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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
COMMISSION FILE NO.: 0-25244
____________________
TRANS WORLD GAMING CORP.
(Exact name of registrant as specified in its charter)
NEVADA 13-3738518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE PENN PLAZA, SUITE 1503 10119-0002
NEW YORK , NY (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (212) 563-3355
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK
____________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
The issuer's revenues for the year ended December 31, 1997 were
$6,901,000.
As of March 30 1998, 3,044,286 shares of Common Stock of the Registrant
were deemed outstanding, and the aggregate market value of the Common Stock of
the Registrant as of that date (based upon the closing price of the Common
Stock at that date as reported by the OTC Bulletin Board, excluding outstanding
shares beneficially owned by directors and executive officers, was
approximately $1,583,000.
Portions of the Registrant's proxy statement, dated April 19, 1998 for
the Annual Meeting of Shareholders to be held May 26, 1998 (the "1997 Proxy
Statement"), are incorporated by reference into Part III of this Report, to the
extent specific pages are referred to herein.
Transitional Small Business Disclosure Format (check one; YES / /
NO /X/)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS.
Trans World Gaming Corp. (the "Company" or "TWG") was organized in October
1993 to acquire, develop and manage, to the extent permitted by applicable
local laws, gaming establishments featuring live and mechanized gaming,
including video gaming devices such as video poker machines.
The Company currently owns certain interests in two gaming establishments
at truck stops in Louisiana, which include (i) an establishment located at
the 76 Plaza in Lafayette, Louisiana known as the "Gold Coin" (formerly
known as the Gold Nugget), which has fifty (50) video lottery terminals
("VLTs" or "Devices"), and (ii) the Toledo Palace (the "Toledo Palace"),
which the Company established and licensed at a truck stop located in
DeRidder, Louisiana, known as the Woodlands Travel Plaza (the "Woodlands")
which increased from fifteen to thirty-three (33) VLTs in July 1997. Both
the Gold Coin and the Toledo Palace establishments are licensed to operate
only VLTs, also known as "draw poker" machines. The Company owns real
property at the Woodlands, and owns the right to receive the profits at
the Gold Coin. The Company's interest in the Gold Coin is currently
subject to litigation and it is possible that such interest could be
terminated as a result thereof. (See Item 6 - "Management's Discussion
and Analysis or Plan of Operation, - Important Factors to Consider.
Obligations to Prime Properties; Possible Loss of Sub-lease for Gold Coin;
and - Possible Loss of Sub-lease for Gold Coin Due to Termination of Over-
Lease").
In November 1996, residents in 35 parishes in Louisiana, including the two
parishes in which the Gold Coin and the Toledo Palace are located, voted
to discontinue video poker effective June 30, 1999 (the "Voter Mandate").
While the Company is currently involved in litigation seeking to overturn
the referendum, the Company anticipates that its operations at the Gold
Coin and the Toledo Palace will terminate on July 1, 1999. Currently, the
Company is seeking to develop or acquire interests in gaming operations at
other locations (see "Future Operations") so that it will generate
positive cash flow by 1999; however, there can be no assurance that the
Company will be able to develop or acquire any such new operations by that
date.
On December 22, 1994, the Company acquired from Chrysolith, LLC, a
Louisiana-licensed video gaming machine operator ("Chrysolith") and Prime
Properties, Inc. ("Prime"), which leases the 76 Plaza from National Auto
Truckstops, Inc. ("National"), certain rights (including an 18-year sub-
leasehold interest (the "Sub-Lease"), subject to the terms of an over-
lease between Prime and National expiring in 1999 (the "Over-Lease"), and
a 100% interest in adjusted net revenues (the "Prime Agreement") in the
Gold Coin. In November 1997, National notified Prime that its right to
operate the 76 Plaza was to terminate on January 23, 1998. National has
also stated that it has not consented to the Sub-lease between Prime and
the Company. On or about January 19, 1998, Prime filed in United States
District Court, Western District of Louisiana, Case No. CV98-0076L-0, a
Complaint for Damages and Violation of the Petroleum Marketing Practices
Act against National alleging breaches by National in the franchise
agreement between Prime and National and seeking to enjoin National from
terminating the Over-Lease. On or about January 21, 1998, Prime filed a
Voluntary Petition in bankruptcy under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the Western District of Louisiana,
Case No. 98BK-50087, listing National as the holder of an unsecured claim
of approximately $500,000. The Company has engaged counsel and intends to
intervene in this action in order to protect its rights under the Prime
Agreement and the Sub-lease. (See Item 3 - "Legal Proceedings").
