes recommendations with respect to salaries, bonuses,
restricted stock, and deferred compensation for the Company's executive officers
as well as the policies underlying the methods by which the Company compensates
its executives. During the fiscal year ended December 31, 1998, the Compensation
Committee held two meetings. As a matter of policy, and to assure compliance
with Rule 16b-3(d)(1) of the Securities Exchange Act of 1934, the decisions of
the Compensation Committee are subject to ratification by a majority of the
Board. The Finance Committee monitors the Company's relationships with its
lenders and investment bankers and negotiates on behalf of the Company with
respect to proposed financing arrangements. The Audit Committee reviews the
financial statements of the Company, selects the Company's accountants and
independent auditors, monitors accounting and related procedures of the Company
and performs other functions generally conducted by Audit Committees of
reporting companies of similar size. During the fiscal year ended December 31,
1998, the Audit Committee held one meeting.
EXECUTIVE OFFICERS; OFFICERS
The following persons serve as the officers indicated:
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION
NAME AND ADDRESS POSITION LAST 5 YEARS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Edson R. Arneault* Director, President, Chief Executive President of the Company and its
MTR Gaming Group, Inc. Officer, Chief Financial Officer and subsidiaries; oil and gas
State Route 2 South Treasurer exploration
P.O. Box 356
Chester, WV 26034
Robert L. Ruben** Director, Vice President, Assistant Law
3299 K Street, N.W. Secretary
Suite 403
Washington, D.C. 20007
Robert A. Blatt** Director, Vice President Assistant Commercial Development
1890 Palmer Avenue Secretary
Suite 303
Larchmont, NY 10538
Rose Mary Williams*** Secretary Business Administration
MTR Gaming Group, Inc.
State Route 2 South
Chester, WV 26034
</TABLE>
- ------------------------
* Also an officer and director of Mountaineer Park, Inc., Speakeasy Gaming of
Las Vegas, Inc., Speakeasy Gaming of Reno, Inc., ExCal Energy Corporation,
and Golden Palace Casinos, Inc., the Company's subsidiaries.
** Also a director and assistant secretary of Mountaineer Park, Inc.
*** Also a director and secretary of Mountaineer Park, Inc.
4
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of July 20, 1999, the ownership of the
presently issued and outstanding shares of the Company's Common Stock by persons
owning more than 5% of such stock, and the ownership of such stock by the
Company's officers, directors and key employees, individually and as a group. As
of July 20, 1999, there were 20,871,163 shares of common stock outstanding. All
such shares were owned both beneficially and of record, except as otherwise
noted.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP OF CLASS
- ---------------------------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
Edson R. Arneault(1).............................................................. 3,765,567 16.59%
MTR Gaming Group, Inc.
State Route 2 South
P.O. Box 356
Chester, WV 26034
Robert L. Ruben(2)................................................................ 541,228 2.53%
Ruben & Aronson, LLP
3299 K Street, N.W.
Suite 403
Washington, DC 20007
Robert A. Blatt(3)................................................................ 896,684 4.19%
The CRC Group
Larchmont Plaza
1890 Palmer Avenue,
Suite 303
Larchmont, NY 10538
James V. Stanton (4).............................................................. 49,400 *
Stanton & Associates
1310 19th Street, N.W.
Washington, D.C. 20036
William D. Fugazy, Jr. (4)........................................................ 51,500 *
140 East 45th Street, Suite 4000
New York, New York 10017
Amount and Nature
Rose Mary Williams(5)............................................................. 35,000 *
State Route 2 South
Chester, West Virginia 26034
Madeleine LLC(6).................................................................. 2,171,241 9.58%
450 Park Avenue
New York, NY 10022
Donald G. Saunders(7)............................................................. 1,228,670 5.79%
32251 Peppertree Bend
San Juan Capistrano, CA 92675
Total Officers and Directors as a Group (6 persons)(8)............................ 5,339,379 22.46%
</TABLE>
5
<PAGE>
* Less than 1%.
- ------------------------
1) Includes 1,974,233 shares and options to acquire beneficial ownership of
1,791,334 shares within 60 days held by Mr. Arneault or his affiliates. Does
not include options to purchase 300,000 shares granted to Mr. Arneault in
February 1999 under the Company's 1999 Stock Incentive Plan (the "1999
Plan") which was approved by the Company's Board of Directors in February
1999. The 1999 Plan and all options granted under that plan are subject to
shareholder approval.
2) Includes 41,228 shares and options to acquire beneficial ownership of
500,000 shares within 60 days held by Mr. Ruben. Does not include options to
purchase 150,000 shares granted to Mr. Ruben in February 1999 under the 1999
Plan. The 1999 Plan and all options granted under that plan are subject to
shareholder approval.
3) Includes 461,684 shares and options to acquire beneficial ownership of
475,000 shares exercisable within 60 days held by Mr. Blatt. Does not
include options to purchase 150,000 shares granted to Mr. Blatt in February
1999 under the 1999 Plan. The 1999 Plan and all options granted under that
plan are subject to shareholder approval.
4) Includes 11,900 shares and options to acquire beneficial ownership of 37,500
shares exercisable within 60 days held by Mr. Stanton. Includes 14,000
shares and options to acquire beneficial ownership of 37,500 shares
exercisable within 60 days held by Mr. Fugazy. For each year of service on
the Company's Board of Directors, Mr. Stanton and Mr. Fugazy will each
receive options to purchase 25,000 shares of common stock of the Company.
Such options will be exercisable for a term of five years from the date of
grant. Any options that have not vested at the end of each calendar year
will be deemed cancelled.
5) Includes no shares and options held by Ms. Williams to acquire beneficial
ownership of 35,000 shares within 60 days. Does not include options to
purchase 25,000 shares granted to Ms. Williams in February 1999 under the
1999 Plan. The 1999 Plan and all options granted under that plan are subject
to shareholder approval.
6) Includes 412,428 shares and options to acquire beneficial ownership of
1,757,813 shares within 60 days held by Madeleine LLC; provided, however,
that pursuant to an agreement with the Company, Madeleine LLC may not
exercise its warrant to the extent such exercise would result in its
ownership of 5% or more of the then issued and outstanding shares of common
stock of the Company without the prior approval of the West Virginia State
Lottery Commission.
7) Includes 1,124,637 shares and options to acquire beneficial ownership of
293,533 shares within 60 days.
8) Includes Messrs. Arneault, Blatt, Ruben, Stanton, Fugazy and Ms. Williams.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the provisions of Section 16(a) of the Securities Exchange Act of
1934, the Company's officers, directors and 10% beneficial stockholders are
required to file with the SEC reports of their transactions in the Company's
securities. Based solely on a review of the Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, the Company believes that all forms were filed timely by the
Company's officers, directors and 10% beneficial stockholders, except for Mr.
Stanton (with respect to one report).
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded, paid to or earned
by the most highly compensated executive officers of the Company whose
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------------- -------------------------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS
SALARY BONUS COMP. AWARDS SARS
NAME YEAR ($)(1) ($) ($)(2) ($) (#)(3)
- -------------------------------------------------------- --------- --------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
EDSON R. ARNEAULT(4).................................... 1998 384,525 92,750 36,922 -- 1,000,000
Chairman, President and Chief Executive Officer of MTR 1997 300,643 67,500 4,517 -- 150,000
Gaming Group, Inc. 1996 230,521 67,500 24,590 2,748 300,000
THOMAS K. RUSSELL(5).................................... 1998 12,000 -- -- -- --
Secretary, Treasurer, Chief Financial Officer, General 1997 170,697 -- -- -- --
Counsel and Director of MTR Gaming Group, Inc. 1996 162,729 -- 7,496 619 100,000
BRUCE E. DEWING(4)......................................
Vice President and Chief Operating Officer or
Speakeasy Las Vegas and Speakeasy Reno 1998 128,846 -- -- -- --
<CAPTION>
PAYOUTS
----------------------------
LTIP ALL
PAYOUTS OTHER
NAME ($) COMP. $(5)
- -------------------------------------------------------- ------------- -------------
<S> <C> <C>
EDSON R. ARNEAULT(4).................................... -- --
Chairman, President and Chief Executive Officer of MTR -- --
Gaming Group, Inc. -- --
THOMAS K. RUSSELL(5).................................... -- 99,696
Secretary, Treasurer, Chief Financial Officer, General -- --
Counsel and Director of MTR Gaming Group, Inc. -- --
BRUCE E. DEWING(4)......................................
