<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
COMMISSION FILE NUMBER 0-25244
TRANS WORLD GAMING CORP.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 13-3738518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE PENN PLAZA, SUITE 1503
NEW YORK, NY 10119-0002
(Address of principal executive offices)
(212) 563-3355
(Issuer's telephone number including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past
12 months (or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. YES X NO ___.
Shares of the Registrant's Common Stock, par value $.001, outstanding as of
November 10, 1997: 3,044,286
Transitional Small Business Disclosure Format (Check One): YES ___ NO _X_.
<PAGE>
TRANS WORLD GAMING CORP.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONDENSED AND CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF 3
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) 4
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) 5
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 7
FINANCIAL CONDITION OR PLAN OF OPERATION
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
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<PAGE>
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED STATEMENTS
<TABLE>
<CAPTION>
TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
( IN THOUSANDS)
ASSETS Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
CURRENT ASSETS (unaudited)
<S> <C> <C>
Cash & equivalents $237 $489
Accounts/Notes receivable 399 397
Inventories 76 57
Other current assets 30 109
-------- -------
Total current assets 742 1,052
-------- -------
PROPERTY AND EQUIPMENT -net 429 435
-------- -------
OTHER ASSETS
Investment at equity 75 75
Deposits on Investments 218 0
MATS- net 188 0
Boxer Casino - net 309 0
Tottenham services - net 478 0
Deferred placement costs - net 493 664
Discount on convertible debt - net 71 100
Other deferred costs - net 30 25
-------- -------
Total other assets 1,862 864
-------- -------
TOTAL ASSETS $3,033 $2,351
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Current portion of long term debt $653 $1,152
Accounts payable and accrued expenses 745 477
------- ------
Total current liabilities 1,398 1,629
------- ------
LONG TERM DEBT, net of current portion 5,224 4,824
------- ------
STOCKHOLDERS EQUITY
Capital stock 3 3
Additional paid-in-capital 8,896 8,600
Stock warrants outstanding 537 537
Accumulated deficit (13,025) (13,242)
-------- --------
Total stockholders equity (3,589) (4,102)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $3,033 $2,351
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
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<PAGE>
TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three months ended
Sept 30, Sept 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $5,170 $4,963 $1,774 $1,703
Costs and expenses
Cost of revenue 3,216 2,959 1,109 1,092
Administrative 877 1,220 282 317
Depreciation and Amortization 283 734 101 346
------------------ ----------------
Total costs and expenses 4,376 4,913 1,492 1,755
------------------ ----------------
Earnings/(loss) from operations 794 50 282 (52)
Interest expense 539 926 185 189
------------------ -----------------
Earnings/(loss) before taxes 255 (876) 97 (241)
Provision for tax 41 64 11 20
------------------- ----------------
Net earnings/(loss) $214 ($940) $86 ($261)
------------------- ----------------
------------------- ----------------
Earnings/(loss) per share $0.07 ($0.37) $0.03 ($0.10)
Weighted Average of Common shares
used in computing earnings per share 2,878 2,544 2,878 2,544
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
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<PAGE>
TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities $545 ($413)
Cash flows used by investing activities (314) (7)
Cash flows from financing activities
Proceeds from long term debt 0 4,800
Proceeds from short term notes 350 375
Repayment of outstanding debt (833) (4,006)
-------- ---------
Net cash from financing activities (483) 1,169
Net increase/(decrease) in cash (252) 749
Cash - beginning of period 489 216
-------- --------
Cash - end of period $237 $965
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
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<PAGE>
TRANS WORLD GAMING CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Unaudited Statements.
The accompanying condensed consolidated financial statements of Trans World
Gaming Corp. (the "Company" or "TWG") for the three and nine months ended
September 30, 1997 and September 30, 1996 are unaudited and reflect all
adjustments of a normal and recurring nature to present fairly the
financial position and results of operation and cash flows for the interim
periods. These unaudited statements have been prepared by the Company in
accordance with generally accepted accounting principles, pursuant to the
rules and regulations of the Securities and Exchange Commission. Pursuant
to such rules and regulations, certain financial information and footnote
disclosures normally included in such financial statements have been
condensed or omitted.
These financial statements should be read in conjunction with the financial
statements and notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996. The results of operations for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results for the
entire year ending December 31, 1997.
2. Earnings/(loss) per share were calculated based on a weighted average of
2,877,619 shares of common stock outstanding for the three and nine months
ended September 30, 1997 and 2,544,286 shares of common stock outstanding
for the three and nine months ended September 30, 1996.
3. In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which encourages companies to recognize
compensation expense in the income statement based on the fair value of
the underlying common stock at the date the awards are granted. However,
SFAS No. 123 will permit continued accounting under APB Option 25,
"Accounting for Stock Issued to Employees," accompanied by disclosure of
the pro forma effects on net income and earnings per share had the new
accounting rules been applied. The statement is effective for calendar
year 1996. The Company has not yet determined which method it will
follow for measuring compensation cost attributed to stock based
compensation or the impact of the new standard on its consolidated
financial statement.
4. In early 1997 the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." The statement is effective for financial statements
for periods ending after December 15, 1997, and changes the method in which
earnings per share will be determined. Adoption of this statement by the
Company will not have a material impact on earnings per share.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company's operations resulted in net income of $86,000 for the three months
ended September 30, 1997, representing a $347,000 increase from the net loss of
($261,000) for the three months ended September 30, 1996.
The Company's earnings before interest, taxes, depreciation and amortization
totaled $282,000 for the three months ended September 30, 1997, an increase of
$334,000 over the loss of ($52,000) for the three months ended
September 30, 1996.
Revenues totaled $1,774,000 for the three months ended September 30, 1997,
compared to $1,703,000 for the same period in 1996, an increase of 4%.
Video Poker revenues at the Gold Coin increased 1%, from $909,000 to $994,000,
for the three months ended September 30, 1996 and 1997, respectively. Revenues
from the Toledo Palace increased 48% from $60,000 to $89,000, for the respective
quarters due to the increase in the number of video poker devices from 15 to 33
which occurred in June.
Retail operations at the Woodlands truck stop decreased 8% from $734,000 for the
three months ending
September 30, 1996 to $672,000 for the three months ending September 30, 1997,
primarily from diesel fuel and sales from the Company's bulk oil plant
operation.
Total costs and expenses decreased 15% from $1,755,000 for the three months
ended September 30, 1996 to $1,492,000 for the three months ended September 30,
1997.
Video Poker operations recorded direct costs of $279,000 for the three months
ended September 30, 1997, which increased by 11% from the costs of $242,000
during the comparable 1996 quarter due to the costs associated with the increase
in the number of machines from 15 to 33 at the Toledo Palace.
Retail expenses at the Woodlands truck stop decreased approximately $151,000, or
18%, from $850,000 for the three months ended September 30, 1996 to $699,000 for
the comparable quarter of 1997, due primarily to direct costs associated with
decreased sales.
Consulting and business development costs incurred by the Tottenham subsidiary,
costs the Company did not incur in 1996, totaled $70,000 for the three months
ended September 30, 1997.
MATS expenses, consisting primarily of labor and travel-related costs, amounted
to $61,000 for the three months ended September 30, 1997. The Company did not
incur such costs during the same period in 1996.
Administrative costs decreased 11%, or $35,000, to $282,000 for the three months
ended September 30, 1997 as compared to $317,000 in the comparable quarter in
1996. In the three months ended September 30, 1997, the Company recorded
approximately $24,000 in expenses in support of its business development efforts
in Eastern Europe, costs the Company did not incur during the three month period
ending September 30, 1996.
Depreciation and Amortization for the three month periods ending September 30,
1996 and September 30, 1997, totaled $346,000 and $101,000, respectively. The
reduction of $245,000, or 70%, was due primarily to the November 1996
recognition of an impairment loss under FASB 123 of $11.3 million in connection
with the proposed closing of both of the Company's video poker operations by
June 30, 1999, due to the Louisiana Voter Mandate (described below) which is
currently being contested.
Interest expense in the three months ended September 30, 1996 and September 30,
1997 totaled $185,000 and $189,000 respectively.
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<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company's operations resulted in net income of $214,000 for the nine months
ended September 30, 1997, representing an increase of $1,154,000 over the net
loss of ($940,000) for the nine months ended September 30, 1996.
In the first nine months of 1996, the Company incurred interest and financing
costs of $1,164,000 as compared to $539,000 for the comparable period in 1997.
The difference in interest and financing costs resulted from the Company's
restructuring of its debt in 1996, which did not recur in 1997. The Company's
earnings before interest, taxes, depreciation and amortization totaled
$1,077,000 for the nine months ended September 30, 1997, an increase of 47% over
the total of $734,000 for the nine months ended September 30, 1996.
Revenues totaled $5,170,000 for the nine months ended September 30, 1997, an
increase of 4% over the total of $4,963,000 for the equivalent period in 1996.
Video Poker revenues at the Gold Coin increased 6%, from $2,729,000 to
$2,880,000, for the nine months ended September 30, 1996 and September 30, 1997,
respectively. Revenues from the Toledo Palace increased $120,000 or 13% from
$185,000 to $209,000 for the nine months ended September 30, 1996 and September
30,1997 due primarily to the increase in the number of video poker machines from
15 to 33.
Retail operations at the Woodlands truck stop remained virtually unchanged at
$2,054,000 for the respective periods.
Total costs and expenses decreased $537,000, from $4,913,000 for the nine months
ended September 30, 1996 to $4,376,000 for the nine months ended September 30,
1997.
Video Poker operations recorded direct costs of $834,000 for the nine months
ended September 30, 1997, which represents an increase of $20,000, or 2%, from
$814,000 during the comparable nine month period in 1996.
Retail expenses at the Woodlands truck stop decreased approximately $79,000, or
4%, from $2,145,000 for the nine months ended September 30, 1996 to $2,066,000
for the comparable period of 1997.
Consulting and business development costs incurred by the Tottenham subsidiary,
costs the Company did not incur in 1996, totaled $218,000 for the nine months
ended September 30, 1997.
MATS expenses, consisting primarily of labor and travel-related costs, amounted
to $98,000 for the nine months ended September 30, 1997. The Company did not
incur such costs in 1996.
Administrative costs amounted to $877,000 and $982,000 for the nine month
periods ending September 30, 1997 and September 30, 1996, respectively. This
decrease of $105,000, or 11%, was due to financing costs of $240,000 in 1996,
which did not recur in 1997 offset by expenses of approximately $125,000 in
support of its business development efforts in Eastern Europe in 1997 a cost
that was not incurred in 1996.
Depreciation and Amortization amounted to $283,000 and $734,000 for the nine
month periods ended Sept 30, 1997
and September 30, 1996, respectively. This reduction of $451,000, or 61%, is
due primarily to the November 1996 recognition of an impairment loss under FASB
123 of $11.3 million in connection with the proposed closing of both of the
Company's video poker operations by June 30, 1999, due to the Louisiana Voter
Mandate (described below) which is currently being contested.
Interest expense amounted to $539,000 in the nine months ended September 30,
1997; a reduction of $387,000, or 42%, from $926,000 incurred during the
comparable 1996 period. In the second quarter of 1996, the Company recorded an
interest charge of $416,000 in connection with warrants issued in connection
with the 1996 bridge financings, a cost the Company did not incur in 1997. The
interest expense represents the difference between the trading price of the
Company's common stock of $.8438 per share as then reported on the NASDAQ
National Market System (Symbol: IBET) and the exercise price of $.01 per share
for the 499,925 warrants issued in connection with the bridge financing.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The level of cash decreased by $252,000 for the nine months ended September 30,
1997, due primarily to three scheduled quarterly repayments of the Prime Note
(as defined below) of $815,000 offset by cash flows from operating activities of
$563,000.
The Company's obligation due to Prime Properties in connection with the December
1994 acquisition of the Gold Coin, evidenced by a three-year promissory note in
the original principal amount of $3.0 million (the "Prime Note"), is secured by
the Company's sublease with Prime Properties for the Gold Coin premises. As of
September 30, 1997, the principal amount outstanding on the Prime Note was
$285,000. Such amount matures in its entirety on December 22, 1997. If the
Company defaults in its obligation under the Prime Note, it would lose all its
interests in the Gold Coin, which loss would materially and adversely affect the
financial condition and business of the Company.
On October 27, 1997, TWG and Value Partners, Ltd., a Texas Limited
Partnership ("Value Partners"), executed a loan agreement under which TWG has
the ability to borrow up to $2,625,000. This loan agreement is currently
being negotiated to increase the total loan proceeds by $725,000 to a total
of $3,350,000 to meet additional obligations for the Zaragoza Transaction as
described below. This loan is evidenced by a Senior Secured Promissory Note
(the "Value Partners Note") in favor of Value Partners, for up to $2,625,000
due November 1, 1998. The Value Partners Note bears simple interest at the
rate of 12% per annum. Under the terms of the loan agreement, TWG and Value
Partners agreed to designate loan proceeds for certain specific transactions
and Value Partners has and will advance the necessary funds to meet those
transactions as required. As of October 31, 1997, Value Partners had
advanced in two tranches a total of $1,228,000 to TWG under the loan
agreement. TWG used a part of such proceeds to place in escrow a refundable
deposit of $821,000 (the "First Tranche") to acquire the Casino de Zaragoza
("CDZ"), a company that holds an exclusive casino license in Zaragoza, Spain,
in the region of Aragon (the "Zaragoza Transaction"). The acquisition
transaction must be approved by the Spanish governmental authorities. The
Company believes, although there can be no assurance, that the transaction
should be approved on or about December 1, 1997. In the event that the
transaction is not approved, the $821,000 advance will be returned directly
to Value Partners. In addition, Value Partners has advanced $407,000 (the
"Second Tranche") to TWG which amount was used to repay a $350,000 Senior
Promissory Note dated June 11, 1997 plus accrued interest of $23,000 to Value
Partners on October 31, 1997. (Please refer to Form: 10-QSB - for the
Quarter Ended June 30, 1997 Liquidity and Capital Resources, page 11 for a
description of that loan). The balance of the Second Tranche of $34,000 will
be used by TWG for working capital purposes. Under the terms of the loan
agreement, Value Partners is entitled to warrants to purchase TWG Common
Stock (the "Warrants") equal to .1714 Warrants for each dollar advanced to
TWG to a maximum of 450,000 warrants. The Warrants have an exercise price of
$.50 per share and expire on December 31, 1999 and the Warrant and the TWG
Common Stock underlying the Warrant have demand registration rights after
December 31, 1998. TWG has issued 210,480 warrants in connection with the
$1,228,000 advance as of October 30, 1997.