In December 1994, the Company purchased a non-voting 49% interest in
Chrysolith for $1.00 and entered into an agreement with Chrysolith
pursuant to which Chrysolith owns, maintains and operates the VLTs at the
Gold Coin. The remaining 51% interest in Chrysolith is owned by Mr. Lee
Young, a former director of the Company. Pursuant to a management
agreement entered into between Chrysolith and the Company dated December
31, 1996, Chrysolith provides on-site management for all of the operations
of both the Gold Coin and the Toledo Palace and acquires, installs,
operates and maintains the VLTs at both facilities.
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The aggregate consideration paid by the Company to acquire both the
interests of Chrysolith and Prime in the adjusted net revenues of the Gold
Coin and the Sub-lease interest of Chrysolith was $10.5 million, the final
installment for which was paid in full on December 23, 1997.
The Company receives the net revenues at both the Gold Coin and the Toledo
Palace, which is the revenue generated by VLTs at both facilities after
payment of franchise taxes by Chrysolith to the State of Louisiana and
after payment of all prizes to the players (the "Net Win After Tax"). In
accordance with a management arrangement between the Company and
Chrysolith, the Company then reimburses Chrysolith for all direct
operating costs incurred in the operation of the VLTs. At the Woodlands,
the Company derives additional revenue from the sale of fuel, supplies and
food normally associated with a truckstop operation.
As a result of the Voter Mandate, the Company reviewed the carrying amount
of long-lived assets, identifiable intangibles and goodwill related to
those operations under FASB No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." Based on a
comparison of those assets against the expected future cash flows
generated by those operations, the Company recorded an asset impairment
charge of $10.7 million as of December 31, 1996. The Company is also
offering the Woodlands property for sale and upon reviewing the fair value
of that property, which was less than the carrying amount, an additional
impairment write down of $.7 million was recorded as of December 31, 1996,
for a total recorded impairment loss of $11.4 million in the fourth
quarter of 1996.
On March 31, 1997, Art Marketing, Ltd., dba Tottenham & Co., a wholly
owned subsidiary of TWG ("Tottenham & Co."), executed a Joint Activity
Agreement with Mr. Mahmud Avdiyev, an individual engaged in various
businesses in Azerbaijan (the "Avdiyev Agreement"). The Avdiyev Agreement
which is for a term of twenty years, sets forth the parties' relative
obligations with respect to operation of the Boxer Casino (the "Boxer
Casino") located in Gyandja, Azerbaijan Republic. In general, Mr. Avdiyev
arranged for leasing, refurbishment and local compliance matters with
respect to the Boxer Casino premises, and Tottenham & Co. provides
equipment, funding and consultation services with respect to the Boxer
Casino's operations. Operating profits from the Boxer Casino are
distributed 40% to TWG and 60% to Mr. Avdiyev. The Boxer Casino, which
opened on June 6, 1997, is run on a day-to-day basis by a General Manager
hired by Tottenham & Co. If either party elects to terminate its
participation in the Boxer Casino, it must first offer to sell its
interest therein to the remaining party.
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, $.001 par value per share (the "Common Stock) and warrants
(the "Warrants") from the Nasdaq SmallCap Market effective June 25, 1997.
The Common Stock and Warrants currently are trading on the OTC Bulletin
Board. The delisting resulted from the fact that the bid price of TWG's
Common Stock was trading below $3.00 per share and TWG had failed to
maintain a minimum capital and surplus of $1 million.
Note 1 to the financial statements disclose all of the matters of which we
are aware that are relevant to the Company's ability to continue as a
going concern, including significant conditions and events, and
management's plan. The Company has executed definitive agreements
relating to the acquisition of two operating casinos in the Czech Republic
and a private placement of debt securities to raise $17 million, and, has
an agreement in principle with respect to the restructuring of its debt,
all of which are scheduled to close on March 31, 1998. Management
believes that these transactions will provide sufficient cash flow to fund
operations and meet debt service payments as they become due.