Vice President and Chief Operating Officer or
Speakeasy Las Vegas and Speakeasy Reno -- --
</TABLE>
- ------------------------------
(1) Mr. Arneault's bonus paid in 1998 includes $52,000 earned by Mr. Arneault in
1997. In February of 1998, Mr. Russell resigned his positions and became a
part-time employee.
(2) Includes accrued 1997 vacation compensation of $14,769 and accrued 1998
vacation compensation of $22,153 paid to Mr. Arneault in 1998.
(3) All options granted by the board of directors in 1998 were approved by vote
of the stockholders at the Company's annual meeting of stockholders held
August 21, 1998.
(4) See "Employment Agreements" below with respect to Mr. Arneault. Mr. Dewing
commenced employment with the Company in 1998.
(5) Represents severance paid in connection with termination of Mr. Russell's
employment agreement.
OPTION GRANTS IN 1998
The following table contains information concerning the grant of stock
options during fiscal year 1998 to the Company's executive officers named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
STOCK
PRICE
APPRECIATION
NUMBER OF % OF TOTAL FOR
SECURITIES OPTIONS OPTION
UNDERLYING GRANTED IN TERM(1)
OPTIONS FISCAL EXPIRATION ---------
NAME GRANTED(#)(1) YEAR EXERCISE PRICE DATE 5%
- ----------------------------------------------------- --------------- --------------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Edson R. Arneault.................................... 300,000 16% $ 2.15625 Jan. 2003 $ 178,720
700,000 38% 2.41 March 2003 $ 466,087
<CAPTION>
NAME 10%
- ----------------------------------------------------- -----------
<S> <C>
Edson R. Arneault.................................... $ 394,923
$ 1,029,930
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
"Potential Realizable Value" has been calculated assuming an aggregate five
year appreciation of the fair market value of the Company's common stock on
the date of the grant at annual compounded rates of 5% and 10%,
respectively.
7
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table sets forth information regarding the number and value of
options held by each of the Company's executive officers named in the Summary
Compensation Table as of December 31, 1998.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-
NUMBER OF SECURITIES THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT YEAR
FISCAL YEAR END END($)(1)
SHARES ACQUIRED VALUE -------------------------- -----------
NAME ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ----------------------------------------------- ----------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Edson R. Arneault.............................. 378,415 149,474 1,591,334 -- $1,013,502
Thomas K. Russell.............................. 222,316 101,709 179,500 -- $ 295,665
<CAPTION>
NAME UNEXERCISABLE
- ----------------------------------------------- -------------
<S> <C>
Edson R. Arneault.............................. --
Thomas K. Russell.............................. --
</TABLE>
- ------------------------------
(1) Based on the market price of the Company's Common Stock of $2.43 on December
31, 1998, as reported by Nasdaq.
EMPLOYMENT AGREEMENTS
On February 16, 1998, the Company entered into an Amendment of Employment
Agreement with Thomas K. Russell (the "Amendment Agreement") which governs, as
of such date, the terms of Mr. Russell's employment with the Company. The
Amendment Agreement replaced a May 10, 1994 agreement pursuant to which Mr.
Russell served as an officer and director of the Company. Pursuant to the terms
of the Amendment Agreement: (i) Mr. Russell resigned from all directorships and
offices that he held with the Company and its affiliates (the "Companies") prior
to February 16, 1998, and from membership on any committees of the Companies;
(ii) the Company agreed to pay Mr. Russell the sum of $99,676.94 offset by any
advances or payroll received by him from the Company after December 31, 1997
(such offsets totaling $48,000); (iii) the Company agreed to employ Mr. Russell
as an Assistant to the President for a term of 20 months commencing on January
1, 1998, and terminating on September 15, 1999 (during which time Mr. Russell
will not be expected to devote more than 15 hours per month to the business of
the Company in consideration of a salary of $1,000 per month); and (iv) the
Company and Mr. Russell agreed on certain other provisions including a release
and indemnification, medical insurance, non- disclosure and confidentiality.
The Company entered into a new employment agreement dated February 1, 1999
with its President and CEO, Edson R. Arneault. The agreement is for a term of
five (5) years, calls for an annual base salary of $450,000 (subject to
automatic annual cost of living increases of 5%), semi-annual cash bonuses of
$50,000, and a performance bonus for each year equal to 1% of the gross
operating revenue increase over 1998 operating revenue (provided, however, that
EBITDA, as defined, exceeds 1998 EBITDA). The Company also entered into a
deferred compensation agreement dated January 1999, whereby the Company will
purchase a life insurance policy on the President and CEO's life (face amount of
$2,250,000 and annual premium of $100,000). The owner of the policy will be the
Company. The President and CEO will also be entitled to an annual benefit, as
defined, upon retirement, death or termination out of the cash value of the
insurance policy (after the Company recoups the aggregate amount paid in
premiums). The benefits provided by the deferred compensation agreement were
granted to the President as additional benefits and not as part of any salary
reduction plan or arrangement deferring a bonus or a salary increase.
On February 1, 1999, the Company entered into an employment agreement with
Robert A. Blatt. Pursuant to the agreement, Mr. Blatt agreed to serve the
Company in the capacity of Vice President, Chairman of the Company's Finance
Committee, a member of its Compensation Committee as well as Assistant Secretary
and Vice President of Mountaineer Park, Inc., and in such other offices and
directorships of the Company and its affiliates, for a five year period ending
January 31, 2004. The agreement provides for an annual base salary of $46,000
per year (subject to automatic annual cost of living increases of 5%),
additional compensation for additional services in the amount of $2,500 per day
and cash bonuses and other benefits as the Compensation Committee of the
Company's Board of Directors may periodically award in its discretion based on
Mr. Blatt's performance. Pursuant to the Agreement, in June of 1999 the
8
<PAGE>
Company also entered into a deferred compensation agreement with Mr. Blatt
whereby the Company will purchase a life insurance policy on Mr. Blatt's life
(annual premium of $25,000). The owner of the policy will be the Company. Mr.
Blatt will also be entitled to an annual benefit, as defined, upon retirement,
death or termination out of the cash value of the insurance policy (after the
Company recoups the aggregate amount paid in premiums). The benefits provided by
the deferred compensation agreement were granted to Mr. Blatt as additional
benefits and not as part of any salary reduction plan or arrangement deferring a
bonus or a salary increase.
On February 1, 1999, the Company also entered into an employment agreement
with Robert L. Ruben. Pursuant to the agreement, Mr. Ruben agreed to serve the
Company as Assistant Secretary, Vice President, and Chairman of the Compensation
Committee as well as Assistant Secretary and Vice President of Mountaineer Park,
Inc. and in such other offices and directorships of the Company and of its
affiliates, for a five-year period ending on January 31, 2004. The agreement
provides for an annual base salary of $46,000 per year (subject to automatic
annual cost of living increases of 5%) and such cash bonuses and other benefits
as the Compensation Committee of the Board of Directors may periodically award
in its discretion based on Mr. Ruben's performance. Pursuant to the Agreement,
in June of 1999, the Company also entered into a deferred compensation agreement
with Mr. Ruben whereby the Company will purchase a life insurance policy on Mr.
Ruben's life (annual premium of $25,000). The owner of the policy will be the
Company. Mr. Ruben will also be entitled to an annual benefit, as defined, upon
retirement, death or termination out of the cash value of the insurance policy
(after the Company recoups the aggregate amount paid in premiums). The benefits
provided by the deferred compensation agreement were granted to Mr. Ruben as
additional benefits and not as part of any salary reduction plan or arrangement
deferring a bonus or a salary increase.
STOCK PERFORMANCE GRAPH
The following graph demonstrates a comparison of cumulative total returns of
the Company, the NASDAQ Market Index (which is considered to be a broad index)
and an industry peer group index based upon companies which are publicly traded
with the same four digit standard industrial classification code ("SIC") as the
Company (SIC 7999--Amusement and Recreational Services) for the past five years.
The beginning date for the graph is January 1, 1994. The following graph assumes
$100 invested in each of the above groups and the reinvestment of dividends.
9
<PAGE>
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MTR GAMING GROUP, INC.