The Company believes, although there can be no assurance, that existing cash and
anticipated cash flows from current operations will be sufficient to satisfy its
on-going current operational liquidity and capital requirements for the next
twelve months. However, the Company will require additional debt and/or equity
financing in order to consummate certain planned acquisitions as described under
"Plan of Operations", below.
PLAN OF OPERATIONS
The Company intends to continue operating the Gold Coin and the Toledo Palace as
they are presently being operated; however, the Company has made available for
sale its Woodlands property, where the Toledo Palace is located.
A voter mandate in Louisiana in November 1996 ordered the closing of all video
poker operations in Louisiana by June 30, 1999 (the "Louisiana Voter Mandate").
As a result of the Louisiana Voter Mandate, the Company will be required to
close both the Gold Coin and the Toledo Palace no later than June 30, 1999. As
of September 30, 1997, Gold Coin and Woodlands, including the Toledo Palace
operations, account for virtually all of the Company's annual revenue.
Currently, the Company is seeking to develop or acquire interests in gaming
operations at other locations so that the Company will generate positive cash
flow by 1999; however, there can be no assurance that the
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<PAGE>
Company will be ableto develop or acquire any such new operations by June of
1999, at which time all video poker operations in Louisiana, including the
Company's operations at Gold Coin and the Toledo Palace, must be terminated.
If the Company is not successful in developing or acquiring interests in
gaming operations at locations outside Louisiana, the closings of the Gold
Coin and Toledo Palace would have a material adverse effect on the Company,
its revenue and its overall financial condition.
On March 31, 1997, Tottenham & Co., d.b.a. Art Marketing, Ltd., a wholly owned
subsidiary of TWG ("Tottenham & Co."), executed a Joint Activity Agreement with
Mr. Mahmud Avdiyev, an individual (the "Avdiyev Agreement"). The Avdiyev
Agreement sets forth the parties' relative obligations with respect to operation
of the Boxer Casino (the "Boxer Casino") located in Gyandja, Azerbaijan
Republic. The term of the Avdiyev Agreement is twenty (20) years. In general,
Mr. Avdiyev has arranged for leasing, refurbishment and local compliance matters
with respect to the Boxer Casino premises, and TWG and/or Tottenham & Co.
provides equipment, funding and consultation services with respect to the Boxer
Casino's operations. Revenues to TWG from the Boxer Casino have totaled $19,000
through September 30, 1997. The Boxer Casino is run on a day-to-day basis by a
General Manager hired and supervised by Tottenham & Co. If either party desires
to terminate its participation in the Boxer Casino, it must first offer to sell
its interest therein to the other party.
On April 15, 1997, the Company completed the acquisition of Multiple Application
Tracking Systems, Inc. of Colorado ("MATS"). The purchase price was $250,000,
consisting of $15,000 in cash and a $235,000 promissory note which matures in
November, 2001. In addition, the Company entered into a five-year employment
agreement with Mr. James Hardman, Jr., the previous owner of MATS, at an annual
compensation of $100,000. Mr. Hardman will also receive ten percent (10%) of
all MATS sales as a license royalty. The Company has repackaged the MATS
product line and released the products during the second half of 1997. The
Company has not recorded any revenue for MATS products through September 30,
1997.
TWG issued a press release dated June 26, 1997 announcing its plans for the
Boxer Casino, as well as announcing the delisting of the Company's common stock
and warrants from the NASDAQ SmallCap Market effective June 25, 1997. The
common stock and warrants are currently trading on the OTC Bulletin Board. The
delisting resulted from the fact that the bid price of TWG's common stock
dropped below $3.00 per share and TWG failed to maintain a minimum capital and
surplus of $1 million.
On July 23, 1997 the Louisiana Gaming Authorities activated an additional
eighteen video poker devices at the Toledo Palace, bringing the total number of
devices to thirty-three.
On October 27, 1997, the Company signed a letter of intent to acquire 90% of the
shares of the Casino de Zaragoza which holds an exclusive license for the
operation of a casino located in the Aragon region of Spain. The transaction is
subject to the approval of, among others, the Diputacion General de Aragon (the
"DGA"), the Spanish National Gaming Commission and the City of Zaragoza. The
Company believes, although there can be no assurance, that such approvals should
be obtained about December 1, 1997.
Management of the Company is actively seeking other opportunities both within
and outside of the United States. There can be no assurance that management
will be successful in identifying such opportunities, financing such
acquisitions or investments or implementing such transactions. The failure to
do so will have a material adverse effect upon the Company's financial condition
and results of operations.
NOTE ON FORWARD-LOOKING INFORMATION
This Form 10-QSB contains certain forward-looking statements. For this purpose,
any statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipates," "estimates," or "continue" or comparable terminology or the
negative thereof are intended to identify certain forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
both known and unknown, and actual results may differ materially from any future
results expressed or implied by such forward-looking statements. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
See Exhibit 99 for a discussion of factors that could cause the Company's actual
results to differ materially from those expressed in the forward-looking
statement.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
EXHIBIT NUMBER DESCRIPTION
10.1 Loan Agreement dated as of
October 28, 1997 between TWG
and Value Partners.
10.2 Senior Promissory Note in the
amount of $2,625,000 dated
October 28, 1997 made by TWG
in favor of Value Partners.
10.3 Warrant to Purchase Common
Stock of Trans World Gaming
Corp., date October 29, 1997
27.1 Financial Data Schedule
99.0 Safe Harbor Under the Private
Securities Litigation Reform Act
of 1995.
a. Reports on Form 8-K
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 10, 1997 TRANS WORLD GAMING CORP.
By: /s/ Dominick J. Valenzano
----------------------------
Dominick J. Valenzano
Chief Financial Officer
-12-
<PAGE>
EXHIBIT INDEX
<TABLE>
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
<S> <C> <C>
10.1 Loan Agreement dated as of October 28, 1997 Filed electronically herewith
between TWG and Value Partners
10.2 Senior Promissory Note in the amount of Filed electronically herewith
$2,625,000 dated October 28, 1997 made
by TWG in favor of Value Partners
10.3 Warrant to Purchase Common Stock of Trans Filed electronically herewith
World Gaming Corp., dated October 29, 1997
27.1 Financial Data Schedule Filed electronically herewith
99.0 Safe Harbor Under the Private Securities Filed electronically herewith
Litigation Reform Act of 1995
</TABLE>
-13-
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT ("AGREEMENT") is made and entered into as of this 27th
day of October, 1997, by and between Value Partners, Ltd., a Texas Limited
Partnership ("LENDER") and Trans World Gaming Corp., a Nevada Corporation (the
"BORROWER").
R E C I T A L S
Borrower has requested that Lender loan to Borrower and Lender is willing
to loan to Borrower up to the sum of $2,625,000 (the "Loan Amount') upon the
terms and subject to conditions hereinafter set forth. To further induce this
loan, Borrower has offered to issue to Lender warrants to purchase .1714 shares
of Common Stock of the Borrower for each dollar loaned Borrower, as set forth
hereinafter (the "Warrant(s)"). To evidence this loan, Borrower shall execute
that certain Senior Secured Promissory Note (the "Note") in the form attached
hereto as Exhibit A, that certain Certificate of No Oral Agreements in the form
attached hereto as Exhibit "B" (the "Certificate") and all other documents as
set forth on the Certificate and such other documents as are necessary to this
loan transaction or otherwise required pursuant to the terms hereof (the
"Related Documents") (this Agreement, the Warrants, in the form attached hereto
as Exhibit C, the Note, the Certificate and the Related Documents shall be
referred to collectively as the "Loan Documents"). For purposes of this
Agreement all exhibits attached hereto are by this reference incorporated
herein. The term "Holder", as used herein, refers to the Lender and each
successive owner and holder of the Note.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, Lender and Borrower agree:
1. REFERENCES IN LOAN DOCUMENTS. All references in the Loan Documents to
the Note shall henceforth include references to the Note, as such Note may, from
time to time, be amended, modified, extended, renewed, decreased, and/or
increased.
2. EXECUTION OF DOCUMENTS. Subject to the terms and conditions set forth
herein, Borrower will execute in favor of Lender the Loan Documents.
3. PURPOSE OF LOAN. Borrower represents that it is negotiating an agreement
to acquire two casinos and related assets and permission to license a third
casino in the Czech Republic (the "Czech Transaction"), is negotiating to
acquire a casino in Zaragoza, Spain and a new license for a downtown casino (the
"Zaragoza Transaction") and is about to enter into a management agreement to
operate the gambling operation of an ocean going vessel off of the Florida Coast
(the "Florida Transaction"). The Czech Transaction, the Zaragoza Transaction
and the Florida Transaction are referred to herein collectively as the
"Transaction(s)". All agreements related to such Transactions must be approved
in writing by Lender as to form and content. Copies of agreements or term
sheets related thereto are attached hereto as Exhibits D, E, and F respectively.
Attachment hereto shall not constitute approval by the Lender of these
documents. Subject to this Agreement, proceeds of this loan are to be used (a)
to fund an escrow account
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established pursuant to agreements executed with respect to the Czech
Transaction ($525,000), (b) the purchase price and certain operating expenses
pursuant to agreements executed with respect to the Zaragoza Transaction
($1,222,000), and (c) the purchase price, operating expenses and cage funds
pursuant to agreements executed with respect to the Florida Transaction
($450,000). The balance of the Loan Amount shall be used to repay to Lender all
sums due under that certain $350,000 Senior Promissory Note executed by Borrower
in favor of Lender as of June 11, 1997 within one (1) business day of receipt of
such advance, as referenced in paragraph 5(h) below, and for general operating
needs of Borrower.
4. CONVERSION RIGHTS. The Borrower represents to Lender that it intends to
issue debt and equity instruments, in form and substance acceptable to Lender if
Lender is a member of the investor group (including through conversion as set
forth herein), in the approximate total sum of up to $20,000,000, the proceeds
of which are contemplated to be used to complete the Czech Transaction, to
acquire an existing casino and a license for a new casino in downtown Zaragoza,
Spain and for other needs of Borrower, as set forth in Exhibit "G" (the "New
Issue"). Attachment hereto does not constitute approval by Lender of the
business plan. At the option of Lender, Lender may (i) require immediate
repayment of all or a portion of sums due under the Note and Loan Documents
pursuant to the terms thereof from the first dollars received by Borrower from
the New Issue, and/or (ii) convert all or a portion of the unpaid principal sum
due Lender under the Note to indebtedness and equity, on a dollar for dollar
basis, issued pursuant to the New Issue. In the event of such conversion,
Lender shall be entitled to all benefits of the New Issue, on a pari passu basis
with the other investors in the New Issue. In the event of such a conversion,
the Warrants shall be converted to the terms of the warrants, in form and
substance acceptable to Lender included within the New Issue. The number of
shares of New Issue warrants issued in the event of conversion shall be the
greater of (a) Warrants issued to Lender pursuant to the terms of this Agreement
as to such sums converted, or (b) warrants convertible into shares of Common
Stock which an investor in the New Issue who invests the converted sum would
receive. Should the New Issue occur, Borrower shall provide written notice
thereof and Holder shall, not less than (20) twenty days prior to the date the
New Issue must be closed, be provided notice and all relevant documents
comprising the New Issue. Holder shall, not less than five days prior to the
New Issue closing date notify the Borrower if it desires to convert the Note or
require repayment of the Note from the proceeds of the New Issue. In the event
Holder makes no election, the Loan Documents shall continue in full force and
effect. In the event of conversion, all unpaid interest and other sums due
under the Note, other than unpaid converted principal, shall be paid in full in
cash on the date conversion occurs. The right to convert shall expire when all
principal due pursuant to the Note is paid in full in conformance with the Loan
Documents. Borrower may not prepay the principal obligation arising under the
Note without the written consent of Holder. There shall be no penalty for
authorized prepayment of the Note. Nothing herein shall excuse the Borrower
from any payment or other obligations required under the terms of the Note or be
deemed a waiver of any right or remedy granted Lender in the Loan Documents,
including acceleration. A "Business Day" is any day that commercial banks are
permitted to be open for business in New York City, New York, U.S.A.
5. AGREEMENT TO ADVANCE. Upon Borrower's compliance with the requirements
of Lender set forth in this Agreement and subject by the terms and conditions
hereof, Lender shall advance to Borrower a total amount not to exceed two
million six hundred twenty-five thousand dollars and no cents ($2,625,000) in
increments as set forth below. Borrower agrees that advances of
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the Loan Amount shall be made only for the following purposes, in the following
increments, in compliance with the terms hereof:
a. Purchase Price - ninety percent of authorized,
issued Common Stock of Casino de Zaragoza
from the owner of Casino de Zaragoza $800,000
b. Recapitalization of Casino de Zaragoza $250,000
c. Recapture of costs incurred by Borrower
associated with Casino de Zaragoza $172,000
d. Acquisition fee - Florida Transaction $250,000
e. Funds to operate Florida Casino - Florida
Transaction $100,000
f. Money to fund the "cage" - Florida Transaction $100,000
g. Escrow Deposit with Sellers of Czech Casinos $525,000
h. General operations of Borrower and repayment
of $350,000 Senior Promissory Note $428,000
--------
6. CONDITIONS PRECEDENT FOR ADVANCES. Prior to any advance of a portion of
the Loan Amount, other than that sum designated for general requirements and
repayment of the $350,000 Senior Promissory Note (section 5(h)), the following
conditions shall be met:
a. A Certificate of the President of Borrower ("Certificate of
Borrower") in a form acceptable to Lender shall be delivered to
Lender wherein Borrower certifies as follows:
(i) That all documents and agreements requisite to such an
advance, including as to the Transaction for which such
advance is to be made, have been executed (or are ready
for execution) and that such sum is payable by Borrower.