On January 29, 1998, the President of the Azerbaijan Republic ordered the
closing of all bars, nightclubs, restaurants and casinos including the
Boxer Casino. As of March 25, 1998, the President has permitted all of
such previously closed establishments except the casinos to reopen. There
has been no indication as to when the Boxer Casino or any of the other
casinos will be allowed to reopen, if at all. In the event that the Boxer
Casino is permanently closed, the Company will incur a write-off of
approximately $303,000 representing the unamortized balance of its
investment.
On April 15, 1997, the Company completed the acquisition of Multiple
Application Tracking Systems, Inc. of Colorado ("MATS"), a supplier of
casino software products. The purchase price was $250,000, consisting of
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$15,000 in cash and a $235,000 promissory note which matures in November,
2000. 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 also will receive ten
percent (10%) of all MATS sales as a license royalty. For the period from
April 15, 1997 through December 31, 1997 MATS generated revenues of
$27,000 and a pre-tax operating loss of $136,000.
The accompanying consolidated financial statements (See Item 7 -
"Financial Statements") have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the Consolidated
Financial Statements, the Company has neither established a trend of
profitable operations nor a sufficient cash flow and has working capital
and net capital deficiencies that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to
these matters also are described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
On January 20, 1998, the Company entered into a Stock Purchase Agreement
("Stock Purchase Agreement") with 21st Century Resorts a.s., an owner-
operator of two casinos, and the owner of property to build a third
casino, in the Czech Republic ("Resorts"), Gameway Leasing Limited
("Gameway") and Monarch Leasing Limited ("Monarch"), two off-shore
affiliates of Resorts which lease equipment to Resorts and the
stockholders of Resorts (the "Selling Stockholders") pursuant to which the
Company will acquire 100% of the equity interests of Resorts and its two
operating subsidiaries and all of the assets of Gameway and Monarch for an
approximate cash purchase price of $11.5 million (the "Czech
Transaction"). On March 16, 1998, the Company executed Subscription
Agreements with thirteen sophisticated investors who, pursuant to the
terms of an Escrow Agreement, dated March 17, 1998 between the Company and
U.S. Trust Company of Texas, N.A., the escrow agent, placed $17.0 million
in escrow to fund the closing of the Stock Purchase Agreement in exchange
for $17.0 million of 12% Senior Secured Notes due March 2005 and ten-year
warrants to purchase 40% of the issued and outstanding Common Stock of the
Company, on a fully diluted basis, at an exercise price of $.01 per share.
A condition of the closing of the Subscription Agreements is the Company's
successful renegotiation of the terms of the Company's outstanding $4.8
million 12% Secured Convertible Senior Bonds and the outstanding warrants
related thereto (the "Senior Bonds") and the renegotiation of certain
terms of warrants held by Christopher P. Baker and his affiliates (the
"Baker Warrants"). The Company expects to consummate the Stock Purchase
Agreement, the Subscription Agreement and the renegotiation of the terms
of the Senior Bonds and the Baker Warrants on or about March 31, 1998.
Failure to do so will have a material adverse effect on the financial
condition and future business prospects of the Company. (See "Future
Operations").
The Company's corporate offices are located at One Penn Plaza, Suite 1503,
New York, New York 10119-0002 and its telephone number is (212) 563-3355.
(a) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates in a single industry segment: the ownership and
management of gaming establishments that feature table games and gaming
devices.
(b) NARRATIVE DESCRIPTION OF BUSINESS.
SUMMARY
The Company is engaged in the management of gaming establishments which feature
table games and mechanized gaming devices, such as video poker machines. The
Company currently owns certain interests in two gaming establishments at truck
stops in Louisiana, which include (i) the Gold Coin, located at the 76 Plaza in
Lafayette, Louisiana, and (ii) the Toledo Palace which the Company established
and licensed at the Woodlands located in DeRidder, Louisiana, approximately 120
miles from the Gold Coin. Both the Gold Coin and the Toledo Palace video poker
parlors are licensed to operate only VLTs, also known as "draw poker" machines.
The Company owns the real property at the Woodlands, and owns the right to the
profits at the Gold Coin. The Company's interest in the Gold Coin is the
subject of litigation. As a result of the Louisiana Voter Mandate, both gaming
operations currently are required to terminate on July 1, 1999. (See "The
Company's Facilities" and Item 6 - "Management's Discussion and Analysis of
Financial Condition or Plan of Operation-Important Factors to Consider"). The
Company has the right to acquire two
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casinos in the Czech Republic and realty upon which it may build a third
casino and expects to consummate such acquisition on or about March 31, 1998.