NASDAQ MARKET INDEX AND SIC CODE INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MTR GAMING SIC CODE NASDAQ
GROUP, INC. INDEX MARKET INDEX
<S> <C> <C> <C>
1993 $100.00 $100.00 $100.00
1994 $28.79 $79.33 $104.99
1995 $18.18 $114.42 $136.18
1996 $24.24 $119.85 $169.27
1997 $48.48 $125.08 $207.00
1998 $59.09 $92.82 $291.96
</TABLE>
ASSUMES $100 INVESTED ON JAN. 1, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1998
<TABLE>
<CAPTION>
COMPANY 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MTR Gaming Group, Inc........................................... 100.00 28.79 18.18 24.24 48.48 59.09
Industry Index.................................................. 100.00 79.33 114.42 119.85 125.08 92.82
NASDAQ Market Index............................................. 100.00 104.99 136.18 169.27 207.00 291.96
</TABLE>
- ------------------------
(1) The peer group consists of the following companies: American Bingo & Gaming;
American Wagering; Argosy Gaming Co.; Boyd Gaming Co.; Crown Group, Inc.;
Dover Downs Entertainment; Gametech International, Inc.; Imax Corp.; Inland
Entertainment Corp.; Isle of Capris Casinoes; JCC Holding Company; Lady Luck
Gaming Corp.; Malibu Entertainment; MGM Grand, Inc. Mirage Resorts, Inc.;
Multimedia Games Inc.; Quintel Entertainment; Sands Regent; Ticketmaster
Online; Vail Resorts Inc.; and Visual Edge Systems, Inc.
COMPENSATION OF DIRECTORS
During 1998, Mr. Ruben and Mr. Blatt received $2,500 for each meeting of the
Board of Directors, a committee of the Board or of the shareholders that they
attended. They also received reimbursement for out-of-pocket expenses incurred
in attending such meetings. Mr. Blatt also received $3,000 per month for serving
as Chairman of the Finance Committee and $114,250 in consulting fees. For their
service in 1996 through 1998, Messrs. Ruben and Blatt also received options to
purchase, in the aggregate, 500,000 and 475,000 shares of the Company's common
stock, respectively, for prices ranging from $.56 to $2.15 per
10
<PAGE>
share. As of February 1999, Messrs. Ruben and Blatt became employees of the
Company. Directors who are employees of the Company do not receive compensation
for attendance at Board meetings, but are entitled to reimbursement for expenses
that they incur in attending such meetings.
On February 18, 1998, the Company entered into separate agreements with Mr.
Stanton and Mr. Fugazy to provide certain compensation for their services on the
Company's Board of Directors. Specifically, each agreement provided for: (i) the
grant of options to purchase 25,000 shares of common stock of the Company for
each year of service; (ii) the registration by the Company, at its sole cost, of
the shares underlying such options by including such shares in any registration
statement the Company determines to file with the Securities and Exchange
Commission with respect to employee compensation; (iii) the adjustment of the
terms of such options in certain events as set forth in the agreement; and (iv)
a fee of $2,500 for each regular meeting of the Board, audit committee or
shareholders attended and reimbursement of expenses for travel, food and lodging
incurred in attending such meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On November 8, 1995, the Board voted to form an executive compensation
committee consisting of Mr. Ruben and Mr. Blatt, (the "Committee"). The
Committee is authorized to review all compensation matters involving directors
and executive officers and Committee approval is required for any compensation
to be paid to executive officers or directors who are employees of the Company.
As a matter of policy and to assure compliance with Rule 16b-3(d)(1) of the
Securities Exchange Act of 1934, the decisions of the Compensation Committee are
subject to ratification by a majority of the Board. Both Messrs. Blatt and Ruben
serve as officers and directors of the Company and of Mountaineer Park.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
POLICY
The Committee's decisions with respect to executive compensation will be
guided by the general principle that compensation be designed: (i) to assure
that the Company's executives receive fair compensation relative to their peers
at similar companies; (ii) to assure that the Company's shareholders are
receiving fair value for the compensation paid to the Company's executives; and
(iii) to allow the Company to secure and retain the services of high quality
executives.
The Company's compensation program will consist of three elements: a base
salary; annual incentives in the form of cash or restricted stock bonuses; and
long-term incentives in the form of stock options. The Committee believes that
annual incentives, or bonuses, should be used to reward an executive for
exceptional performance. The determination of what constitutes exceptional
performance is, at this stage, a subjective judgment by the Committee based on
the executive's contribution to the Company's revenues, legislative and
regulatory efforts, recruitment of high quality personnel, elevating public
awareness and perception of the Company's gaming and resort businesses, and
development of the Company's prospects.
Stock options allow the Company to motivate executives to increase
stockholder value. This type of incentive also allows the Company to recruit
members of the management team whose contributions and skills are important to
its long-term success. The Committee intends to employ a combination of cash
incentives, stock and option awards.
During 1998, Mr. Russell's compensation was determined by a February 16,
1998 Amendment of Employment Agreement. His compensation pursuant to such
Amendment in 1998 was $111,696 of which $99,676 represented severance paid in
connection with the termination of Mr. Russell's May 19, 1994 Employment
Agreement.
11
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION.
During the fiscal year ended December 31, 1998, Mr. Arneault's base salary
and vacation compensation were based upon a March 1, 1997 employment agreement
then in effect. Likewise pursuant to the discretion granted the Compensation
Committee by the employment agreement, Mr. Arneault received cash bonuses
totaling $92,750, of which $52,000 was earned in the fiscal year ended December
31, 1997. In addition, in 1998, the Committee recommended, and the Board
approved, grants to Mr. Arneault of non-qualified options to purchase 1,000,000
shares of the Company's common stock at the fair market value on the date of
grant of $2.15625 per share (with respect to 300,000 options) and $2.41 per
share (with respect to the remaining 700,000 options). In deciding upon Mr.
Arneault's bonus and the award of options, the Committee took into account: (i)
Mr. Arneault's success in substantially increasing the Company's revenues; (ii)
his continued good work with West Virginia regulators; (iii) his success in
acquiring the Company's Nevada properties; and (iv) his contribution to the
Company's overall financial results, including a substantial increase of the
Company's net profits. The Committee believed that the total compensation was
warranted by Mr. Arneault's overall performance.
Respectfully submitted,
Robert A. Blatt
Robert L. Ruben
12
<PAGE>
CERTAIN TRANSACTIONS
In May of 1998, Speakeasy Reno purchased the Reno Ramada Hotel ("Reno
Property") from Reno Hotel, LLC. Reno Hotel, LLC and Madeleine LLC, the
Company's lender, are under common control. Speakeasy Reno purchased the Reno
Property for $8 million, all of which was financed by Madeleine LLC pursuant to
the Company's Third Amended and Restated Term Loan Agreement entered into as of
April 30, 1998 by Mountaineer Park, Inc., Speakeasy Las Vegas, and Speakeasy
Reno, jointly and severally as borrowers, the Company as guarantor and Madeleine
LLC as lender. Madeleine LLC also owns 421,228 shares of the Company's common
stock and warrants to purchase 1,757,813 additional shares exercisable, subject
to certain restrictions, for $1.06 per share. The Company issued the common
stock and warrants in 1996 in connection with certain loan transactions.
In August of 1998, in connection with the exercise of options to purchase
378,415 shares of the Company's common stock, the Company's President and CEO,
Edson Arneault, delivered to the Company a promissory note for approximately
$461,000. The note is a full recourse obligation due on or before August 31,
1999 and bears interest at an annual rate of 8.5%.
During 1994 and 1995, various corporate affiliates of Mr. Arneault advanced
an aggregate sum of approximately $100,000 to the Company's oil and gas
subsidiary primarily to cover overhead expenses in connection with the
maintenance of leases and other costs associated with those operations. In
February 1996, such advances, along with accrued interest thereon at the rate of
10% per annum, were converted into a demand promissory note in the principal
amount of $100,218 together with interest at the rate of 10% per annum. This
note was repaid in 1998 in its entirety.