(ii) That Borrower and any present or future, wholly or
partially owned subsidiary, direct or indirect, and/or
affiliate (collectively the "Affiliate" or the
"Affiliates") have complied with all documents and
agreements related to such an advance, including the Loan
Documents and documents related to such Transaction.
Affiliate shall not be construed to create personal
liability for individual officers, directors and/or
employees of the Borrower or any Affiliate.
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(iii) That there are no liens or encumbrances against assets
acquired by Borrower or Affiliates with the proceeds of
such advance, other than as granted to Lender in
connection herewith or consented to in writing by Lender.
(iv) That no default exists under the Loan Documents and that
no event has occurred as of such date that with the
giving of notice or otherwise would constitute an event
of default of the Loan Documents.
(v) That, to the actual knowledge of Borrower, Borrower
and/or Affiliates can perform all terms and conditions of
the Transaction as to which the advance is requested,
including those unrelated to the advance.
(vi) That all representations and warranties of Borrower in
the Loan Documents are true and correct at the time of
such request.
(vii) Borrower knows of no event or circumstance which makes it
unlikely that the Transaction can be successfully
completed and its business purpose achieved, as that
purpose is described in Exhibit "G" hereto.
b. All statements set forth in such Certificate of Borrower are true
and correct.
c. Any consents, certificates, approvals, permits, licenses, bonds,
agreements, releases, lien waivers, evidence of partial or final
completion, bills, invoices, receipts, subordinations,
affidavits, or such other documents as required by applicable law
or by the Loan Documents or as Lender may otherwise reasonably
require have been obtained.
d. In addition, as to the Zaragoza Transaction, the following shall
be delivered to Lender:
(i) By Borrower, documents evidencing that the bank guarantee
required to be provided in favor of the Provincial
Government of Aragon, Spain (the "DGA") in the sum of
approximately $7,000,000 as well as similar guarantees as
may be necessary with respect of other preferred
creditors, has been obtained on terms and conditions
acceptable to Lender, in Lender's sole and absolute
discretion.
(ii) An opinion from counsel to Lender domiciled in Spain in a
form acceptable to Lender that the Zaragoza Transaction
complies with all applicable laws, including those of the
province of Zaragoza and the federal government of Spain
and the European Economic Community. This is for the
benefit of the Lender and may not be
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relied upon or required by Borrower. Lender may waive
such requirement at its sole discretion or may postpone
requesting such opinion to permit Lender to utilize
rights granted it in paragraph 9 hereto.
7. ADDITIONAL OBLIGATIONS. As soon as is reasonably possible following an
advance, Borrower shall, where permissible under applicable law, cause the
following to occur:
a. Delivery by Borrower to Lender of a guaranty of the Borrower's
obligations under the Loan Documents in a form reasonably
acceptable to Lender by every Affiliate involved in any manner in
any of the Transactions or by any entity created or acquired by
Borrower to facilitate any of the Transactions.
b. Delivery by Borrower to Lender in form and substance acceptable
to Lender of documents granting to Lender a perfected security
interest in all property of any kind or nature acquired with the
advances. Borrower shall cause any Affiliate which acquires
property with such advance to execute documents in a form and
substance acceptable to Lender which grant to Lender a first lien
and security interest in such property. Borrower shall execute
documents necessary to grant to Lender a first lien and security
interest in the capital stock of each Affiliate which benefits,
either directly or indirectly, from such an advance and shall
cause each Affiliate which benefits directly or indirectly, to
execute a security interest in each of their Affiliates and/or
assets acquired with such advances. This shall be construed as
broadly as possible in favor of Lender and shall include any
parent of any Affiliate that owns acquired property, any parent
of such parent, such that all direct or indirect subsidiaries of
Borrower involved in the Transaction are pledged to Lender. Such
entities shall also execute a guaranty of such indebtedness as a
component of such transaction. Borrower and such Affiliates
shall also take all steps necessary to perfect such security
interests in favor of Lender. Borrower acknowledges that this
includes, but is not limited to a security interest in the
following property if the advance related to such Transaction is
made:
(i) Promissory Note in the sum of $250,000 executed in favor
of Borrower by Boca Casino Cruises, Inc.in the Florida
Transaction.
(ii) The Casino Management Contract and Consulting Agreement
and cash flow resulting therefrom (Florida Transaction).
(iii) Sums escrowed by Borrower with sellers of property to
Borrower or Affiliate (Czech Transaction and Zaragoza
Transaction). Such escrow agreement shall also include
irrevocable provisions providing that such sums shall be
wire transferred to Lender in lieu of being returned to
Borrower or an Affiliate or agent of Borrower
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or Affiliate. Such sums shall be deemed a payment by
Borrower on the Note.
(iv) $100,000 cage cash - Florida Transaction
(v) Stock of Art Marketing, Ltd., a British Corporation, and
each Affiliate which holds assets, directly, or
indirectly, acquired pursuant to the Zaragoza
Transaction.
(vi) All real and personal property comprising Casino de
Zaragoza.
(vii) Bank Accounts of Borrower in Czech Republic.
8. ADVANCES.
a. Lender shall advance proceeds in compliance with the terms
hereof. All such advances shall be charged against the Note.
b. At least five (5) Business Days prior to the date on which each
advance is to be made, all documents, instruments, and writings
that may then be required by Lender shall be delivered to Lender.
The proceeds of each advance shall be applied solely to the
payment of those items set forth in such requisition and approved
by Lender. Any advances made by Lender prior to the fulfillment
by Borrower of any requirements of Lender or any condition
precedent set forth in this Agreement shall not be deemed a
waiver of Lender's right to have such requirement or condition
precedent fulfilled, including prior to advancing future Loan
Amounts. The failure to subsequently fulfill such requirements
or conditions precedent within the time period reasonably
required by Lender shall be deemed a default by Borrower. Lender
may, but shall not be obligated to, advance an amount that
exceeds the face amount of the Note.
c. Lender shall have no obligation to make any advance if, at the
time of such advance is to be made:
(i) Borrower is in default with respect to any provision of
the Loan Documents or of any instrument, document or
writing referenced herein.
(ii) Lender determines, in good faith, that Borrower is
incapable of performing under the terms of any of the
documents executed with respect to the Transaction
related to such advance.
(iii) Lender determines that Borrower cannot complete any of
the Transactions which are the purpose of this Agreement.
(iv) Lender determines Borrower cannot obtain funding for the
New Issue.
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(v) Lender has not approved the form of documents related to
the Transaction for which such advance is requested.
(vi) Lender does not approve of the Transaction for any
reason, in its sole discretion, as to which the advance
is requested.
(vii) Lender determines in good faith after consultation with
Borrower that Borrower has not fulfilled each of the
conditions precedent with respect to such advance.
d. Lender shall have no obligation, either express or implied, to
Borrower, or to any third parties to verify that advances made
pursuant to this Agreement are actually used for the purpose
herein. No party may be a third party beneficiary of this
Agreement.
e. Lender shall have no liability or obligation, either express or
implied, to Borrower or to any third parties, in connection with
the Transactions, except to advance monies as provided under this
Agreement. Further, Lender is not liable for the performance of
any other third parties nor for any failure of such party to
perform any obligations to Borrower. Nothing under this
Agreement shall be construed as a representation or warranty,
express or implied, on Lender's part, to any party, other than
Lender's representations to Borrower as set forth in paragraph 14
herein. Any advance made by Lender shall not be deemed an
agreement by Lender that Borrower is in compliance with this
Agreement, that Lender has determined that Borrower has so
complied or that any of those factors as set forth in paragraph
8(c) hereto are correct.
9. ZARAGOZA TRANSACTION. Borrower represents and agrees as follows:
Borrower intends to request an advance related to the Zaragoza Transaction
in the sum of $800,000, which advance is to be placed into a bank account in
Spain controlled only by Borrower. Should certain conditions occur, this money
is to be used to acquire ninety percent (90%) of the shares of Common Stock of
Casino de Zaragoza SA from SR Alfonso Fuentes ("Fuentes Stock"). Many terms and
conditions regarding the acquisition of the Fuentes Stock as well as the
acquisition of a new casino in downtown Zaragoza have yet to be resolved.
Borrower shall only enter into the purchase and sale agreement required to
transfer the Fuentes Stock and release the 120,000,000 Spanish pesetes
(approximately $800,000), to SR. Fuentes or any other person or entity upon
obtaining the written approval of Lender to do so. The decision to provide such
approval shall be in the sole and absolute discretion of Lender. Further, at
any time prior to providing such approval, Borrower shall, upon written demand
to Borrower by Lender, withdraw such sums from such account in Spain or any
other account where sums are located and promptly repay such sums to Lender
within three (3) Business Days of receipt of such sums. Other sums requested
pursuant to the Loan Documents as to the Zaragoza Transaction, including for
recapitalization of Casino de Zaragoza ($250,000) and recapture of cost
associated with Casino de Zaragoza ($172,000) shall be
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advanced notwithstanding anything to the contrary herein, in the sole and
absolute discretion of Lender.
10. PAYMENTS. Borrower shall, until all obligations under the terms of the
Loan Documents are satisfied, on or before the 10th calendar day following each
three (3) calendar month period, with the first three month period to commence
as of October 1, 1997, pay or cause to be paid the sum equal to forty percent
(40%) of all cash received during that prior three (3) month period, if any, by
it or its wholly owned subsidiary, Tottenham & Co., d/b/a ART Marketing Ltd.
(the "Subsidiary") for services rendered by Borrower or the Subsidiary as to the
Boxer Casino located in the city of Gyandja (Azerbaijon Republic), including
pursuant to that Joint Activity Agreement dated March 31, 1997 by and between
Subsidiary and Mahmud Audiyev, provided that in no event shall such sum exceed
the unpaid principal balance of the Note, together with accrued unpaid interest
and other sums due Lender under the Loan Documents as of the date of such
payment. The payment shall be applied first to unpaid fees and expenses of
Lender arising in relation to the Loan Documents, next to unpaid interest and
then to unpaid principal. The entire unpaid principal balance under the Loan
Documents and all accrued unpaid interest therein is due and payable November 1,
1998 ("Final Maturity Date"). The obligation to pay and all obligations arising
under the Loan Documents are a general obligation of the Borrower and are not
limited to proceeds received from the operation of the Boxer Casino. All
payments to be made by Borrower to the Lender hereunder shall be made to the
Lender at 2200 Ross Avenue, Suite 4660 West, Dallas, Texas 75201, (or to such
other address as Holder may notify the Borrower pursuant to Section 30 hereof)
not later than 4:00 p.m. Central Time on the date when due in lawful money of
the United States of America and immediately available funds. The Borrower will
promptly and punctually pay when due (whether on a scheduled payment date or at
maturity or upon the prepayment of such Note) the principal of and interest on
the Note, without any presentment thereof, directly to Holder of the Note, at
the address of such Holder shown in the register maintained by the Borrower for
such purposes or at such other addresses the Holder may from time to time
designate in writing to the Borrower or, if a bank account is designated in any
written notice to Borrower from such Holder, the Borrower will make such
payments by wire transfer or other immediately available funds to such bank
account, marked for attention as indicated, or in such other manner or to such
other account of the Holder in any bank in the United States of America as such
Holder may from time to direct in writing. The Holder of the Note agrees that
in the event it shall sell or transfer the Note it will, prior to the delivery
of the Note make a notation thereon of all principal, if any, prepaid on such
Note and will also note thereon the date to which interest has been paid on such
Note. Upon repayment in full of the Note, the Holder of the Note shall deliver
such Note to the Borrower for cancellation. Borrower shall not be charged a
penalty in the event of prepayment of the Note, to the extent such prepayment is
consented to in writing by the Holder.
11. WARRANTS. Immediately upon receipt of an advance, Borrower shall
execute a Warrant, in the form attached hereto as Exhibit C, permitting Lender
to acquire .1714 shares of Common Stock of Borrower for each dollar advanced.
12. CONFIRMATION OF RIGHTS. Lender shall have the right to exercise all
rights and remedies of Lender and/or any Holder under the Loan Documents and
under applicable law upon the occurrence of any default or event of default
under any of the Loan Documents and under any and all amendments or
modifications to any of the Loan Documents or to the terms thereof.