(See "- General Development of Business," above, and "Future Operations,"
below).
INDUSTRY OVERVIEW
The gaming industry is highly fragmented and characterized by a high degree of
competition among a large number of participants. The Gold Coin and the Toledo
Palace compete with gaming operations in Louisiana and adjacent portions of
Mississippi, including sites that contain VLTs, comprehensive land-based and
riverboat casinos, Native American gaming ventures and other forms of legal and
illegal gaming. In addition, under Louisiana law, racetracks and off-track
betting parlors may install an unlimited number of VLTs. Furthermore,
establishments with alcoholic beverage licenses, such as restaurants and bars,
are eligible to apply for a license to operate up to three VLTs and hotels can
apply for a license to operate up to twelve Devices. As a result of the Voter
Mandate, the two parishes in which the Company has operations among others,
voted to discontinue video poker after June 30, 1999, (see "Regulations and
Licensing".)
Many of the Company's competitors and potential competitors have greater
financial and marketing resources, significantly more experience in operating
gaming facilities, better sites, and operate a greater number and variety of
gaming facilities than the Company does. The Company believes that competition
in the gaming industry is based on the quality and location of gaming
facilities, the effectiveness of marketing resources, and customer service and
satisfaction.
There are four gaming operations within five miles of the Gold Coin and one
gaming operation within five miles of the Toledo Palace, each of which contains
50 VLTs. There are also several restaurants, bars and hotels located within
five miles of the Gold Coin that are limited to three VLTs each. In addition
there are three land-based casinos on Native American reservations in
Charenton, Kinder and Marksville, Louisiana, which are located within a range
of approximately 60 miles from either the Gold Coin or the Toledo Palace.
In 1991, Louisiana enacted a law permitting unlimited stakes riverboat gaming
on up to six gaming riverboats in any one parish with a maximum of 15
riverboats permitted for the entire state. The first of these riverboats became
operational in December 1993. On November 5, 1996, all parishes that currently
have riverboats voted to continue gaming beyond June 30, 1999. Louisiana also
has approved land-based gaming for one location in downtown New Orleans, which
opened a temporary facility in May 1995 and suspended operations in November
1995. Dockside gaming also is permitted at certain locations on the Red River.
The land-based casino in New Orleans has applied for reinstatement of its
operations, approval for which is pending.
The Gold Coin and the Toledo Palace also compete with other forms of legal and
illegal gambling, including bingo and pull-tab games, card clubs, pari-mutuel
betting on horse racing and dog racing and state sponsored lotteries, as well
as other forms of wagering entertainment.
THE COMPANY'S FACILITIES
The Company owns certain interests in both the Gold Coin and Toledo Palace
which feature VLTs, which under Louisiana law are permitted to be owned,
maintained and operated only by a Louisiana resident or an entity that is
majority-owned by a Louisiana resident. The VLTs at both locations are owned,
maintained and operated by Chrysolith, which is a Louisiana-licensed video
gaming machine operator of which the Company owns a 49% interest in the Class B
membership units.
Under Louisiana law, a truckstop gaming establishment must meet certain
standards in order to qualify as a licensed gaming facility. An establishment
license must be obtained in order for the gaming facility to be operated at the
site, however, the owner of an establishment for which there is an
establishment license need not be a Louisiana resident or an entity which is
majority-owned by Louisiana residents. The Company's wholly-owned subsidiary,
Trans World Gaming of Louisiana, Inc. ("TWGLa") has the establishment license
for the Toledo Palace and Prime has the establishment license for the Gold
Coin.
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THE GOLD COIN
The Gold Coin gaming facility is located at a major intersection in Lafayette,
Louisiana, currently has 50 VLTs that can be played for amounts ranging from
$.25 to $2.00 per play, and is open 24 hours a day, seven days a week. The
average daily net win of a VLT at the Gold Coin during 1997 was $310.