In addition to the aforementioned loans to the Company, Mr. Arneault's
affiliate, Biscayne Petroleum Corporation, also lent approximately $100,000 to
Fleur-David Corporation, the Company's former oil and gas operating partner. In
October of 1998, the Company sold its remaining oil and gas assets to SABAL
Corporation ("SABAL"), which had succeeded to the rights of Fleur-David
Corporation. SABAL assumed various obligations of Fleur-David, including the
note payable to Biscayne. As part of the sale to SABAL, the Company has entered
into a term loan agreement with SABAL whereby the Company will loan SABAL up to
$500,000. The term loan is for a period of two years (interest only for the
first six months, and 15% per annum thereafter) and is secured by SABAL's real
and personal property and equipment related to its oil and gas interest in
Michigan and Texas. As of December 31, 1998, the Company had loaned to SABAL
approximately $270,000. The Company, Biscayne and others have entered into an
Inter-Creditor Agreement with SABAL that effectively prorates the net proceeds
of any sale of assets by SABAL, other than in the ordinary course of business,
among all creditors based on the total aggregate debt of SABAL to such creditors
at the time.
Mr. Robert Ruben, an officer and member of the Company's board, is a member
of the law firm Ruben & Aronson, LLP, which has performed legal services for the
Company. The Company and Ruben & Aronson anticipate that the law firm will
perform legal services for the Company in the future. During the fiscal year
ended December 31, 1998, the Company paid Ruben & Aronson the sum of $833,794
for legal services.
Mr. Robert Blatt, an officer and member of the Company's board, and an
affiliate of Mr. Blatt have performed consulting services for the Company.
During the fiscal year ended December 31, 1998, the Company paid Mr. Blatt and
his affiliates, in the aggregate, $114,250.
RATIFICATION OF ADOPTION OF 1999
STOCK INCENTIVE PLAN
The Company's Board of Directors has adopted, subject to the approval of the
Company's stockholders, the Company's 1999 Stock Incentive Plan (the "Plan").
The Board has reserved 800,000 shares of the
13
<PAGE>
Company's Common Stock for issuance pursuant to the exercise of options issued
under the Plan. A copy of the proposed Plan is attached as Exhibit A.
SUMMARY OF THE PLAN
Under the terms of the Plan, the Board or a Committee designated by the
Board may issue options or shares of stock to those persons whom the Board deems
to be "key employees" of the Company or any of its subsidiaries and who may
include officers and directors of the Company and to consultants and directors
who are not employees of the Company. However, no director may vote upon the
grant to himself. The awards to be granted under the Plan may be incentive stock
options eligible for favored treatment under Section 422 of the Internal Revenue
Code of 1986 (the "Code"), non-qualified options that are not eligible for such
treatment or stock of the Company which may be subject to contingencies or
restrictions. Approximately twenty employees, officers and directors of the
Company are currently eligible to participate in the Plan.
The exercise price for any incentive stock option ("ISO") may not be less
than 100% of the fair market value of the stock on the date the option is
granted, except that with respect to a participant who owns more than 10% of the
Company's common stock the exercise price must be not less than 110% of fair
market value. The exercise price of any non-qualified option shall be in the
sole discretion of the Committee. The aggregate fair market value of the shares
that may be subject to any ISO granted to any participant may not exceed
$100,000. There is no comparable limitation with respect to non-qualified stock
options.
The term of all options granted under the Plan will be determined by the
Committee in its sole discretion; PROVIDED, HOWEVER, that the term of each ISO
shall not exceed 10 years from the date of grant thereof; and FURTHER, PROVIDED,
that if, at the time an ISO is granted, the optionee owns (or is deemed to own
under Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, of any of its
Subsidiaries or of a Parent, the term of the ISO shall not exceed five years
from the date of grant.
The right of exercise will be cumulative, so that shares that are not
purchased in one year may be purchased in a subsequent year. The options may not
be assigned. Upon exercise of any option, in whole or in part, payment in full
is required (unless the applicable award contract permits installment payments)
for the number of shares purchased. Payment may be made in cash, by delivery of
shares of the Company's common stock of equivalent fair market value (in which
case reload options will be issued) or by any other form of legal consideration
that is acceptable to the Board.
In addition to ISOs and non-qualified options, the Plan permits the
Committee, consistent with the purposes of the Plan, to grant shares of Common
Stock to such key employees (including officers and directors who are key
employees) of, or consultants to, the Company or any of its Subsidiaries, as the
Committee may determine, in its sole discretion. The grant may require the
holder to pay such price per share therefor, if any, as the Committee may
determine. Such shares may be subject to such contingencies and restrictions as
the Committee may determine.
If an employee's employment is terminated by reason of death or disability,
either the employee or his or her beneficiary will have the right for one year
to exercise the option to the extent the option was exercisable on the date of
death or disability. If a Plan participant's relationship with the Company is
terminated by reason other than death or disability and other than for cause or
without the Company's consent (in which case the option shall terminate
immediately), he or she may, for a period of three months, exercise the option
to the extent that it was exercisable on the date of termination, but in no
event after the date the award would otherwise have expired.
The Plan will be administered by the Board, which is authorized to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan and to determine the employees to whom,
14
<PAGE>
and the time, terms and conditions under which, options may be granted. The
Board is also authorized to adjust the number of shares available under the
Plan, the number of shares subject to outstanding options and the option prices
to take into account the Company's capitalization by reason of a stock dividend,
recapitalization, merger, consolidation, stock split, combination or exchange of
shares or otherwise.
The Board may amend, suspend or terminate the Plan in any respect at any
time. However, no amendment may (i) increase the number of shares reserved for
options under the Plan, (ii) modify the requirements for participation in the
Plan, or (iii) modify the Plan in any way that would require stockholder
approval under the rules and regulations under the Securities Exchange Act of
1934.
FEDERAL INCOME TAX CONSEQUENCES
Under current Federal law, no taxable income will be recognized by the
recipient of an incentive stock option within the meaning of Section 422 of the
Code upon either the grant or exercise of the incentive stock option (provided
the exercise occurs while the participant is an employee of the Company or
within three months after termination of employment), nor will a deduction be
allowed the Company by reason of the grant or exercise, provided the employee
does not dispose of the shares issued upon exercise within two years from the
date the option was granted and within one year from the date the shares were
issued. If the recipient fails to satisfy these holding period requirements, the
difference between the amount realized upon disposition of the shares and the
adjusted basis of the shares is includible as compensation in the recipient's
gross income and the Company will be entitled to a deduction in that amount.
Under current law, the holder of a non-qualified stock option is taxable at
the time of exercise on the difference between the exercise price and the fair
market value of the shares on the date of exercise. Upon disposition of the
stock, the stockholder is taxable upon the difference between the basis of the
stock (which is equal to the fair market value at the time the option was
exercised) and the amount realized upon the disposition.
A grant of shares of common stock that is subject to no vesting restrictions
will result in taxable income for federal income tax purposes to the recipient
at the time of grant in an amount equal to the fair market value of the shares
awarded. The Company would be entitled to a corresponding deduction at that time
for the amount included in the recipient's income.
Generally, a grant of shares of common stock under the Plan subject to
vesting and transfer restrictions will not result in taxable income to the
recipient for federal income tax purposes or a tax deduction to the Company in
the year of the grant. The value of the shares will generally be taxable to the
recipient as compensation income in the years in which the restrictions on the
shares lapse. Such value will be the fair market value of the shares on the
dates the restrictions terminate. Any recipient, however, may elect pursuant to
section 83(b) of the Code to treat the fair market value of the shares on the
date of such grant as compensation income in the year of the grant of restricted
shares, provided the recipient makes the election within 30 days after the date
of the grant. In any case, the Company will receive a deduction for federal
income tax purposes corresponding in amount to the amount of compensation
included in the recipient's income in the year in which that amount is so
included.
The Board believes the Plan will further the growth and development of the
Company by issuing options to certain key employees as an incentive for stock
ownership. It is contemplated that the Plan will provide such persons with
increased interest in the Company's success as they increase their proprietary
stake in the Company.
AWARDS GRANTED UNDER THE PLAN
Subject to stockholder approval of the Plan, the Board granted options under
the Plan in February of 1999 to the Company's Chief Executive Officer, two
current directors who are executive officers, an executive officer and a group
of eight employees who are not executive officers. If the Plan is not approved
15
<PAGE>
by the Company's stockholders on or before February 23, 2000, the Plan and any
grants thereunder shall terminate. The following table shows the options granted
under the new Plan in February of 1999.