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13. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents, and
warrants to the Lender as follows:
a. ORGANIZATION. STANDING. ETC. Borrower is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and
authority to own its assets and carry on its business as
presently conducted. Borrower has all requisite corporate power
and authority to (i) execute, deliver and perform its obligations
under the Loan Documents, (ii) issue and perform its obligations
under the Warrants, and (iii) execute, deliver and perform its
obligations under all other agreements and instruments executed
and delivered by it pursuant to or in connection with the Loan
Documents.
b. AUTHORIZATION AND EXECUTION; SHARES VALIDLY ISSUED. The
execution, delivery and performance by Borrower of the Loan
Documents and the issuance of the Warrants hereunder have been
duly and validly authorized and Borrower has the corporate power
and authority to execute, deliver and perform this Agreement and
execute the Loan Documents and issue the Warrants hereunder. The
Loan Documents have been duly authorized, executed, issued and
delivered by Borrower and constitute a valid and binding
agreement of Borrower enforceable in accordance with its terms
except to the extent enforceability may be limited by bankruptcy,
reorganization, insolvency or other laws affecting the
enforcement of creditor's rights generally or the availability of
equitable remedies subject to the discretion of the court.
c. CONTRAVENTION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby do not contravene or constitute a default under or violate
(i) any provision of applicable law or regulation the violation
of which would have a material adverse effect on Borrower or on
the Loan Documents or Warrants, (ii) the Articles of
Incorporation or Bylaws of Borrower, or (iii) any agreement,
judgment, injunction, order, decree or other instrument binding
upon Borrower or any of its assets or properties, the violation
of which would have a material adverse effect on Borrower or
result in the creation or imposition of any lien on any asset of
Borrower, on the Loan Documents or the Warrants.
d. LITIGATION, PROCEEDINGS, DEFAULTS. Other than a lawsuit
commenced by the Borrower against the State of Louisiana, Docket
No. 434,700-D, pending in East Baton Rouge Parish and the
proceeding by the NASDAQ Stock Market to delist the Common Stock
and warrants of the Borrower, there is no action, suit,
investigation or proceeding pending against, or to the knowledge
of the Borrower threatened against or affecting, Borrower or its
assets before or by any court or arbitrator or any governmental
body, agency, department, instrumentality or official. Borrower
is not in violation of its Articles of Incorporation or Bylaws,
and Borrower is not in violation of, or in default under any
provision of any applicable law or
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regulation or of any agreement, judgment, injunction, order,
decree or other instrument binding upon Borrower which violation
or default (i) would effect the validity of this Agreement, the
Note, or the Warrants or any other document or agreement executed
or to be executed by Borrower pursuant hereto or in connection
herewith, or (ii) would impair the ability of Borrower to perform
in any material respect the obligations which it has under the
Loan Documents or the Warrants, or any such other document or
agreement.
e. GOVERNMENTAL REGULATION. Except as required pursuant to the
Securities Act of 1933 as amended, (the "Act") and State
securities laws, Borrower is not subject to any Federal or State
law or regulation limiting its ability to execute the Loan
Documents or issue the Warrants.
f. CAPITALIZATION OF BORROWER. Borrower's authorized capital stock
consists of 50,000,000 shares of Common Stock. As of the date
of this Agreement, 3,044,286 shares of Common Stock were issued
and outstanding. All outstanding shares have been duly
authorized, validly issued and are fully paid and nonassessable.
Except with the Lender's prior consent, which shall not be
unreasonably withheld or delayed, and until the loan is repaid or
converted, and except as to the New Issue, the Borrower will not
issue additional rights, subscriptions, warrants, options,
conversion rights, or agreements of any kind to purchase from the
Borrower, or otherwise require the Borrower to issue, any shares
of capital stock of the Borrower nor issue additional securities
or obligations of any kind convertible into or exchangeable for
any shares of capital stock of the Borrower and the Borrower will
not be subject to any new obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its
capital stock, except for the Warrants, stock options under the
1993 Employee Stock Option Plan and up to 150,000 warrants to
Lippert Heilshorn Associates pursuant to an agreement for public
relations work.
g. OWNERSHIP OF PROPERTY. Borrower has good record title in fee
simple to, or valid and subsisting leasehold interests in, all
its real property, and good title to all its other property, in
each case which is necessary or useful in the conduct of its
business. Each lease agreement under which Borrower holds an
interest in leased property is in full force and effect.
h. DOCUMENTATION; NO MATERIAL MISSTATEMENTS. All of the necessary
documents related to the consummation of this transaction
requested by Lender have been provided by Borrower to the Lender
hereby and are true, correct and complete in all material
respects, and no written representation, warranty or statement
made by the Borrower in or pursuant to this Agreement contains or
will contain, when made, any untrue statement of a material fact
or omits or will omit to state any material fact necessary to
make such representation, warranty or statement not misleading to
a prospective purchaser of securities from Borrower, who is
seeking full information with respect to Borrower.
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i. ADDITIONAL REPRESENTATIONS, COVENANTS, AND AGREEMENTS.
Borrower further covenants and agrees:
(i) To perform all obligations under the documents related to
the Transactions, the Loan Documents and any instrument,
document, or writing referenced herein, and to promptly
pay when due, from proceeds of the Loan Amount or from
Borrower's separate funds, all other costs, charges, and
expenses incurred in connection with the Transactions.
(ii) To keep all property to be pledged to Lender pursuant to
the Loan Documents free and clear of any and all liens,
claims and encumbrances, other than those granted to
Lender, and except as are consented to in writing by
Lender.
(iii) That all properties, real or personal, of any kind or
nature, acquired pursuant to the Transactions, either
directly or indirectly, and all property owned by any
entity acquired pursuant to the Transactions, real or
personal, shall be subject to the first lien and security
interest of Lender, subject only to those encumbrances as
are consented to in writing by Lender.
(iv) That the monies to be advanced to Borrower under this
Agreement, together with other funds now available to
Borrower, are sufficient to meet the purposes as set
forth in this Agreement.
(v) That each advance made under this Agreement shall be used
solely for those uses as set forth herein.
(vi) That the property to be acquired pursuant to the
Transactions ("Property") is not now being used and to
the best of Borrower's knowledge has not been used in
violation of any federal, state, or local environmental
law, ordinance, or regulation; that Borrower has not
filed or been required to file any federal, state, or
local report of hazardous substances found or disposed on
any real property now owned by Borrower; that no
proceeding has been commenced or notice received
concerning any violation of any environmental law,
ordinance, or regulation; that to the best of Borrower's
knowledge the Property is free of underground storage
tanks, out-of-use transformers, hazardous, radioactive or
toxic wastes, contamination, oil, or other materials;
that the Property shall not be used in conjunction with
or for any activity involving, directly or indirectly,
the generation, treatment, storage, transportation,
manufacture, use or disposition of hazardous or toxic
chemicals, materials, substances, or waste of any kind;
that neither the Property, the soil making up the portion
thereof, nor the
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ground water thereunder making up any portion thereof
shall be contaminated so as to be subject to any
"clean-up", or similar requirement under any applicable
rule, requirement, regulation, ordinance, or law of
governmental authority that would in any way inhibit,
delay, or increase the cost of the improvement,
operation, or use of the Property; and that Borrower
shall not install, or allow to remain upon the Property,
any chemical, material, or substance, exposure to which
is prohibited, limited, or regulated by any federal,
state, or county, regional, or local authority, or which,
even if not so regulated, may or could pose a hazard to
the health and safety of the occupants of the Property,
to the owners of the properties adjacent to the Property,
or to any person.
(vii) To indemnify and hold harmless from any and all actions,
claims, demands, damages, costs, expenses, and other
liabilities, including without limitation attorney's
fees, that Lender may incur that in any way relate to or
arise out of this Agreement, the Loan Documents and the
Transactions, including without limitation those arising
out of the negligence of Lender, but not the gross
negligence, willful misconduct, fraud or violation of law
by Lender.
(viii) That this Agreement or any right or obligation that
Borrower has under this Agreement shall not be assigned
or transferred by Borrower without the express written
consent of Lender, and that Borrower and Borrower's
successors, and assigns shall be bound by this Agreement.
(ix) That each of the Transactions complies with all
applicable law.
14. REPRESENTATIONS AND WARRANTIES OF LENDER. The Lender represents and
warrants to Borrower as follows:
a. AUTHORIZATION AND EXECUTION. The Lender has full legal right,
power, and authority (including the due authorization by all
necessary partnership action) to enter into this Agreement and to
perform the Lender's obligations hereunder without the need for
the consent of any other person; and this Agreement has been duly
authorized, executed and delivered and constitutes the legal,
valid and binding obligation of the Lender enforceable against
the Lender in accordance with the terms hereof, except to the
extent enforceability may be limited by bankruptcy,
reorganization, insolvency or the laws affecting the enforcement
of creditor's rights generally or the availability of equitable
remedies subject to the discretion of the court.
b. FINANCIAL RISK. The Lender is in a financial position to hold
the Note until maturity and is able to bear the economic risk and
withstand a complete loss of investment in the Note.
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c. KNOWLEDGE AND EXPERIENCE. The Lender has such knowledge and
experience in financial and business matters that the Lender is
capable of evaluating the merits and risks of the prospective
investment in the Note and the Warrants and has the net worth to
undertake such risks.
d. ADVICE. The Lender has obtained, to the extent the Lender has
deemed necessary, legal and other professional advice and the
Lender's own personal professional advice with respect to the
risks inherent in the investment in the Note, and the suitability
of the investment in the Note and the Warrants in light of the
Lender's financial condition and investment needs.
e. SUITABLE INVESTMENT. The Lender believes that the investment in
the Note and the Warrants is suitable for the Lender based upon
the Lender's investment objectives and financial needs, and the
Lender has adequate means for providing for the Lender's current
financial needs and has no need for liquidity of investment with
respect to the Note.
f. RISK FACTORS. The Lender realizes that (i) the purchase of the
Note and the Warrants is a long term investment; (ii) the Lender
must bear the economic risk of investment until Note matures and
because the Note and the Warrants have not been registered under
the Securities Act, the Note, the Warrants and the Common Stock
for which the Warrants areexercisable cannot be sold unless each
is subsequently registered under the Act or an exemption from
such registration is available; and (iii) there is presently no
public market for the Note or the Warrants and the Lender may not
be able to liquidate the Lender's investment in the event of an
emergency or pledge the Note or the Warrants as collateral
security for loans.
g. OWN ACCOUNT. The Lender acknowledges that the Note and the
Warrants are being purchased for the Lender's own account and for
investment and without the intention of reselling or
redistributing the same, and that the Lender made no agreement
with others regarding any of such Note, and the Warrant.
h. NO AGREEMENTS. The Lender has no agreements (written or oral),
arrangements, understandings or commitments with any other
investor subscribing for Note or the Warrants in this private
placement of same.
i. ACCREDITED INVESTOR. The Lender is an "accredited investor" as
defined under Regulation D under the Act.
j. ENTITY REPRESENTATIONS. The Lender was not organized for the
specific purpose of acquiring the Note and has total assets in
excess of $5,000,000.
15. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that so long as
the Note
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shall be outstanding:
a. PRINCIPAL AND INTEREST. Borrower will pay or cause to be paid
punctually the principal of and interest on the Note at the times
and places and in the manner specified in the Note.
b. MAINTENANCE AND EXISTENCE. Borrower will at all times do or cause
to be done all things necessary to maintain, preserve and renew
its existence and its rights, patents and franchises.
c. COMPLIANCE WITH LAWS. Borrower will comply in all material
respects with all applicable laws, rules, regulations, and orders
of the United States of America and of all foreign countries and
of any state or municipality, and of any instrumentality or
agency of any thereof (including applicable statutes,
regulations, orders and restrictions relating to equal employment
opportunites and environmental standards or controls) in respect
of the conduct of business and the ownership of property by
Borrower.
d. INSURANCE. Borrower will maintain adequate insurance with
financially sound and reputable insurance companies in such
amounts and covering such risks as is customarily carried by
companies engaged in similar businesses and similarily situated
as Borrower. Borrower shall notify Lender of any cancellations
or material changes within five (5) Business Days of notice of
such cancellation or change to the Borrower.
e. TAXES, ASSESSMENTS AND OTHER CHARGES. Borrower will pay
punctually and discharge when due and payable: (i) all taxes,
assessments and other governmental charges levied or imposed upon
it or upon its income, profits, or properties and (ii) all claims
(including, without limitation, claims for labor, materials,
supplies, or services) which might, if unpaid, become a lien upon
any property of Borrower, except those which the Borrower is
disputing in good faith and which dispute is being prosecuted in
good faith, so long as such process does not endanger the ability
of Borrower to perform its obligations herein.
f. INDEBTEDNESS. Borrower will pay punctually and discharge when due
and payable any indebtedness heretofore or hereafter incurred or
assumed by it and discharge, perform and observe the covenants,
provisions and conditions to be discharged, performed and
observed on the part of Borrower in connection therewith, or in
connection with any agreement or other instrument relating
thereto.
g. BOOKS. Borrower will keep at all times proper books of record and
account in which full, true and correct entries will be made of
its transactions in accordance with applicable generally accepted
accounting principles.
h. STATEMENTS, REPORTS AND CERTIFICATES TO BE DELIVERED BY THE
BORROWER. From the date hereof and so long as the Lender shall
hold the Note,
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<PAGE>
Borrower will deliver to Lender at the address shown in the
register maintained by Borrower the following:
(i) QUARTERLY FINANCIAL STATEMENTS. As soon as reasonably
possible, and in any event within 45 days after the close
of each of the first three fiscal quarters of Borrower in
each fiscal year, (1) the unaudited balance sheet of the
Borrower as of the end of such period, setting forth in
comparative form the corresponding figures for the
corresponding quarter of the preceding fiscal year, and
(2) the unaudited statements of income and retained
earnings and cash flows of the Borrower for each quarter
and for the portion of the fiscal year ended with such
quarter and setting forth in comparative form the
corresponding figures for the corresponding periods of
the preceding fiscal year, all in reasonable detail and
certified by a principal financial officer of Borrower
subject to year-end audit adjustments.
(ii) BOXER CASINO. Not later than the fifteenth (15) day
following the end of each calendar quarter , an unaudited
statement of income and expenses for the prior month of
the Boxer Casino shall be provided to the Lender and for
any other entity or enterprise acquired or commenced
pursuant to a Transaction.
(iii) OTHER REPORTS AND STATEMENTS. Promptly upon the mailing
to its equity holders of each annual report or other
report or communication, a copy of each such report or
communication; and promptly upon any filing by Borrower
with the Securities and Exchange Commission, or any
governmental agency or agencies substituted therefor, or
with any national securities exchange, of any annual or
periodic or special report or registration statement, a
copy of such report or statement.
(iv) CERTIFICATE OF DEFAULT. Deliver to the Lender, forthwith
upon becoming aware of any default or defaults in the
performance of any covenant, agreement or condition
contained in the Loan Documents (including notice of any
event which with the giving of notice, lapse of time or
both would become an Event of Default), an Officer's
Certificate specifying such default or Event of Default.