Maintaining the existing customer base of the Gold Coin is a high priority of
the Company's management. The Company believes that the atmosphere within the
gaming facility, the training and responsiveness of the staff, the comfort
factor and the security of the facility all contribute to continued patronage
by its customers. Except for the Gold Coin, all of the businesses (i.e., fuel,
restaurant and concessions) at the 76 Plaza are managed and operated by Prime,
which leases the 76 Plaza from National. The portion of the 76 Plaza occupied
by the Gold Coin is sub-leased by Prime to the Company. The VLTs at the Gold
Coin are owned, maintained and operated by Chrysolith, and the Gold Coin is
managed by the Company.
SUB-LEASE FOR GOLD COIN. In 1994, Prime entered into an 18-year sub-lease
with the Company for the Gold Coin that includes the right to operate under the
Prime establishment license for the Gold Coin. The Sub-lease is subject to the
terms and conditions of a certain Over-Lease dated May 1, 1993 between
National, as lessor, and Prime, as lessee, which expires September 30, 1999.
National has not granted its written consent to the Sub-lease which consent is
required by the Over-Lease. Upon expiration of the base term of the Over-
Lease in 1999, Prime has the contractual right (without any obligation to the
Company) to extend the term for up to five successive three-year periods if
Prime fulfills all necessary conditions set forth in the Over-Lease. Prime is
not contractually obligated to the Company to exercise its right to extend the
Over-Lease at the end of its term or any renewal term. In addition, National
has the right to terminate the Over-Lease under certain circumstances,
including a default by Prime under the terms of the Over-Lease, or a non-
renewal of the franchise relationship between National and Prime. Rent under
the Sub-lease is $3,000 per month, subject to adjustment for increases in the
Consumer Price Index and electricity costs. The Company's interest in the Sub-
lease is security for the Company's three-year promissory note to Prime dated
December 22, 1994 in the original principal amount of $3,000,000, which was
paid in full on December 23, 1997 (the "Prime Note"). See, however, Item 6 -
"Management's Discussion and Analysis or Plan of Operation - Important Factors
to Consider - Obligation to Prime Properties; Possible Loss of Sub-lease for
Gold Coin."
Prime must satisfy the following conditions in order to have the right to renew
the Over-Lease: (i) Prime must have complied with all conditions of the Over-
Lease; (ii) Prime must not be in default of any provisions in the Over-Lease,
including that Prime must use its good faith efforts to abide by the terms of a
franchise agreement and a marketing agreement between National and Prime; (iii)
Prime must satisfy all monetary obligations owed to National under the Over-
Lease; (iv) Prime must have complied with the qualification and training
requirements of National; (v) Prime must have executed a general release in
favor of National and its officers, directors, shareholders and employees; and
(vi) Prime must simultaneously renew the franchise relationship between
National and Prime. National has placed Prime on notice that Prime's right to
occupy the 76 Plaza was to terminate on January 23, 1998. See: Item 6 -
"Management's Discussion and Analysis or Plan of Operation - Important Factors
to Consider - Obligation to Prime; Possible Loss of Sub-lease for Gold Coin"
and "Possible Loss of Sub-Lease for Gold Coin Due to Termination of Over-
Lease".
CHRYSOLITH OPERATING AGREEMENT. The Company is a member under, and party to,
the Amended and Restated Regulations and Operating Agreement of Chrysolith,
L.L.C., a Louisiana limited liability company, dated as of December 22, 1994
(the "Chrysolith Operating Agreement"). Lee Young, a former director of the
Company, is the manager of Chrysolith and holds a 33% interest in Chrysolith
assets as they existed prior to the Company's becoming a member (the "Original
Member Property"). The Chrysolith Operating Agreement sets forth the rights
and obligations of the original members, all of whom are individuals (the
"Original Members"), and the Company, which is a member. Under this agreement,
Chrysolith operates, services and maintains the VLTs at the Gold Coin, and the
Company provides management, financial and consulting services. The Company
receives the Net Win After Taxes and pays a management fee to Chrysolith in an
amount equal to its direct operating costs at the Gold Coin. The Original
Members of Chrysolith had a membership interest in the Original Member Property
until July 2, 1996 when the Company retired a $2.2 million promissory note
issued in connection with the December 22, 1994 acquisition of the Gold Coin.