OPTIONS GRANTED UNDER THE 1999 STOCK INCENTIVE PLAN(1)
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
OPTIONS (2)
-------------------
<S> <C>
Edson R. Arneault............................................................................ 300,000
Robert A. Blatt.............................................................................. 150,000
Robert L. Ruben.............................................................................. 150,000
Rose Mary Williams........................................................................... 25,000
All Current Executive Officers as a group (4 persons)........................................ 625,000
All employees who are not Executive Officers as a group (7 persons).......................... 125,000
</TABLE>
- ------------------------
(1) As of July 20, 1999, the market value of the securities underlying the
options is $2.8125 per share of common stock. The Company will receive no
consideration for the granting of the options.
(2) The options to purchase common stock of the Company are exercisable, subject
to stockholder approval, as of the grant date, February 24, 1999, and for a
period of five years thereafter at a price per share of $2.00, the fair
market value on the date of grant.
The favorable vote, either in person or by proxy, of the holders of a
majority of the common shares is necessary for the adoption of the Plan. The
Board recommends a vote FOR the adoption of the Plan.
RATIFICATION OF SELECTION OF AUDITORS
The Board has selected the firm of BDO Seidman, LLP ("BDO"), independent
public accountants, to serve as auditors for the fiscal year ending December 31,
1998, subject to ratification by the stockholders. BDO commenced its service as
the Company's auditor in the first quarter of 1999.
The Board recommends a vote FOR ratification of this selection.
It is not expected that a member of BDO will be present at the Annual
Meeting.
Effective February 1, 1999, in connection with the Company's engagement of
BDO, Corbin & Wertz ("Corbin") was dismissed from its engagement as independent
accountants for the Company. Corbin's report for the past two years did not
contain any adverse opinion or disclaimer of opinion nor was it qualified or
modified as to uncertainty, audit scope or accounting principles. The Company's
decision to dismiss Corbin and engage BDO was approved by the Audit Committee of
the Company's Board of Directors.
During the Company's two most recent fiscal years and any subsequent interim
period preceding Corbin's dismissal, there were no disagreements with Corbin on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Corbin would have caused it to make reference to the subject
matters of the disagreements in connection with its report.
During the Company's two most recent fiscal years and any subsequent interim
period preceding this report, Corbin did not advise the Company with respect to
any of the matters described in paragraphs (a)(1)(v)(A) through (D) of Item 304
of Regulation S-K.
The Company engaged BDO as the independent accountants of the Company as
approved by the Audit Committee of the Company's Board of Directors effective
February 1, 1999. Prior to the engagement of BDO there were no consultations by
the Company with BDO relating to disclosable disagreements with Corbin, how
accounting principles would be applied by BDO to a specific transaction, or the
16
<PAGE>
type of opinion BDO might render. The Company has afforded BDO an opportunity to
furnish a letter to the Commission with its comments.
The Company has provided Corbin with a copy of the foregoing disclosures
(which were also included in a Current Report on Form 8-K/A filed February 12,
1999) and has requested in writing that Corbin furnish it with a letter
addressed to the SEC stating whether or not it agrees with such disclosures. A
copy of Corbin's letter stating that it does not disagree with such disclosures
is attached hereto as Exhibit B (and was also attached as an Exhibit to the
Report on Form 8-K/A).
FINANCIAL INFORMATION
The Financial Statements of the Company included in the Company's Annual
Report to Stockholders that accompanies this Proxy Statement are incorporated
herein by reference.
OTHER MATTERS
STOCKHOLDER PROPOSALS FOR NEXT MEETING
Proposals of stockholders intended for inclusion in the proxy statement for
the Annual Meeting of Stockholders to be held in 2000 must be received by the
Company's executive offices not later than March 20, 2000. Proponents should
submit their proposals by Certified Mail--Return Receipt Requested.
NOTICE REGARDING ABANDONED PROPERTY LAW OF NEW YORK STATE
The Company has been informed by its Transfer Agent, Continental Stock
Transfer & Trust Company, that New York State now requires the Company's
Transfer Agent to report and escheat all shares held by the Company's record
shareholders if there has been no written communication received from the
shareholder for a period of five years. This regulation pertains specifically to
corporate issuers who do not pay dividends and their shareholders with New York,
foreign or unknown addresses. The law mandates escheatment of shares even though
the certificates are not in the Transfer Agent's possession, and even though the
shareholder's address of record is apparently correct.
The Transfer Agent has advised the Company that the law requires the
Transfer Agent to search its records as of June 30 each year in order to
determine those New York resident shareholders from whom it has had no written
communication within the past five years. Written communication would include
transfer activity, voted proxies, address changes or other miscellaneous written
inquiries. For those shareholders who have not contacted the Transfer Agent in
over five years, a first-class letter must be sent notifying them that their
shares will be escheated in November if they do not contact the Transfer Agent
in writing prior thereto. All written responses will be entered in the Transfer
Agent's files, but those who do not respond will have their shares escheated.
Shareholders will be able to apply to New York State for the return of their
shares.
Accordingly, shareholders that may be subject to New York's Abandoned
Property Law should make their inquiries and otherwise communicate, with respect
to the Company, in writing. Shareholders should contact their attorneys with any
questions they may have regarding this matter.
NO OTHER BUSINESS
Management is not aware at this date that any other business matters will
come before the meeting. If, however, any other matters should properly come
before the meeting, it is the intention of the persons named in the proxy to
vote thereon in accordance with their judgment.
MTR GAMING GROUP, INC.
Rose Mary Williams, Secretary
July 23, 1999
17
<PAGE>
EXHIBIT A
1999 STOCK INCENTIVE PLAN
OF
MTR GAMING GROUP, INC.
1. PURPOSES OF THE PLAN. This stock incentive plan (the "Plan") is designed
to provide an incentive to key employees (including directors and officers who
are key employees) and to consultants and directors who are not employees of MTR
GAMING GROUP, INC., a Delaware corporation (the "Company"), or any of its
Subsidiaries (as defined in Paragraph 17), and to offer an additional inducement
in obtaining the services of such persons. The Plan provides for the grant of
"incentive stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options which do not qualify as ISOs ("NQSOs"), and stock of the Company which
may be subject to contingencies or restrictions (collectively, "Awards"). The
Company makes no representation or warranty, express or implied, as to the
qualification of any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 10, the
aggregate number of shares of Common Stock, $.0001 par value per share, of the
Company ("Common Stock") for which Awards may be granted under the Plan shall
not exceed 800,000. Such shares of Common Stock may, in the discretion of the
Board of Directors of the Company (the "Board of Directors"), consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of
Common Stock held in the treasury of the Company. Subject to the provisions of
Paragraph 11, any shares of Common Stock subject to an option which for any
reason expires, is canceled or is terminated unexercised or which ceases for any
reason to be exercisable or a restricted stock Award which for any reason is
forfeited, shall again become available for the granting of Awards under the
Plan. The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board
of Directors or a committee of the Board of Directors consisting of not less
than two directors, each of whom shall be a "non-employee director" within the
meaning of Rule 16b-3 (as defined in Paragraph 17) (collectively, the
"Committee"). Unless otherwise provided in the By-laws of the Company or by
resolution of the Board of Directors, a majority of the members of the Committee
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, and any acts approved in writing by
all members without a meeting, shall be the acts of the Committee. Subject to
the express provisions of the Plan, the Committee shall have the authority, in
its sole discretion, to determine: the key employees, consultants and directors
who shall be granted Awards; the type of Award to be granted; the times when an
Award shall be granted; the number of shares of Common Stock to be subject to
each Award; the term of each option; the date each option shall become
exercisable; whether an option shall be exercisable in whole or in installments
and, if in installments, the number of shares of Common Stock to be subject to
each installment, whether the installments shall be cumulative, the date each
installment shall become exercisable and the term of each installment; whether
to accelerate the date of exercise of any option or installment thereof; whether
shares of Common Stock may be issued upon the exercise of an option as partly
paid and, if so, the dates when future installments of the exercise price shall
become due and the amounts of such installments; the exercise price of each
option; the price, if any, to be paid for a share Award; the form of payment of
the exercise price of an option; whether to restrict the sale or other
disposition of a stock Award or the shares of Common Stock acquired upon the
exercise of an option and, if so, to determine whether such contingencies and
restrictions have been met and whether and under what conditions to waive any
such contingency or restriction; whether and under what conditions to subject
all or a portion of the grant or exercise of an option, the vesting of a stock
Award or the shares acquired pursuant to the exercise of an option to the
fulfillment of certain contingencies or restrictions as specified in the
contract referred to in Paragraph 9 hereof (the "Contract"), including without
limitation, contingencies or restrictions relating to entering into a covenant
not to compete with the Company, any of its
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Subsidiaries or a Parent (as defined in Paragraph 17), to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or to the period of continued
employment of the Award holder with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies or restrictions have been
met; whether an Award holder is Disabled (as defined in Paragraph 17); the
amount, if any, necessary to satisfy the obligation of the Company, a Subsidiary
or Parent to withhold taxes or other amounts; the Fair Market Value (as defined
in Paragraph 17) of a share of Common Stock; to construe the respective
Contracts and the Plan; with the consent of the Award holder, to cancel or
modify an Award, PROVIDED, that the modified provision is permitted to be
included in an Award granted under the Plan on the date of the modification, and
FURTHER, PROVIDED, that in the case of a modification (within the meaning of
Section 424(h) of the Code) of an ISO, such Award as modified would be permitted
to be granted on the date of such modification under the terms of the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
approve any provision which under Rule 16b-3 requires the approval of the Board
of Directors, a committee of non-employee directors or the stockholders to be
exempt (unless otherwise specifically provided herein); and to make all other
determinations necessary or advisable for administering the Plan. Any
controversy or claim arising out of or relating to the Plan, any Award granted
under the Plan or any Contract shall be determined unilaterally by the Committee
in its sole discretion. The determinations of the Committee on the matters
referred to in this Paragraph 3 shall be conclusive and binding on the parties.