(v) ADDITIONAL INFORMATION. Such other data and information
as from time to time may be reasonably requested by the
Lender.
i. OTHER DOCUMENTS. Borrower will comply will all other covenants,
representations, warranties, terms and obligations of the Loan
Documents and all other documents executed pursuant to the terms
hereof or to the Loan Documents.
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<PAGE>
16. NEGATIVE COVENANTS. Borrower covenants and agrees that so long as the
indebtedness under the Loan Documents shall be outstanding (without the prior
written consent of Lender):
a. GUARANTEES. Borrower will not guarantee, directly or indirectly,
any obligation or indebtedness of any other Person, other than
any guarantee made with respect to the contemplated Czech
Transaction or the Zaragoza Transaction, which guarantee shall be
on terms reasonably acceptable to Holder. "Person" shall include
any individual, a corporation, a partnership, a business entity,
or a government, foreign or domestic, or any agency or political
subdivision thereof.
b. DISTRIBUTIONS. Borrower will not declare, pay, or set apart any
funds for the payment of any distribution to any shareholder,
make any distribution in respect of equity interests, or redeem,
repurchase or effect any other sale or exchange upon any equity
interest in Borrower. The exercise of issued and outstanding
warrants shall not be deemed to be a redemption or repurchase.
c. MERGER AND CONSOLIDATION. Borrower will not consolidate with or
merge into any other entity.
d. DISPOSITION OF ASSETS. Borrower will not sell, assign, lease,
transfer or otherwise dispose of all or any material portion of
its properties or assets to any third party, in any transaction
or series of transactions.
e. SENIOR DEBT. Subsequent to the date hereof, Borrower will not
incur, create, assume or at any time become liable, contingently
or otherwise, for any borrowed or other indebtedness that is
senior in right of payment to the obligations created herein,
other than that expressly consented to in writing by Lender.
Nothing herein shall be construed to permit the issuance of any
indebtedness that would be secured by any collateral granted to
the Lender to secure the terms hereof other than as expressly
consented to in writing by Holder.
17. EVENT OF DEFAULT. An Event of Default shall mean the occurrence or
existence of any one or more of the following events, whether such occurrence is
voluntary or involuntary or comes about or is effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental authority:
Events of Default include the following:
a. The Borrower shall fail to pay the principal of, or interest due
on the Note, as and when due and payable, which failure shall
continue for a period of ten (10) days;
b. The Borrower shall fail to perform or observe any term, covenant,
or agreement contained in the Loan Documents or any document
related thereto, which failure shall continue for a period of ten
(10) days after Lender gives Borrower notice of such failure;
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<PAGE>
c. The occurrence of a default under any documents or instruments
guaranteeing, evidencing, securing or pertaining to the
indebtedness evidenced hereby or the failure of any such
documents to remain in full force and effect;
d. If any representation, warranty or other statement of fact, in
the Loan Documents or in any writing, certificate, report or
statement at any time furnished by Borrower or any other party
obligated in relation hereto to Lender pursuant to or in
connection thereto shall be false or misleading in any material
respect; or
e. The Borrower or any other parties obligated in relation hereto
admits in writing its inability to pay debts generally as they
become due; files a petition for relief under the bankruptcy laws
or a petition to take advantage of any insolvency act; makes an
assignment for the benefit of creditors; commences a proceeding
for the appointment of a receiver, trustee, liquidator or
conservator of itself or the whole or any substantial part of its
property; files a petition or answer seeking reorganization or
arrangement or similar relief under the Federal Bankruptcy Law or
any other applicable law or statute of the United States of
America or any State or any foreign jurisdiction; is adjudged a
bankrupt or insolvent, or a court of competent jurisdiction shall
enter any order, judgment or decree appointing a receiver,
trustee, liquidator or conservator of Borrower or such party or
of the whole or any substantial part of the property of Borrower
or such party or approves a petition filed against a Borrower or
such party seeking reorganization or similar relief under the
Federal Bankruptcy Laws or any other applicable law or statute of
the United States of America or any State or foreign
jurisdiction; or if, under the provisions of any other law for
the relief or aid of Borrower or such party, a court of competent
jurisdiction shall assume custody or control of Borrower or such
party or the whole or any substantial part of its property; or if
there is commenced against Borrower or such party any proceeding
for any of the foregoing relief; or if Borrower or such party, by
any act indicates its consent to approval of, or acquiescence in
any such proceeding; Borrower or such party generally, does not
pay or shall be unable to pay, its debts as such debts become
due; or
f. If any creditor of Borrower for any reason whatsoever hereafter
shall accelerate payment in whole or in part of any outstanding
material obligation owed to it by Borrower under any agreement or
arrangement due to a default or an event of default by the
Borrower, or if any judgment against Borrower or any execution
against any property of Borrower or any amount remains unpaid,
unstayed or undismissed for a period in excess of ten (10) days;
or
g. If Borrower shall cease to exist.
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<PAGE>
It is understood and agreed that time is of the essence of the Note. If an
Event of Default exists, then all amounts under the Note at the time outstanding
shall immediately become due and payable, together with interest accrued thereon
without presentment, demand, protest or notice of any kind, including notice of
intent to accelerate the payment of the unpaid balance of the Note or in any
other Loan Document or of notice of acceleration, all of which are hereby waived
by the Borrower. Any Holder of the Note and of rights under the Loan Documents
may also proceed to protect and enforce its rights either by suit in equity
and/or by action at law, or by other appropriate proceedings, whether for the
specific performance (to the extent permitted by law) of any covenant or
agreement contained in such Loan Documents, or in aid of the exercise of any
power granted in such Loan Documents, or may proceed to enforce the payment of
such Loan Documents or to enforce any other legal or equitable right of the
holder of such Loan Documents.
18. SECURITIES LAWS RESTRICTIONS. The Lender acknowledges the Note and the
Warrants will not be sold or assigned unless the Lender shall have obtained (i)
an opinion of counsel satisfactory to the Borrower that such proposed
disposition or transfer lawfully may be made without the registration of such
Note or Warrants pursuant to the Act and applicable state securities laws, or
(ii) such registration.
19. LEGEND ON NOTE. The Lender acknowledges that the Note and the Warrants
will each bear a legend conspicuously endorsed reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES ACT, AND MAY NOT BE
TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACTS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT
REQUIRED.
20. WAIVER OF CLAIMS. Borrower warrants and represents to Lender that as of
the date hereof the Note is subject to no credits, charges, claims, or rights of
offset or deduction of any kind or character whatsoever; and the Borrower
releases and discharges Lender from any and all claims and causes of action,
whether known or unknown and whether now existing or hereafter arising,
including, without limitation, any usury claims, that have at any time been
owned, or that are hereafter owned by Borrower and that arise out of or are
related to the execution, delivery and performance of the Loan Documents.
21. FINAL MATURITY DATE. The entire unpaid principal balance of the Note
and all accrued unpaid interest therein is due and payable on the Final Maturity
Date.
22. COSTS AND EXPENSES. Borrower agrees to pay all costs and expenses
incurred by Lender in connection with the execution and consummation of this
Agreement, including, without limitation, the documented fees and expenses of
Lender's counsel.
23. CONTINUED EFFECT. Except to the extent amended hereby or in
connection herewith, all terms, provisions, and conditions of the Loan Documents
shall remain enforceable and binding in accordance with their respective terms.
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<PAGE>
24. GOVERNING LAW. The terms and provisions hereof shall be governed by and
construed in accordance with the laws of the State of New York.
25. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, and each
of the parties hereto hereby represents, warrants, and covenants to the other
that the persons executing this Agreement on behalf of such party have full
authority, power, and authorization to execute such document and to bind its
principal.
26. ENTIRE AGREEMENT. This Agreement supersedes all prior oral and
written agreements and understandings of the parties hereto with respect to the
subject matter hereof.
27. HEADINGS. The headings of the sections and subsections hereof are
inserted as a matter of convenience and for reference only and in no way define,
limit or describe the scope of this Agreement or the meaning of any provision
hereof.
28. WAIVERS. The failure of any party to act to enforce rights hereunder
shall not be deemed a waiver and shall not preclude enforcement of any rights
hereunder. No waiver of any term or provision of this Agreement on the part of a
party shall be effective for any purpose whatsoever unless such waiver is in
writing and signed by such party.
29. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the terms hereof, such provision shall be fully severable. This Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable, which provision shall be consistent with the
intent of the parties hereto.
30. NOTICES. Any request, demand, authorization, direction, notice,
consent, waiver, instruction, document or other communication provided or
permitted by this Agreement to be made upon, given or furnished to, or filed
shall be sufficient for every purpose hereunder if in writing and mailed,
registered or certified mail, postage prepaid or delivered by facsimile or
telecopier (if confirmed), as follows:
If to Borrower, to:
Trans World Gaming Corp.
One Penn Plaza, Suite 1503
New York, NY 10019
Attn: Dominick Valenzano
Telecopy No.: 212-563-3380
With copies to:
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<PAGE>
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
12th Floor
Attn: Jeffrey A. Koeppel
Telecopy No.: 202-347-2172
If to Lender, to:
Value Partners, Ltd.
2200 Ross Avenue
Suite 4660 West
Dallas, Texas 75201
Attn: Timothy G. Ewing
Telecopy No.: 214-999-1901
With copies to:
Bergman, Yonks, Stein & Bird L.L.P.
4514 Travis Street
Travis Walk, Suite 300
Dallas, Texas 75205
Attn: Jack R. Bird
Telecopy No.: 214-528-7673
or to such other address as Lender may from time to time direct. Any notice to
a Holder, (other than Lender), shall be sufficiently given if in writing and
mailed, registered or certified mail, postage prepaid, to such address as Holder
shall from time to time direct in writing.
31. ATTORNEY'S FEES. In the event attorneys' fees or other costs are
incurred to secure performance of any of the obligations herein provided for, or
to establish damages for the breach thereof, or to obtain any other appropriate
relief, whether by way of prosecution or defense, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs incurred therein.
32. FURTHER ASSURANCES. Each party hereto agrees to execute any and all
documents, and to perform such other acts, whether before or after closing, that
may be reasonably necessary or expedient to further the purposes of this
Agreement or to further assure the benefits intended to be conferred hereby.
33. TITLE TO THE SHARES. Upon the exercise of the Warrants and the
consequent issuance of the shares of Common Stock to the Lender, the Lender will
receive the entire legal and beneficial interest in the shares of Common Stock
free and clear of all liens, claims and encumbrances.
34. NOTICE OF INVALIDITY OF ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE
LOAN DOCUMENTS, AND ALL EXHIBITS HERETO REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT
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<PAGE>
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
35. USURY. All agreements between Borrower and Lender, whether now
existing or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of demand or acceleration of the Final
Maturity Date. or otherwise, shall the interest contracted for, charged,
received, paid or agreed to be paid to Lender exceed the maximum amount
permissible under the laws of the State of New York (hereinafter the "Applicable
Law"). If, from any circumstance whatsoever, interest would otherwise be payable
to Lender in excess of the maximum amount permissible under the Applicable Law,
the interest payable to Lender shall be reduced to the maximum amount
permissible under the Applicable Law, and if from any circumstance Lender shall
ever receive anything of value deemed interest by the Applicable Law in excess
of the maximum amount permissible under the Applicable Law, an amount equal to
the excessive interest shall be applied to the reduction of the principal hereof
and not to the payment of interest, or if such excessive amount of interest
exceeds the unpaid balance of principal hereof, such excess shall be refunded to
Borrower. All interest paid or agreed to be paid to Lender shall, to the extent
permitted by the Applicable Law, be amortized, prorated, allocated and spread
throughout the full period (including any renewal or extension) until payment in
full of the principal so that the interest hereon for such full period shall not
exceed the maximum amount permissible under the Applicable Law. Lender expressly
disavows any intent to contract for, charge or receive interest in an amount
which exceeds the maximum amount permissible under the Applicable Law. This
paragraph shall control all agreements between Borrower and Lender.
36. COUNTERPARTS. This Agreement may be executed in separate or multiple
counterparts by the parties, and all of such counterparts shall be considered as
one and the same instrument notwithstanding the fact that various counterparts
are signed by only one or more of the parties, and all of such Agreements shall
be deemed but one and the same Agreement.
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EXECUTED as of the date first above written.
LENDER:
VALUE PARTNERS, LTD.
By: Fisher Ewing Partners,
a Texas general partnership
General Partner
By:
---------------------------------------
Timothy G. Ewing
Its: General Partner
BORROWER:
TRANS WORLD GAMING CORP.,
A NEVADA CORPORATION
By:
---------------------------------------
Its:
---------------------------------------
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<PAGE>
THE TRANSFER OF THIS NOTE IS RESTRICTED - SEE SECTION 9 HEREOF
SENIOR SECURED PROMISSORY NOTE
$2,625,000 October 27, 1997
New York, New York
1. AGREEMENT TO PAY. FOR VALUE RECEIVED, the receipt of which is hereby
acknowledged, the undersigned, TRANS WORLD GAMING CORP., a Nevada Corporation
(hereinafter referred to as the "Maker"), promises to pay to the order of VALUE
PARTNERS, LTD., a Texas limited partnership (hereinafter referred to as the
"Payee", and Payee and each successive owner and holder of this Note being
hereinafter generally referred to as the "Holder") in the manner provided for
herein of the principal sum of
TWO MILLION SIX HUNDRED TWENTY-FIVE THOUSAND AND NO/100 DOLLARS
($2,625,000.00)
together with interest on the outstanding principal balance hereof remaining
from time to time unpaid at the rate provided in Section 2 hereof.
2. INTEREST RATE.
(a) The outstanding principal balance hereof shall bear simple interest at
the rate of the lesser of twelve percent per annum (12%) or the
highest lawful rate permitted by law (the "Regular Rate"), computed
daily on the basis of a 360 day year consisting of twelve 30-day
months for each day all or any part of the principal balance hereof
shall remain outstanding.