No member or former member of the Committee shall be liable for any action,
failure to act or determination made in good faith with respect to the Plan or
any Award or Contract hereunder. Prior to the creation and designation of the
Committee by the Board of Directors, all powers and authority allocated hereby
to the Committee shall be allocated to the Board of Directors and all references
to the Committee shall be deemed to be references to the Board of Directors.
4. OPTIONS
(a) GRANT. The Committee may from time to time, consistent with the purposes
of the Plan, grant options to such key employees (including officers and
directors who are key employees) of, and consultants to, the Company or any of
its Subsidiaries, and such Outside Directors, as the Committee may determine, in
its sole discretion. Such options granted shall cover such number of shares of
Common Stock as the Committee may determine, in its sole discretion, as set
forth in the applicable Contract; PROVIDED, HOWEVER, that the maximum number of
shares subject to options that may be granted to any employee during any
calendar year under the Plan (the "162(m) Maximum") shall be 350,000 shares; and
FURTHER, PROVIDED, that the aggregate Fair Market Value (determined at the time
the option is granted) of the shares of Common Stock for which any eligible
employee may be granted ISOs under the Plan or any other plan of the Company, of
any of its Subsidiaries or of a Parent, which are exercisable for the first time
by such optionee during any calendar year shall not exceed $100,000. Such ISO
limitation shall be applied by taking ISOs into account in the order in which
they were granted. Any option granted in excess of such ISO limitation amount
shall be treated as a NQSO to the extent of such excess.
(b) EXERCISE PRICE. The exercise price of the shares of Common Stock under
each option shall be determined by the Committee, in its sole discretion, as set
forth in the applicable Contract; PROVIDED, HOWEVER, that the exercise price per
share of an ISO shall not be less than the Fair Market Value of a share of
Common Stock on the date of grant; and FURTHER, PROVIDED, that if, at the time
an ISO is granted, the optionee owns (or is deemed to own under Section 424(d)
of the Code) stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company, of any of its Subsidiaries or of a
Parent, the exercise price per share of such ISO shall not be less than 110% of
the Fair Market Value of a share of Common Stock on the date of grant.
(c) TERM. The term of each option granted pursuant to the Plan shall be
determined by the Committee, in its sole discretion, and set forth in the
applicable Contract; PROVIDED, HOWEVER, that the term of each ISO shall not
exceed 10 years from the date of grant thereof; and FURTHER, PROVIDED, that if,
at the time an ISO is granted, the optionee owns (or is deemed to own under
Section 424(d) of the Code) stock
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possessing more than 10% of the total combined voting power of all classes of
stock of the Company, of any of its Subsidiaries or of a Parent, the term of the
ISO shall not exceed five years from the date of grant. Options shall be subject
to earlier termination as hereinafter provided.
(d) EXERCISE. An option (or any part or installment thereof), to the extent
then exercisable, shall be exercised by giving written notice to the Company at
its then principal office stating which option is being exercised, specifying
the number of shares of Common Stock as to which such option is being exercised
and accompanied by payment in full of the aggregate exercise price therefor (or
the amount due upon exercise if the Contract permits installment payments) (a)
in cash or by certified check or (b) if the applicable Contract permits, with
previously acquired shares of Common Stock having an aggregate Fair Market Value
on the date of exercise equal to the aggregate exercise price of all options
being exercised, or with any combination of cash, certified check or shares of
Common Stock having such value. The Company shall not be required to issue any
shares of Common Stock pursuant to any such option until all required payments,
including any required withholding, have been made.
The Committee may, in its sole discretion, permit payment of all or a
portion of the exercise price of an option by delivery by the optionee of a
properly executed notice, together with a copy of his irrevocable instructions
to a broker acceptable to the Committee to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay such exercise price. In
connection therewith, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
An optionee entitled to receive Common Stock upon the exercise of an option
shall not have the rights of a stockholder with respect to such shares of Common
Stock until the date of issuance of a stock certificate for such shares or, in
the case of uncertificated shares, until an entry is made on the books of the
Company's transfer agent representing such shares; PROVIDED, HOWEVER, that until
such stock certificate is issued or book entry is made, any optionee using
previously acquired shares of Common Stock in payment of an option exercise
price shall continue to have the rights of a stockholder with respect to such
previously acquired shares.
In no case may an option be exercised with respect to a fraction of a share
of Common Stock. In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
(e) RELOAD OPTIONS. An optionee who, at a time when he is eligible to be
granted options under the Plan, uses previously acquired shares of Common Stock
to exercise an option granted under the Plan (the "prior option"), shall, upon
such exercise, be automatically granted an option (the "reload option") to
purchase the same number of shares of Common Stock so used (or if there is not a
sufficient number of shares available for grant under the Plan remaining, such
number of shares as are then available). Such reload options shall be of the
same type and have the same terms as the prior option (except to the extent
inconsistent with the terms of the Plan); PROVIDED, HOWEVER, that the exercise
price per share of the reload option shall be equal to the Fair Market Value of
a share of Common Stock on the date of grant of the reload option, and FURTHER,
PROVIDED, that if the prior option was an ISO and at the time the reload option
is granted, the optionee owns (or is deemed to own under Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, of any of its Subsidiaries or of a Parent, the
exercise price per share shall be equal to 110% of the Fair Market Value of a
share of Common Stock on the date of grant and the term of such option shall not
exceed five years.
5. RESTRICTED STOCK. The Committee may from time to time, consistent with
the purposes of the Plan, grant shares of Common Stock to such key employees
(including officers and directors who are key employees) of, or consultants to,
the Company or any of its Subsidiaries, as the Committee may determine, in its
sole discretion. The grant may cover such number of shares as the Committee may
determine, in its sole discretion, and require the Award holder to pay such
price per share therefor, if any, as the Committee may determine, in its sole
discretion. Such shares may be subject to such contingencies and restrictions as
the Committee may determine, as set forth in the Contract. Upon the issuance of
the stock certificate for a share Award, or in the case of uncertificated
shares, the entry on the books of the
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Company's transfer agent representing such shares, notwithstanding any
contingencies or restrictions to which the shares are subject, the Award holder
shall be considered to be the record owner of the shares, and subject to the
contingencies and restrictions set forth in the Award, shall have all rights of
a stockholder of record with respect to such shares, including the right to vote
and to receive distributions. Upon the occurrence of any such contingency or
restriction, the Award holder may be required to forfeit all or a portion of
such shares back to the Company. The shares shall vest in the Award holder when
all of the restrictions and contingencies lapse. Accordingly, the Committee may
require that such shares be held by the Company, together with a stock power
duly endorsed in blank by the Award holder, until the shares vest in the Award
holder.
6. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, if an Award holder's relationship with the
Company, its Subsidiaries and Parent as an employee or a consultant has
terminated for any reason (other than as a result of his death or Disability),
the Award holder may exercise the options granted to him as an employee of, or
consultant to, the Company or any of its Subsidiaries, to the extent exercisable
on the date of such termination, at any time within three months after the date
of termination, but not thereafter and in no event after the date the Award
would otherwise have expired; PROVIDED, HOWEVER, that if such relationship is
terminated either (a) for Cause (as defined in Paragraph 17), or (b) without the
consent of the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be deemed to
exist between an individual and the Company, any of its Subsidiaries or a Parent
if, at the time of the determination, the individual was an employee of such
corporation for purposes of Section 422(a) of the Code. As a result, an
individual on military, sick leave or other bona fide leave of absence shall
continue to be considered an employee for purposes of the Plan during such leave
if the period of the leave does not exceed 90 days, or, if longer, so long as
the individual's right to reemployment with the Company, any of its Subsidiaries
or a Parent is guaranteed either by statute or by contract. If the period of
leave exceeds 90 days and the individual's right to reemployment is not
guaranteed by statute or by contract, the employment relationship shall be
deemed to have terminated on the 91st day of such leave.
Except as may otherwise be expressly provided in the applicable Contract,
options granted under the Plan shall not be affected by any change in the status
of the Award holder so long as he continues to be an employee of, or a
consultant to, the Company, or any of its Subsidiaries or a Parent (regardless
of having changed from one to the other or having been transferred from one
corporation to another).
Except as may otherwise be expressly provided in the applicable Contract, if
an Award holder's relationship with the Company as an Outside Director ceases
for any reason (other than as a result of his death or Disability) then options
granted to such holder as an Outside Director may be exercised, to the extent
exercisable on the date of such termination, at any time within three months
after the date of termination, but not thereafter and in no event after the date
the Award would otherwise have expired; provided, however, that if such
relationship is terminated for Cause, such Award shall terminate immediately. An
Award granted to an Outside Director, however, shall not be affected by the
Award holder becoming an employee of, or consultant to, the Company, any of its
Subsidiaries or a Parent.
Except as may otherwise be expressly provided in the Contract, upon the
termination of the relationship of an Award holder as an employee of, or
consultant to, the Company, and its Subsidiaries and Parent, or as an Outside
Director, for any reason (including his death or Disability), the share Award
shall cease any further vesting and the unvested portion of such Award as of the
date of such termination shall be forfeited to the Company for no consideration.
Nothing in the Plan or in any Award granted under the Plan shall confer on
any Award holder any right to continue in the employ of, or as a consultant to,
the Company, any of its Subsidiaries or a Parent, or as a director of the
Company, or interfere in any way with any right of the Company, any of its
Subsidiaries or a Parent to terminate the Award holder's relationship at any
time for any reason whatsoever without liability to the Company, any of its
Subsidiaries or a Parent.
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7. DEATH OR DISABILITY. Except as may otherwise be expressly provided in the
applicable Contract, if an Award holder dies (a) while he is an employee of, or
consultant to, the Company, any of its Subsidiaries or a Parent, (b) within
three months after the termination of such relationship (unless such termination
was for Cause or without the consent of the Company), or (c) within one year
following the termination of such relationship by reason of his Disability, the
options that were granted to him as an employee of, or consultant to, the
Company or any of its Subsidiaries, may be exercised, to the extent exercisable
on the date of his death, by his Legal Representative (as defined in Paragraph
17) at any time within one year after death, but not thereafter and in no event
after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable Contract, if
an Award holder's relationship as an employee of, or consultant to, the Company,
any of its Subsidiaries or a Parent has terminated by reason of his Disability,
the options that were granted to him as an employee of, or consultant to the
Company or any of its Subsidiaries may be exercised, to the extent exercisable
upon the effective date of such termination, at any time within one year after
such date, but not thereafter and in no event after the date the option would
otherwise have expired.
Except as may otherwise be expressly provided in the applicable Contract, if
an Award holder's relationship as an Outside Director terminates as a result of
his death or Disability, the options granted to him as an Outside Director may
be exercised, to the extent exercisable on the date of such termination, at any
time within one year after the date of termination, but not thereafter and in no
event after the date the Award would otherwise have expired. In the case of the
death of the Award holder, the Award may be exercised by his Legal
Representative.
8. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the issuance of any
share Award and exercise of any option that either (a) a Registration Statement
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock to be issued upon such grant or exercise
shall be effective and current at the time of exercise, or (b) there is an
exemption from registration under the Securities Act for the issuance of the
shares of Common Stock upon such exercise. Nothing herein shall be construed as
requiring the Company to register shares subject to any Award under the
Securities Act or to keep any Registration Statement effective or current.
The Committee may require, in its sole discretion, as a condition to the
receipt of an Award or the exercise of any option that the Award holder execute
and deliver to the Company his representations and warranties, in form,
substance and scope satisfactory to the Committee, which the Committee
determines are necessary or convenient to facilitate the perfection of an
exemption from the registration requirements of the Securities Act, applicable
state securities laws or other legal requirement, including, without limitation,
that (a) the shares of Common Stock to be received under the Award or issued
upon the exercise of the option are being acquired by the Award holder for his
own account, for investment only and not with a view to the resale or
distribution thereof, and (b) any subsequent resale or distribution of shares of
Common Stock by such Award holder will be made only pursuant to (i) a
Registration Statement under the Securities Act which is effective and current
with respect to the shares of Common Stock being sold, or (ii) a specific
exemption from the registration requirements of the Securities Act, but in
claiming such exemption, the Award holder shall prior to any offer of sale or
sale of such shares of Common Stock provide the Company with a favorable written
opinion of counsel satisfactory to the Company, in form, substance and scope
satisfactory to the Company, as to the applicability of such exemption to the
proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its sole
discretion, that the listing or qualification of the shares of Common Stock
subject to any Award or option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental agency or
regulatory body, is necessary or desirable as a condition to, or in connection
with, the granting of an Award or the issuing of shares of Common Stock
thereunder, such Award may not be granted and such option may not
5
<PAGE>
be exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
9. AWARD CONTRACTS. Each Award shall be evidenced by an appropriate Contract
which shall be duly executed by the Company and the Award holder, and shall
contain such terms, provisions and conditions not inconsistent herewith as may
be determined by the Committee. The terms of each Award and Contract need not be
identical.
10. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other
provision of the Plan, in the event of a stock dividend, recapitalization,
merger in which the Company is the surviving corporation, spin-off, split-up,
combination or exchange of shares or the like which results in a change in the
number or kind of shares of Common Stock which is outstanding immediately prior
to such event, the aggregate number and kind of shares subject to the Plan, the
aggregate number and kind of shares subject to each outstanding Award, the
exercise price of each option, any contingencies and restrictions based on the
number or kind of shares, and the 162(m) Maximum shall be appropriately adjusted
by the Board of Directors, whose determination shall be conclusive and binding
on all parties. Such adjustment may provide for the elimination of fractional
shares which might otherwise be subject to Awards without payment therefor.
In the event of (a) the liquidation or dissolution of the Company, (b) a
merger in which the Company is not the surviving corporation or a consolidation,
or (c) any transaction (or series of related transactions) in which (i) more
than 50% of the outstanding Common Stock is transferred or exchanged for other
consideration, or (ii) shares of Common Stock in excess of the number of shares
of Common Stock outstanding immediately preceding the transaction are issued
(other than to stockholders of the Company with respect to their shares of stock
in the Company), any outstanding options, unvested stock shall terminate upon
the earliest of any such event, unless other provision is made therefor in the
transaction.
11. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on as of January 27, 1998. No ISO may be granted under the
Plan after January 27, 2008. The Board of Directors, without further approval of
the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with the provisions of Rule 16b-3, Section 162(m) of the Code, or any change in
applicable law, regulations, rulings or interpretations of any governmental
agency or regulatory body; PROVIDED, HOWEVER, that no amendment shall be
effective without the requisite prior or subsequent stockholder approval which
would (a) except as contemplated in Paragraph 10, increase the maximum number of
shares of Common Stock for which Awards may be granted under the Plan or the
162(m) Maximum, (b) change the eligibility requirements to receive Awards
hereunder, or (c) make any change for which applicable law, regulation, ruling
or interpretation by the applicable governmental agency or regulatory authority
requires stockholder approval. No termination, suspension or amendment of the
Plan shall adversely affect the rights of any Award holder under an Award
without his prior consent. The power of the Committee to construe and administer
any Awards granted under the Plan prior to the termination or suspension of the
Plan nevertheless shall continue after such termination or during such
suspension.