(b) All agreements between Maker and Payee, whether now existing or
hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of demand or acceleration of
the Final Maturity Date (as defined in Section 4) or otherwise, shall
the interest contracted for, charged, received, paid or agreed to be
paid to Payee exceed the maximum amount permissible under the laws of
the State of New York (hereinafter the "Applicable Law"). If from any
circumstance whatsoever, interest would otherwise be payable to Payee
in excess of the maximum amount permissible under the Applicable Law,
the interest payable to Payee shall be reduced to the maximum amount
permissible under the Applicable Law, and if from any circumstance
Payee shall ever receive anything of value deemed interest by the
Applicable Law in excess of the maximum amount permissible under the
Applicable Law, an amount equal to the excessive interest shall be
applied to the reduction of the principal hereof and not to the
payment of interest, or if such excessive amount of
SENIOR SECURED PROMISSORY NOTE, PAGE 1
<PAGE>
interest exceeds the unpaid balance of principal hereof, such excess
shall be refunded to Maker. All interest paid or agreed to be paid to
Payee shall, to the extent permitted by Applicable Law, be amortized,
prorated, allocated and spread throughout the full period (including
any renewal or extension) until payment in full of the principal so
that the interest hereon for such full period shall not exceed the
maximum amount permissible under the Applicable Law. Payee expressly
disavows any intent to contract for, charge or receive interest in an
amount which exceeds the maximum amount permissible under the
Applicable Law. This paragraph shall control all agreements between
Maker and Payee.
3. DOCUMENTS. Maker shall, upon execution of this Note, execute and cause to
be delivered to Bergman, Yonks, Stein & Bird, to the benefit of Payee, that
certain Loan Agreement, and that certain Certificate of No Oral Agreements, that
certain Warrant to Purchase Common Stock and thereafter such other documents as
may be required from time to time pursuant to such documents.
4. INCORPORATION BY REFERENCE. The Loan Agreement, including Conversion Rights
as set forth in Section 4 thereto and Events of Default as set forth in Section
17 thereto, is attached thereto as Exhibit "A" and incorporated herein by
reference.
5. PAYMENTS. Maker shall, until all obligations under the terms of this Note
are satisfied, on or before the 10th calendar day following each three (3)
calendar month period, with the first three month period to commence as of
October 1, 1997 pay or cause to be paid the sum equal to forty percent (40%) of
all cash received during that prior three (3) month period, if any, by it or its
wholly owned subsidiary, Tottenham & Co., d/b/a ART Marketing Ltd. (the
"Subsidiary") for services rendered by Maker or the Subsidiary as to the Boxer
Casino located in the city of Gyandja (Azerbaijon Republic), including pursuant
to that Joint Activity Agreement dated March 31, 1997 by and between Subsidiary
and Mahmud Audiyev, provided that in no event shall such sum exceed the
principal balance of the Note, together with accrued unpaid interest and other
sums due Payee as of the date of such payment. The payment shall be applied
first to unpaid fees and expenses of Payee arising in relation to this Note,
next to unpaid interest and then to unpaid principal. The entire unpaid
principal balance of this Note and all accrued unpaid interest herein is due and
payable November 1, 1998 ("Final Maturity Date"). The obligation to pay this
Note is a general obligation of the Maker and is not limited to proceeds
received from the operation of the Boxer Casino. All payments to be made by
Maker to the Payee hereunder shall be made to the Payee at 2200 Ross Avenue,
Suite 4660 West, Dallas, Texas 75201, (or to such other address as another
Holder may notify the Maker pursuant to Section 10 hereof), not later than 4:00
p.m. Central Time on the date when due in lawful money of the United States of
America and immediately available funds. The Maker will promptly and punctually
pay when due (whether on a scheduled payment date or at maturity or upon the
prepayment of such Note) the principal of and interest on the Note, without any
presentment thereof, directly to Holder of the Note at the address of such
Holder shown in the register maintained by the Maker for such purposes or at
such other addresses the Holder may from time to time designate in writing to
the
SENIOR SECURED PROMISSORY NOTE, PAGE 2
<PAGE>
Maker or, if a bank account is designated in any written notice to Maker from
the Holder, the Maker will make such payments by wire transfer or other
immediately available funds to such bank account, marked for attention as
indicated, or in such other manner or to such other account of the Holder in any
bank in the United States of America as such Holder may from time to direct in
writing. The Holder of the Note agrees that in the event it shall sell or
transfer the Note it will, prior to the delivery of the Note make a notation
thereon of all principal, if any, prepaid on such Note and will also note
thereon the date to which interest has been paid on such Note. Upon repayment
in full of the Note, the Holder of the Note shall deliver such Note to the Maker
for cancellation. Maker shall not be charged a penalty in the event of
prepayment of the Note, to the extent such prepayment is consented to in writing
by the Holder. In the event of conflict of any term of this Note with any term
of the Loan Agreement, the terms of the Loan Agreement shall control.
6. NEGOTIABILITY; OFFSETS, DEFENSES OR COUNTERCLAIMS. Subject to applicable
law and regulation, including but not limited to Federal and State securities
laws and regulations, this Note is freely negotiable. As of the date hereof,
Maker knows of no defenses, setoffs, or counterclaims existing as of the date
hereof which could be asserted or brought by the Maker or any other party in any
suit or action for the collection of any sum due hereunder.
7. CONSENTS. WAIVERS AND MODIFICATIONS. No term, covenant, agreement or
condition of this Note may be amended, supplemented or modified, or compliance
therewith waived (either generally or in a particular instance and either
retroactively or prospectively), except pursuant to a written instrument signed
by the Maker and the Holder. No course of dealing between the Maker and the
Holder of the Note or any delay or failure on the part of the Holder of this
Note in exercising any rights hereunder shall operate as a waiver of any rights
of such Holder.
8. GOVERNING LAW. THIS NOTE SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) AND DECISIONS OF THE STATE OF
NEW YORK. WHENEVER POSSIBLE EACH PROVISION OF THIS NOTE SHALL BE INTERPRETED IN
SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY
PROVISION OF THIS NOTE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW,
SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR
INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE
REMAINING PROVISIONS OF THIS NOTE. WHENEVER IN THIS NOTE REFERENCE IS MADE TO
THE PAYEE OR THE MAKER, SUCH REFERENCE SHALL BE DEEMED TO INCLUDE, AS
APPLICABLE, A REFERENCE TO THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. THE
PROVISIONS OF THIS NOTE SHALL BE BINDING UPON AND SHALL INURE TO THE BENEFIT OF
SUCH SUCCESSORS AND ASSIGNS. THE MAKER'S SUCCESSORS AND ASSIGNS SHALL INCLUDE,
WITHOUT LIMITATION, A RECEIVER, TRUSTEE OR DEBTOR IN POSSESSION FOR THE MAKER.
SENIOR SECURED PROMISSORY NOTE, PAGE 3
<PAGE>
9. SECURITIES LAWS. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE. THIS NOTE
THEREFORE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR OTHERWISE
DISTRIBUTED FOR VALUE IN THE ABSENCE OF (i) AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE MAKER THAT SUCH SALE, TRANSFER, ASSIGNMENT, PLEDGE OR OTHER
DISTRIBUTION IS EXEMPT FROM (OR NOT OTHERWISE SUBJECT TO) THE REGISTRATION (OR
QUALIFICATION) AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT OR LAWS, OR (ii)
SUCH REGISTRATION OR QUALIFICATION.
10. ATTORNEYS FEES. In the case of a default, the Maker shall pay to the
Holder, to the extent permitted by law, such further amount as shall be
sufficient to cover the cost and expense of collection, including (without
limitation) reasonable attorneys' fees, costs and expenses.
11. WAIVER OF PROTEST. The Maker expressly waives demand, grace, notice of
intent to accelerate, notice of acceleration, presentment for payment, and
protest, and further agrees that this Note and the Loan Agreement may be
renewed, and the time for payment extended without notice.
12. SUCCESSORS AND ASSIGNS. All the covenants, stipulations, promises and
agreements in this Note contained by or on behalf of the Maker shall bind its
successors and assigns, whether so expressed or not.
13. HEADINGS. The headings of the Sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part of this Note.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed and
delivered as of the date first above written.
TRANS WORLD GAMING CORP.,
A NEVADA CORPORATION
By:
--------------------------------
Its:
--------------------------------
SENIOR SECURED PROMISSORY NOTE, PAGE 4
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES ACT, AND MAY NOT BE
TRANSFERRED WITHOUT REGISTRATION UNDER SUCH
ACTS OR PURUSANT TO AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE
COMMON STOCK
TRANS WORLD GAMING CORP.
(a Nevada corporation)
Dated: November 29, 1997
THIS CERTIFIES that Value Partners, Ltd. (together with its assigns, the
"Holder") is entitled to purchase from Trans World Gaming Corp., a Nevada
corporation ("Company") up to 210,480 shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), at a purchase price of $.50 (fifty
cents) per share of Common Stock (the "Warrant Price"), subject to adjustment
as hereafter provided.
This Warrant is issued pursuant to that certain Loan Agreement dated as of
October 27, 1997 (the "Agreement"), between the Company and the Holder.
1. EXERCISE OF THE WARRANT.
The rights represented by this Warrant may be exercised at any time on or
before 5:00 p.m., New York time, on December 31, 1999, in whole or in part, by
(i) the surrender of this Warrant (with the purchase form at the end hereof
properly executed) at the principal executive office of the
-1-
<PAGE>
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the Warrant Price then in
effect for the number of shares of Common Stock specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any; and (iii)
delivery to the Company of a duly executed agreement signed by the person(s)
designated in the purchase form to the effect that such person(s) agree(s) to be
bound by the provisions of Paragraph 5 and subparagraph (b), (c) and (d) of
Paragraph 6 hereof. This Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date this Warrant is surrendered and payment is made in
accordance with the foregoing provisions of this Paragraph 1, and the person or
persons in whose name or names the certificates for the Common Stock shall be
issuable upon such exercise shall become the Holder or Holders of record of such
Common Stock at that time and date. The Common Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten (10)
business days, after the rights represented by this Warrant shall have been so
exercised.
2. TRANSFER.
Subject to the legend set forth at the top of the first page hereof, this
Warrant may be assigned in whole or in part by the Holder by (i) completing and
executing the form of assignment at the end hereof and (ii) surrendering this
Warrant with such duly completed and executed assignment form for cancellation,
accompanied by funds sufficient to pay any transfer tax, at the office or agency
of the Company referred to in Paragraph 1, hereof; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder) a new
Warrant or Warrants of like tenor and representing in the aggregate rights to
purchase the same number of shares of Common Stock as are then purchasable
hereunder.
3. COVENANTS OF THE COMPANY.
(a) The Company covenants and agrees that all Common Stock and Common
Stock issuable upon exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable and no personal liability will, for
Company obligations, attach to the holder thereof by reason of being such a
holder, other than as set forth herein.
(b) The Company covenants and agrees that during the period within
which this Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock to provide
for the exercise of this Warrant.
4. NO RIGHTS OF STOCKHOLDER.
This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder
-2-
<PAGE>
of the Company, either at law or in equity, and the rights of the Holder are
limited to those expressed in this Warrant and are not enforceable against the
Company except to the extent set forth herein.
5. REGISTRATION.
(a) The Holder shall have the right to have the shares of Common
Stock underlying this Warrant registered as part of the next public offering of
the Common Stock. If no Common Stock offering has occurred by December 31,
1997, then upon the written request of any combination of the holders of Common
Stock or of Warrants issued by the Company and collectively equal to not less
than 600,000 shares of Common Stock (as such number may be adjusted under
Paragraph 7), and on a one-time basis, the Company shall file and use its best
efforts to cause to be declared effective by the Securities and Exchange
Commission a registration statement or post-effective amendment thereto as
permitted under the Securities Act of 1933, as amended (the "Act"), covering the
sale by the Holder of (i) this Warrant or any portion hereof, (ii) the Common
Stock issuable upon exercise of this Warrant or any portion hereof, or (iii)
both, as the Holder may elect (the "Registerable Securities"). The Company
shall supply prospectuses in order to facilitate the public sale or other
disposition of the Registerable Securities, use its best efforts to register and
qualify any of the Registerable Securities for sale in such states as such
Holder reasonably designates and do any and all other acts and things which may
be necessary to enable such Holder to consummate the public sale of the
Registerable Securities, and furnish indemnification in the manner provided in
Paragraph 6 hereto. The Holder shall furnish information reasonably requested
by the Company in accordance with such post-effective amendments or registration
statements, including its intentions with respect thereto, and shall furnish
indemnification as set forth in Paragraph 6.
(b) The Company will maintain such registration statement or
post-effective amendment current and effective under the Act until [two] years
following the expiration of the exercisability of this Warrant; provided,
however, that upon fifteen days' advance written notice to the Holder the
Company may suspend the availability of such registration statement or
post-effective amendment for not more than three periods of three months each (a
"Suspension Period"), provided further, however, that no Suspension Period may
commence sooner than three months after the termination of any other Suspension
Period, and there may be no more than two three month Suspension Periods in any
twelve month time period.
(c) The Company shall bear the entire cost and expense of any
registration of securities under Paragraph 5 hereof. Notwithstanding the
foregoing, any Holder whose Registerable Securities are included in any such
registration statement pursuant to this Paragraph 5 shall, however, bear the
fees of any counsel retained by him and any transfer taxes or underwriting
discounts or commissions applicable to the Registerable Securities sold by him
pursuant thereto.
6. INDEMNIFICATION.
-3-
<PAGE>
(a) Whenever pursuant to Paragraph 5 a registration statement
relating to any Registerable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registerable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter and each officer, employee, agent or partner of such
underwriter against any losses, claims, damages or liabilities joint or several,
to which the Distributing Holder, any such underwriter or any other person
described above may become subject under the Act ot otherwise, insofar as such
losses, claims, damages or liabilites (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such underwriter or such other person for any legal or other expenses
reasonably incurred by the Distributing Holder, or underwriter or such other
person, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case (i) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder, any other Distributing Holder or any such
underwriter or any other such person for use in the preparation thereof, and
(ii) such losses, claims, damages or liabilities arise out of or are based upon
any actual or alleged untrue statement or omission made in or from any
preliminary prospectus, but corrected in the final prospectus, as amended or
supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registerable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company and each underwriter, each of their respective directors, each of their
respective officers, employees, partners and agents thereto, and each person, if
any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, employees, partners and agents or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof, or any amendment or
-4-
<PAGE>
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission was made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder and each underwriter for use in the preparation thereof; and will
reimburse the Company or any such director, officer, employees, partners and
agents or controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 6.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnified party will be entitled to participate in, and , to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnifying party, and after notice from the indemnified part to such
indemnifying party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SECURITIES.
(a) The Warrant Price shall be subject to adjustment from time to
time as follows:
(i) In case the Company shall at any time after the date
hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such
dividend or distribution the Warrant Price in effect
immediately prior to such dividend or distribution shall
forthwith be reduced to a price determined by dividing:
(A) an amount equal to the total number of shares of
Common Stock outstanding immediately prior to such
dividend or distribution multiplied by the Warrant
Price in effect
-5-
<PAGE>
immediately prior to such dividend or distribution,
by
(B) the total number of shares of Common Stock
outstanding immediately after such issuance or
sale.
For the purposes of any computation to be made in accordance with the
provision of this clause (i), the following provisions shall be applicable:
Common Stock issuable by way of dividend or other distribution on any stock of
the Company shall be deemed to have been issued immediately after the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution.
(ii) In case the Company shall at any time subdivide or
combine the outstanding Common Stock, the Warrant Price
shall forthwith be proportionately decreased in the case
of subdivision or increased in the case of combination to
the nearest one cent. Any such adjustment shall become
effective at the time such subdivision or combination
shall become effective.
(iii) In case the company shall at any time or from time to
time issue or sell shares of Common Stock (or securities
convertible into or exchangeable for shares of Common
Stock, or any options, warrants or other rights to
acquire shares of Common Stock) at a price per share less
than the Warrant Price per share of Common Stock
(treating the price per share of any security or
exchangeable or exercisable into Common Stock as equal to
(x) the sum of the price for such security convertible,
exchangeable or exercisable into Common Stock plus any
additional consideration payable (without regard to any
anti-dilution adjustments) upon the conversion, exchange
or exercise of such security into Common Stock divided by
(y) the number of shares of Common Stock initially
underlying such convertible, exchangeable or exercisable
security), other than issuance or sales of Common Stock
pursuant to any employee benefit plan, then, and in each
such case, the Warrant Price then in effect shall be
adjusted by dividing the Warrant Price in effect on the
day immediately prior to such record date by a fraction
(A) the numerator of which shall be the sum of the number
of shares of Common Stock outstanding on such record date
plus the number of additional shares of Common Stock
issued (or the maximum number into which such convertible
or exchangeable securities initially may convert or
exchange or for which such options, warrants or other
rights initially may be exercised) and (B) the
denominator of which shall be the sum
-6-
<PAGE>
of the number of shares of Common Stock outstanding on
such record date plus the number of shares of Common
Stock which the aggregate consideration for the total
number of such additional shares of Common Stock so
issued (or into which such convertible or exchangeable
securities may convert or exchange or for which such
options, warrants or other rights may be exercised plus
the aggregate amount of any additional consideration
initially payable upon conversion, exchange or exercise
of such security) would purchase at the Warrant Price per
share of Common Stock on such record date. Such
adjustment shall be made whenever such shares,
securities, options, warrants or other rights are issued,
and shall become effective retroactively immediately
after the close of business on the record date for the
determination of stockholders entitled to receive such
shares, securities, options, warrants or other rights;
PROVIDED, that the determination as to whether an
adjustment is required to be made pursuant to this
Section 7(a) shall only be made upon the issuance of such
shares or such convertible or exchangeable securities,
options, warrants or other rights, and not upon the
issuance of the security into which such convertible or
exchangeable security converts or exchanges, or the
security underlying such option, warrant or other right.
Notwithstanding the foregoing, in the event of such
issuance or sale of Common Stock at a cash price less
than the Warrant Price, no such adjustment under this
Section 7(a) need be made to the Warrant Price unless
such adjustment would require and increase or decrease of
at least 1% of the Warrant Price then in effect. Any
lesser adjustment shall be carried forward and shall be
made at the time of and together with the next subsequent
adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to an
increase or decrease of at least 1% of such Warrant
Price.
(iv) Within a reasonable time after the close of each
quarterly fiscal period of the Company during which the
Warrant Price has been adjusted as herein provided, the
Company shall:
(A) Deliver to the Holder a certificate signed by the
President or Vice President of the Company and by
the Treasurer or Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company,
showing in detail the facts requiring all such
adjustments occurring during such period and the
Warrant Price after each such adjustment.
-7-
<PAGE>
(B) Notwithstanding anything contained herein to the
contrary, no adjustment of the Warrant Price shall
be made if the amount of such adjustments shall be
less than $.01, but in such case any adjustment
that would otherwise be required then to be made
shall be carried forward and shall be made at the
time and together with the next subsequent
adjustment which, together with any adjustment so
carried forward, shall amount to not less than
$.01.
(b) In the event that the number of outstanding shares of Common
Stock is increased by a stock dividend payable in Common Stock or by a
subdivision of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to Subsection
(a)(i)(B) of this section by reason of such dividend or subdivision, the
number of shares of Common Stock issuable upon the exercise of the Warrant
shall be increased in proportion to such increase in outstanding shares. In
the event that the number of shares of Common Stock outstanding is decreased
by a combination of the outstanding Common Stock, then, from and after the
time at which the adjusted Warrant Price becomes effective pursuant to
Subsection (a)(i)(B) of this Section by reason of such combination, the
number of shares of Common Stock issuable upon the exercise of the Warrant
shall be decreased in proportion to such decrease in the outstanding shares
of Common Stock.
(c) In case of any reorganization or reclassification of the
outstanding Common Stock (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination), or in case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the holder of the Warrant then outstanding shall thereafter have the
right to purchase the kind and amount of shares of Common Stock and other
securities and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock which the holder of the Warrant shall then be entitled to purchase;
such adjustments shall apply with respect to all such changes occurring between
the date of this Warrant Agreement and the date of exercise of the Warrant.
(d) Subject to the provisions of this Section, in case the Company
shall, at any time prior to the exercise of the Warrant, desire to make any
distribution of its assets to holders of its Common Stock as a liquidating or a
partial liquidating dividend, the Company shall provide the holder of the
Warrant with written notice of such intent not less than thirty (30) days prior
to the record date to determine holders of Common Stock entitled to receive such
distribution and the
-8-
<PAGE>
holder of this Warrant shall have until 5:00 p.m. EST on the twentieth (20th)
day following the actual receipt of such notice to elect whether to exercise
this Warrant in accordance with the terms herein. In the event of proper
election to exercise the the Warrant, the holder of this Warrant shall be deemed
to be a holder of Common Stock as of the record date for such distribution.
Should the holder of the Warrant elect to exercise his Warrant after the record
date for the determination of those holders of Common Stock entitled to such
distribution of assets as a liquidating or partial liquidating dividend, he
shall be entitled to receive for the Warrant Price per Warrant, in addition to
each share of Common Stock, the amount of such distribution (or, at the option
of the Company, a sum equal to the value of any such assets at the time of such
distribution as determined by the Board of Directors of the Company in good
faith), which would have been payable to the holder had he been the holder of
record of the Common Stock receivable upon exercise of his Warrant on the record
date for the determination of those entitled to such distribution.
(e) In case of the dissolution, liquidation or winding-up of the
Company, all rights under the Warrant shall terminate on a date fixed by the
Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding-up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to the last registered holder of this Warrant, as
the same shall appear on the books of the Company, by registered mail at least
thirty (30) days prior to such termination date.
(f) In case the Company shall, at any time prior to the expiration of
this Warrant and prior to the exercise thereof, offer to the holders of its
Common Stock any rights to subscribe for additional shares of any class of the
Company, then the Company shall give written notice thereof to the last
registered holder hereof not less than thirty (30) days prior to the date on
which the books of the Company are closed or a record date is fixed for the
determination of the stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date fixed with respect to such offer of subscription and the right of the
holder hereof to participate in such offer of subscription shall terminate if
this Warrant shall not be exercised on or before the date of such closing of the
books or such record date.
(g) Any adjustment pursuant to the aforesaid provision shall be made
on the basis of the number of shares of Common Stock which the holder thereof
would have been entitled to acquire by the exercise of the Warrant immediately
prior to the event giving rise to such adjustment.
(h) Irrespective of any adjustment in the Warrant Price or the number
or kind of shares purchasable upon exercise of this Warrant, Warrants previously
or hereafter issued may continue to express the same price and number and kind
of shares as are stated in this Warrant.
(i) The Company may retain a firm of independent public accountants
(who may be any such firm regularly employed by the Company) to make any
computation required under this Section.
-9-
<PAGE>
(j) If at any time, as a result of an adjustment made pursuant to
this Paragraph 7, the Holder of this Warrant shall become entitled to purchase
any securities other than shares of Common Stock, thereafter the number of such
securities so purchasable upon exercise of each Warrant and the Warrant Price
for such shares shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the Common Stock.
8. FRACTIONAL SHARES.
The Company shall not be required to issue fractions of shares of Common
Stock on the exercise of this Warrant; provided, however, that if a Holder
exercises all the Warrants held of record by such Holder, the fractional
interests shall be eliminated by rounding any fraction up to the nearest
whole number of shares, if the fraction is equal to or greater than .5,
and down if the fraction is less than .5.
9. MISCELLANEOUS.
(a) This Warrant shall be governed by and in accordance with the laws
of the State of New York.
(b) All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed to have been duly made
when delivered, or mailed by registered or certified mail, return receipt
requested: (i) if to a Holder, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, One Penn Plaza, Suite 1503, New
York, NY 10119.
(c) All the covenants and provisions of this Warrant by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
(d) Nothing in this Warrant shall be construed to give to any person
or corporation other than the Company and the registered Holder or Holders, any
legal or equitable right, for the sole and exclusive benefit of the Company and
the Holder or Holders.
IN WITNESS WHEREOF, Trans World Gaming Corp. has caused this warrant to be
signed by its duly authorized officer and this Warrant to be dated November
29,1997.
TRANS WORLD GAMING CORP.
By:
--------------------------------
Its:
--------------------------------
-10-
<PAGE>
FORM OF
NOTICE OF EXERCISE
(To be executed upon partial or full
exercise of the Warrants represented hereby)
The undersigned registered Holder of the Warrants represented by the attached
Warrant Certificate irrevocably exercises such Warrant for and purchases
______________________ (___________) shares of Common Stock of Trans World
Gaming Corp. (the "Company").
The undersigned herewith makes payment therefore in the amount of
$____________, consisting of $ ____________ by wire transfer or certified or
cashiers' check at a price of $_____ per share and requests that a
certificate (or certificates) in denominations of ______________
(___________) shares of Common Stock of the Company hereby purchased be
issued in the name of and delivered to the undersigned or such designee of
the undersigned and, if such shares of Common Stock (together with any shares
issued upon exercise of other Warrants or replacement Warrants) shall not
include all of the shares of Common Stock issuable upon exercise of all
Warrants represented by such Warrant Certificate (or if a new or replacement
Warrant is otherwise to be provided pursuant to the Warrant Certificate),
that a new or replacement Warrant Certificate of like tenor for the number of
Warrants not being exercised (and not being surrendered) hereunder be issued
in the name of and delivered to the undersigned, whose address is
__________________________.
Dated: __________, 199__.
------------------------------------
(Signature of Registered Holder)
By:
--------------------------------
Its:
--------------------------------
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
FOUND ON PAGE F-3 AND F-4 OF THE COMPANY'S 10KSB FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 399
<ALLOWANCES> 0
<INVENTORY> 76
<CURRENT-ASSETS> 30
<PP&E> 544
<DEPRECIATION> (115)
<TOTAL-ASSETS> 3,033
<CURRENT-LIABILITIES> 1,398
<BONDS> 5,224
0
0
<COMMON> 3
<OTHER-SE> (3,592)
<TOTAL-LIABILITY-AND-EQUITY> 3,033
<SALES> 2,054
<TOTAL-REVENUES> 5,170
<CGS> 2,066
<TOTAL-COSTS> 3,216
<OTHER-EXPENSES> 1,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 539
<INCOME-PRETAX> 255
<INCOME-TAX> 41
<INCOME-CONTINUING> 214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<PAGE>
EXHIBIT 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to
provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed in the
statement. The Company desires to take advantage of the "safe harbor"
provisions of the Act. Certain information, particularly information
regarding future economic performance and finances and plans and objectives
of management, contained, or incorporated by references, in the Company's
Quarterly Report on Form 10-QSB for the nine months ended September 30, 1997
is forward-looking. In some cases, information regarding certain important
factors that could cause actual results to differ materially from any such
forward-looking statements appear together with such statement. Also, the
following factors, in addition to other possible factors not listed, could
affect the Company's actual results and cause such results to differ from
those expressed in the forward-looking statements.
IMPORTANT FACTORS TO CONSIDER
ACCUMULATED DEFICIT; OPERATING LOSSES
On September 30, 1997, the Company had an accumulated deficit of
approximately $13.0 million and a working capital deficit of approximately
$656,000. For the period from its inception through September 30, 1997, the
Company incurred a net loss of approximately $13,025,000, which resulted
primarily from a $11.4 million accounting charge under FASB 121 recorded in
fiscal year ended December 31, 1996. The Company's ability to achieve
profitability is dependent upon the successful operation of gaming
establishments at the Gold Coin and the Toledo Palace and the diversification
of its operations into other locations or lines of business. There can be no
assurance that the Company will achieve profitability as a result of these
operations or otherwise.