12. NON-TRANSFERABILITY. No option granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution, and
options may be exercised, during the lifetime of the Award holder, only by him
or his Legal Representatives. Except as may otherwise be expressly provided in
the Contract, a stock Award, to the extent not vested, shall not be transferable
otherwise than by will or the laws of descent and distribution. Except to the
extent provided above, Awards may not be assigned, transferred, pledged,
hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process,
and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
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13. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may withhold (a)
cash, or (b) with the consent of the Committee, shares of Common Stock to be
issued under a stock Award or upon exercise of an option having an aggregate
Fair Market Value on the relevant date, or a combination of cash and shares
having such value, in an amount equal to the amount which the Committee
determines is necessary to satisfy the obligation of the Company, any of its
Subsidiaries or a Parent to withhold federal, state and local taxes or other
amounts incurred by reason of the grant, vesting, exercise or disposition of an
Award, or the disposition of the underlying shares of Common Stock.
Alternatively, the Company may require the holder to pay to the Company such
amount, in cash, promptly upon demand.
14. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or
legends upon the certificates for shares of Common Stock issued under a stock
Award or upon exercise of an option under the Plan and may issue such "stop
transfer" instructions to its transfer agent in respect of such shares as it
determines, in its discretion, to be necessary or appropriate to (a) prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Securities Act and any applicable state securities laws, (b) implement the
provisions of the Plan or any agreement between the Company and the Award holder
with respect to such shares of Common Stock, or (c) permit the Company to
determine the occurrence of a "disqualifying disposition," as described in
Section 421(b) of the Code, of the shares of Common Stock issued or transferred
upon the exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance of
shares of Common Stock under a stock Award or upon the exercise of an option
granted under the Plan, as well as all fees and expenses incurred by the Company
in connection with such issuance.
15. USE OF PROCEEDS. The cash proceeds received upon the exercise of an
option, or grant of a stock Award under the Plan shall be added to the general
funds of the Company and used for such corporate purposes as the Board of
Directors may determine.
16. SUBSTITUTIONS AND ASSUMPTIONS OF AWARDS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
Awards for prior options, or restricted stock of a Constituent Corporation (as
defined in Paragraph 17) or assume the prior options or restricted stock of such
Constituent Corporation.
17. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Cause" shall mean: (i) in the case of an employee or consultant, if
there is a written employment or consulting agreement between the Award
holder and the Company, any of its Subsidiaries or a Parent which defines
termination of such relationship for cause, cause as defined in such
agreement, and (ii) in all other cases, cause as defined by applicable state
law.
(b) "Constituent Corporation" shall mean any corporation which engages
with the Company, any of its Subsidiaries or a Parent in a transaction to
which Section 424(a) of the Code applies (or would apply if the option
assumed or substituted were an ISO), or any Subsidiary or Parent of such
corporation.
(c) "Disability" shall mean a permanent and total disability within the
meaning of Section 22(e)(3) of the Code.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Fair Market Value" of a share of Common Stock on any day shall
mean: (i) if the principal market for the Common Stock is a national
securities exchange, the average of the highest and lowest sales prices per
share of Common Stock on such day as reported by such exchange or on a
composite tape reflecting transactions on such exchange, (ii) if the
principal market for the Common Stock is not a national securities exchange
and the Common Stock is quoted on Nasdaq, and (A) if actual sales price
information is available with respect to the Common Stock, the average of
the highest and
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lowest sales prices per share of Common Stock on such day on Nasdaq, or (B)
if such information is not available, the average of the highest bid and
lowest asked prices per share of Common Stock on such day on Nasdaq, or
(iii) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on Nasdaq, the
average of the highest bid and lowest asked prices per share of Common Stock
on such day as reported on the OTC Bulletin Board Service or by National
Quotation Bureau, Incorporated or a comparable service; PROVIDED, HOWEVER,
that if clauses (i), (ii) and (iii) of this subparagraph are all
inapplicable, or if no trades have been made or no quotes are available for
such day, the Fair Market Value of a share of Common Stock shall be
determined by the Board of Directors by any method consistent with
applicable regulations adopted by the Treasury Department relating to stock
options.
(f) "Legal Representative" shall mean the executor, administrator or
other person who at the time is entitled by law to exercise the rights of a
deceased or incapacitated optionee with respect to an option granted under
the Plan.
(g) "Nasdaq" shall mean the Nasdaq Stock Market.
(h) "Outside Director" shall mean a person who is a director of the
Company, but on the date of grant is not an employee of, or consultant to,
the Company, any of its Subsidiaries or a Parent.
(i) "Parent" shall have the same definition as "parent corporation" in
Section 424(e) of the Code.
(j) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act, as the same may be in effect and interpreted from time to time.
(k) "Subsidiary" shall have the same definition as "subsidiary
corporation" in Section 424(f) of the Code.
18. GOVERNING LAW; CONSTRUCTION. The Plan, the Awards and Contracts
hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions that would defer to the substantive laws of another
jurisdiction.
Neither the Plan nor any Contract shall be construed or interpreted with any
presumption against the Company by reason of the Company causing the Plan or
Contract to be drafted. Whenever from the context it appears appropriate, any
term stated in either the singular or plural shall include the singular and
plural, and any term stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter.
19. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability of
any provision in the Plan, any Award or Contract shall not affect the validity,
legality or enforceability of any other provision, all of which shall be valid,
legal and enforceable to the fullest extent permitted by applicable law.
20. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person or by proxy and entitled to vote hereon
at the next duly held meeting of the Company's stockholders at which a quorum is
present. No Award granted hereunder may vest or be exercised prior to such
approval; PROVIDED, HOWEVER, that the date of grant of any Award shall be
determined as if the Plan had not been subject to such approval. Notwithstanding
the foregoing, if the Plan is not approved by a vote of the stockholders of the
Company on or before February 23, 2000, the Plan and any Awards granted
hereunder shall terminate.
8
<PAGE>
EXHIBIT B
CORBIN & WERTZ
CERTIFIED PUBLIC ACCOUNTANTS BUSINESS CONSULTANTS
AN ACCOUNTANCY CORPORATION
February 4, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have been furnished with a copy of the response to Item 4 of Form 8-K for
the event that occurred on February 1, 1999, to be filed by our former client,
MTR Gaming Group, Inc. We agree with the statements contained in paragraphs
(a)(1)(i), (ii), (iii), (iv) and (v) made in response to that Item insofar as
they relate to our firm.
/s/ CORBIN & WERTZ
--------------------------------------
CORBIN & WERTZ
Irvine, California
Century Centre - 2603 Main Street, Suite 600 - Irvine, CA 92614 -
Tel: (949) 756-2120 - FAX: (949) 756-9110
<PAGE>
REVOCABLE PROXY
MTR GAMING GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
AUGUST 23, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Edson R. Arneault and Robert L. Ruben and each
of them, with full power of substitution as the proxies of the undersigned to
vote all the undersigned's shares of the Common Stock of MTR Gaming Group, Inc.
(the "Corporation") at the Annual Meeting of the Corporation's Stockholders to
be held at the Princeton Club, 15 West 43d Street, New York, New York 10036 on
August 23, 1999 at 8:30 a.m. and at any adjournments or postponements thereof,
with the same force and effect as the undersigned might or could do if
personally present:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
<TABLE>
<C> <S> <C> <C>
1. ELECTION OF DIRECTORS
FOR all nominees listed below / / WITHHOLD AUTHORITY / /
</TABLE>
Edson R. Arneault Robert L. Ruben Robert A. Blatt James V. Stanton William
D. Fugazy, Jr.
This proxy will be voted in the Election of Directors in the manner
described in the Proxy Statement for the Annual Meeting of Stockholders.
(INSTRUCTION: To withhold authority to vote for one or more individual nominees
write such name or names in the space provided below.)
2. PROPOSAL TO RATIFY THE ADOPTION OF THE CORPORATION'S 1999 STOCK INCENTIVE
PLAN.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
3. PROPOSAL TO CONFIRM THE SELECTION OF BDO SEIDMAN, LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE CORPORATION FOR THE FISCAL YEAR ENDING DECEMBER
31, 1999.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
<TABLE>
<S> <C>
DATED ------------- , 1999
-----------------------------------------------
Signature
-----------------------------------------------
Signature if held jointly
Please sign exactly as name appears below. When
shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please
sign in full corporate name by President or
other authorized person. If a partnership,
please sign in full partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
</TABLE>