OBLIGATION TO PRIME PROPERTIES
The Company's obligation due to Prime Properties in connection with the
December 1994 acquisition of the Gold Coin is evidenced by a three-year
promissory note in the original principal amount of $3.0 million, which note
is secured by the Company's sublease with Prime Properties for the Gold Coin
premises (the "Prime Note"). As of September 30, 1997, the principal amount
outstanding on the Prime Note was $285,000. Such amount matures in its
entirety on December 22, 1997. If the Company defaults in its obligation
under the Prime Note, it would lose all its interests in the Gold Coin, which
loss would materially and adversely affect the financial condition and
business of the Company.
TERMINATION OF LOUISIANA OPERATIONS IN 1999; NEED TO DIVERSIFY
In November 1996, residents in 35 out of 64 parishes in Louisiana, including
both parishes in which the Gold Coin and the Toledo Palace are located, voted
to discontinue video poker effective June 30, 1999. At this time, the
Company has no operations other than the Gold Coin and the Toledo Palace.
Currently the Company is seeking to develop or acquire interests in gaming
operations at other locations so it will have positive cash flow by 1999;
however, there can be no assurance that the Company will be able to develop
or acquire such new operations by that time.
POSSIBLE LOSS OF SUBLEASE AND OPERATING RIGHTS TO GOLD COIN; FORFEITURE OF ALL
MONIES PAID IN CONNECTION WITH GOLD COIN TRANSACTIONS
A Note in the original principal amount of $3,000,000 payable to Prime
Properties in equal quarterly installments through December 22, 1997 (the
"Prime Note") is secured by the Company's sublease with Prime Properties for
the
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Gold Coin premises. In the event the Company defaults on the Prime Note,
Prime Properties could terminate the Company's sublease and its rights
relating to the establishment license for the Gold Coin.
POSSIBLE INABILITY TO MEET DEBT SERVICE; RISK OF SEVERE LIMITATION ON BUSINESS
As of September 30, 1997, the principal amount of the Company's indebtedness
under the Prime Note with respect to the Gold Coin was approximately
$285,000, payable in full on December 22, 1997. The Company is dependent on
cash on hand and cash flow from operations to pay debt service on the Prime
Note, as well as anticipated and unanticipated cash requirements. If cash on
hand and cash flow from operations are insufficient to meet the debt service
and other cash requirements, the Company will need to seek additional
financing. There can be no assurance that the Company will be successful in
obtaining additional financing or that such financing, if obtained, will be
on terms favorable to the Company. If the Company defaults in its
obligations under the Prime Note, it would lose its interests in the Gold
Coin and the Woodlands, including the Toledo Palace, which would materially
and adversely effect the business of the Company.
POSSIBLE LOSS OF SUBLEASE FOR GOLD COIN DUE TO TERMINATION OF OVER-LEASE
Simultaneously with the closing of the Company's initial public offering in
December 1994, the Company entered into an 18-year sublease with Prime
Properties for the Gold Coin premises at the 76 Truck Plaza. The sublease is
subject to the terms and conditions of the lease between Prime Properties,
the operator of the 76 Truck Plaza, as lessee and National Auto Truck Stops,
Inc. ("National"), as lessor (the "Over-Lease"). Although National is aware
of the Company's use of the Gold Coin facilities, National has not yet
granted its written consent to the sublease, as required by the Over-Lease.
The Over-Lease expires September 30, 1999, subject to the right of Prime
Properties to extend the term for up to five successive three-year periods.
Prime Properties is not contractually obligated to the Company to exercise
its right to extend the Over-Lease at the end of its term or any renewal
term. In addition, National has the right to terminate the Over-Lease under
certain circumstances, including if Prime Properties defaults, under the
terms of the Over-Lease, or if Prime Properties does not renew a franchise
relationship between National and Prime Properties. The termination of the
Over-Lease upon the expiration of its terms (or any renewal term), or as a
result of a breach by Prime Properties or otherwise, will result in the
termination of the Company's sublease for the Gold Coin gaming facility
premises, and any such termination would have a materially adverse effect on
the operations and the financial condition of the Company.
TAXATION OF GAMING OPERATIONS
Gaming operators are typically subject to significant taxes and fees in
addition to federal and state corporate income taxes, and such taxes and fees
are subject to increase at any time. Any material increase in these taxes or
fees would adversely affect the results of operations of the Company. Under
Louisiana law, approximately 32.5% of gaming revenues (after payout of
winnings) generated by the Gold Coin and the Toledo Palace is payable as
gaming taxes to the State of Louisiana, and there can be no assurances that
tax rates, fees or other payments to the State applicable to the Company's
gaming operations will not be increased in the future.
POSSIBLE LOSS OF ESTABLISHMENT LICENSE
Effective January 1, 1996, in order for the maximum of 50 video lottery
devices ("VLT's") to be operated at a truck stop location in Louisiana, the
truck stop must meet certain requirements relating to its operation as a
truck stop, including the operation of a 24-hour restaurant, the availability
of mechanic services 24 hours/7 days a week, paved parking for at least 50
18-wheeled vehicles and the sale of at least 100,000 gallons of fuel per
month, of which 40,000 gallons must be diesel fuel. The Company believes
that the Woodlands, and the 76 Truck Plaza, at which the Gold Coin is
located, currently satisfy these requirements. The failure of either
location to meet the standard for maintaining a truck stop gaming
establishment could cause the number of VLTs permitted to be operated at such
location to be decreased or eliminated, which could have a material adverse
impact on the revenue of the Company. Moreover, if Prime Properties (which
operates the 76 Truck Plaza at which the Gold Coin is located) or the Company
(which operates the Woodlands) loses its fuel franchise for any reason, the
truck stop would no longer qualify as a site for a gaming establishment.
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NEED FOR ADDITIONAL FINANCING
The Company believes, although there can be no assurance, that existing cash,
together with anticipated cash flows from operations, will be sufficient to
satisfy its current on-going, liquidity and capital requirements for the next
twelve months. After twelve months, the Company may require additional
capital to fund operations and growth opportunities. If such additional
financing is not available, this would have a materially adverse effect on
the financial condition and operations of the Company. The Company may
require additional financing for acquisition of other gaming businesses when
and if the opportunity to acquire such businesses arises; in particular,
after June 1999 when its operations in Louisiana will be required to close.
Management of the Company is actively seeking other opportunities both within
and outside of the United States. There can be no assurance that management
will be successful in identifying such opportunities, financing such
acquisitions or investments or implementing such transactions. The failure
to do so will have a material adverse effect upon the Company's financial
condition and results of operations. The Company's ability to obtain
additional financing may be limited for a number of reasons, including the
fact that a substantial portion of the Company's assets are subject to liens.
There can be no assurance that such financing will be available on terms
favorable to the Company or at all.
LICENSING AND REGULATION
The Company's operations will be subject to regulation by each jurisdiction
in which it plans to conduct business, as well as federal laws and the laws
of any foreign country in which it seeks to operate. Each of the Company's
officers, directors, managers and principal stockholders, as well as persons
who have more than a 5% income or profit interest in, or who exercised
significant influence over the activities of, the Company will be subject to
strict scrutiny and approval of the gaming commission or other regulatory
body of each jurisdiction in which the Company may conduct gaming operations.
The Company has not been, and cannot be, licensed in Louisiana to directly
own or operate VLTs because of the residency requirements for such a license.
The ownership, operations and management of the VLTs at the Gold Coin and
the Toledo Palace have been undertaken by Chrysolith, a video machine
operator licensed in the State of Louisiana. If Chrysolith's licenses are
revoked, not renewed or are otherwise impaired, the Company would either have
to enter into an agreement with another Louisiana-licensed VLT operator, or
terminate gaming operations at the locations at which Chrysolith owns,
operates and maintains VLTs. There can be no assurance that the Company
could enter into an agreement with another Louisiana-licensed VLT operator
expeditiously or on acceptable terms, if at all. In such event, and if it
were unable to do so, the Company's operations and financial condition would
be materially adversely affected. The Company owns 49% of the Class B
membership units in Chrysolith.
The failure to obtain any license for properties upon which the Company plans
to operate or manage a gaming establishment in the future would have a
materially adverse effect on the Company's business. Obtaining required
licenses can be time consuming and costly with no assurance of success. In
addition, the Company is subject to changes in the laws of the jurisdictions
in which it operates, which could materially limit the Company's ability to
conduct business profitably. In the event that a required license is not
granted for any particular location, the Company's options would include
effecting a transfer of substantially all the related gaming assets to a
different location or selling its interest in the gaming operations at that
location to a third party. There can be no assurance that the Company would
be able to relocate gaming assets or sell its interests on acceptable terms
or at all, and the inability to do so would have a materially adverse effect
upon the business and prospects of the Company.
COMPETITION
The Company faces a high degree of competition from a large number of
participants in the gaming business. The Gold Coin and the Toledo Palace
compete with numerous existing and proposed gaming operations in Louisiana
and, to a lesser extent, adjacent portions of Mississippi, including truck
stop sites which contain VLTs, comprehensive land-based and riverboat
casinos, Native American gaming ventures and other forms of legalized
gambling. In addition, under Louisiana law racetracks and off-track betting
parlors may install an unlimited number of VLTs, and establishments with
alcoholic beverage licenses, such as restaurants and bars, as well as hotels,
are eligible to apply for a license to operate up to three VLTs. Many of the
Company's competitors and potential competitors have greater financial and
marketing resources, have significantly more experience in operating gaming
facilities, operate a greater number and variety of gaming facilities, and
have better sites, than the Company. The Company believes that competition
in the gaming industry is based on the quality and location of gaming
facilities,
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the effectiveness of marketing resources and customer service and
satisfaction. There are four gaming operations within five miles of the Gold
Coin and one gaming operation within five miles of the Toledo Palace, all of
which contain 50 VLTs, as well as numerous restaurants, bars and hotels which
are limited to three VLTs each. As of September 1, 1997, there were
approximately 95 truck stops with VLTs and three land-based casinos on Native
American reservations in Louisiana, and a significant number of gaming
license applications pending in the State. In addition, the Company will
likely face significant competition if it begins operations in geographical
areas other than Louisiana.
DEPENDENCE ON CHRYSOLITH
The Company does not have, and will not be able to obtain, a license to own
or operate VLTs in Louisiana because such licenses may be granted only to
Louisiana residents or entities which are at least 51% owned by Louisiana
residents. The Company has entered into agreements with Chrysolith pursuant
to which Chrysolith operates the VLTs at the Gold Coin and at the Toledo
Palace. If for any reason Chrysolith or its 51% shareholder is determined by
the Louisiana Gaming Authorities to be in violation of Chrysolith's license
or of Louisiana law and regulations, and Chrysolith subsequently loses its
operator's license, or such license is limited or modified, the Company would
need to immediately replace Chrysolith with another Louisiana licensee to
operate the Toledo Palace and the Gold Coin. Any such licensed operator
would then be required to own or obtain VLTs for these gaming facilities.
Although the Company believes that a substitute for Chrysolith could be
located, there can be no assurance that the Company could find such a
replacement quickly or in a timely way, or that such a licensee would agree
to operate VLTs at the Toledo Palace and the Gold Coin on terms acceptable to
the Company. There can be no assurance that Chrysolith will be able to
successfully operate the VLTs at the Gold Coin and Toledo Palace. If the
Company were required to find a replacement for Chrysolith and were unable to
do so expeditiously, its business and financial condition would be materially
adversely affected.
LIABILITY INSURANCE
The Company currently maintains and intends to maintain
general liability insurance with coverage limits of $1,000,000 per
occurrence, $2,000,000 per year in the aggregate. The Company also maintains
a $1,000,000 umbrella liability insurance policy (with a $10,000 self-insured
retention). There can be no assurance that liability claims will not exceed
the coverage limits of such policies or that such insurance will continue to
be available on commercially reasonable terms or at all. There can be no
assurance that such insurance will be adequate to cover unanticipated
liabilities.
NO DIVIDENDS
The Company has not paid any dividends to date on its Common Stock, and does
not expect to declare or pay any dividends in the foreseeable future. The
Company intends to retain future earnings for investment in its business.
DELISTING OF THE COMPANY'S SECURITIES AND RISK OF LOW-PRICED SECURITIES
On July 8, 1997 the Company filed a Form 8-K which reported among other
things that the Company's common stock and warranties were delisted from the
NASDAQ Small Cap Market effective June 25, 1997.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection
with trades in any stock defined as a penny stock. Commission regulations
generally define a penny stock to be an equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on NASDAQ and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual
revenue of at least $6,000,000, if such issuer has been in continuous
operation for less than three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. In addition, if the Company's securities are not
quoted on NASDAQ, or the Company does not have $2,000,000 in net tangible
assets, trading in the Common Stock would be covered by Rule 15g-9
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promulgated under the Securities Exchange Act of 1934, as amended for
non-NASDAQ and non-exchange listed securities. Under such rule,
broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Securities also are exempt
from this rule if the market price is at least $5.00 per share. The
Company's securities are subject to the regulations applicable to penny
stocks. The market liquidity for the Company's securities could be severely
affected. The regulations on penny stocks could limit the ability of
broker/dealers to sell the Company's securities and thus the ability of
purchasers of the Company's securities to sell their securities in the
secondary market.
POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 2,000,000
shares of "blank check" Preferred Stock, with designations, rights and
preferences determined from time to time by its Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without further
stockholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting
power or other rights of the holders of the Common Stock. In the event of
issuance, the Preferred Stock could be used, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. The Company has no current plans to issue any shares of Preferred
Stock. However, there can be no assurance that Preferred Stock will not be
issued at some time in the future.
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