WOODLANDS
The Woodlands, where the Toledo Palace is located, includes a 24-hour
restaurant, a convenience store and a gas station that currently sells an
average of approximately 130,000 gallons of fuel per month. The Woodlands is
located on State Route 3236 in DeRidder, Louisiana, approximately 20 miles from
the Texas border. TWGLa has an establishment
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license which permits the operation of up to 50 VLTs at the Woodlands, and
currently has 33 Devices at the Toledo Palace. The average daily net win of
a VLT at the Woodlands during 1997 was $58. In accordance with local law,
alcoholic beverages are not sold at the Woodlands.
The primary customers of the Woodlands have been the loggers and truckers who
service the Boise Cascade Paper Mill located one mile away, local farmers and
loggers who purchase "off-the-road" diesel fuel, and local truckers. All fuel
storage tanks at the Woodlands are situated above ground in order to minimize
potential environmental issues typically associated with a fuel station and
below ground tanks.
Pursuant to the terms of the Chrysolith Operating Agreement, Chrysolith has
purchased and installed, and operates, maintains and services the VLTs at the
Toledo Palace, and the Company manages the truck stop operations at the
Woodlands. The Company receives the Net Win After Taxes from the Toledo Palace
after payment of all taxes payable to the State of Louisiana, payout of
winnings from the Toledo Palace, pays a management fee to Chrysolith in an
amount equal to its direct operating costs at the Toledo Palace and the net
operating revenues derived from all of the truck stop operations at the
Woodlands.
FUTURE OPERATIONS
The Company is currently investigating gaming facility management and
acquisition opportunities in Europe and Asia and on Native American lands. On
January 20, 1998, the Company entered into a Stock Purchase Agreement with
Resorts, Gameway and Monarch, and the Selling Stockholders pursuant to which
the Company will acquire 100% of the equity interests of Resorts and its two
operating subsidiaries and all of the assets of Gameway and Monarch for an
approximate cash purchase price of $11.5 million (the "Czech Transaction"). On
March 16, 1998, the Company executed Subscription Agreements with thirteen
sophisticated investors who, pursuant to the terms of an Escrow Agreement,
dated March 17, 1998 between the Company and U.S. Trust Company of Texas, N.A.,
the escrow agent, placed $17.0 million in escrow to fund the closing of the
Stock Purchase Agreement in exchange for $17.0 million of 12% Senior Secured
Notes due March 2005 and ten-year warrants to purchase 40% of the issued and
outstanding Common Stock of the Company, on a fully diluted basis, at an
exercise price of $.01 per share. A condition of the closing of the
Subscription Agreements is the Company's successful renegotiation the Senior
Bonds and the renegotiation of the Baker Warrants. The Company expects to
consummate the Stock Purchase Agreement, the Subscription Agreement and the
renegotiation of the terms of the Senior Bonds and the Baker Warrants on or
about March 31, 1998. Failure to do so will have a material adverse effect on
the financial condition and future business prospects of the Company. See
"General Development of Business".
Except as described above, the Company has no other specific arrangements or
understandings with respect to the management or acquisition of any gaming
facility. There can be no assurance that the Company will manage or acquire
any other gaming facilities.
The Company's long-range objective is to become a premier management company of
gaming establishments both in the United States and internationally at local
neighborhood sites. To achieve this goal, the Company's strategy consists of:
(i) identifying gaming establishments which focus primarily on a local, machine-
based market and wherever possible, the mechanized gaming devices be centrally
audited by a local or state governmental office (such as the State Police
Department in Louisiana); (ii) leasing or owning mechanized gaming machines
that are user-friendly for occasional video gaming customers; and (iii)
retaining local management following an acquisition to ensure a smooth
transition to the Company. Through this strategy, the Company believes it can
address a specific niche in the gaming industry which attracts local,
neighborhood markets as opposed to the destination, high-roller clientele.
While the Company believes that there are significant opportunities in the
Company's niche market outside the State of Louisiana, the Company is committed
to maximizing performance at its existing establishments while expanding to
other markets. See, however, "Regulations and Licensing".
MARKETING
Because customers of truckstop video gaming facilities generally are drawn from
the local population and surrounding area, the Company will focus its sales and
marketing efforts within a 20 to 30 mile range of the Gold Coin and the Toledo
Palace. Although the Company believes word-of-mouth and personal referrals are
the most effective means of attracting regular patrons for local video gaming
facilities, the Company intends to continue to advertise in local
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publications, provide brochures to tourist facilities, air brief commercials
on local television and radio, and advertise on local billboards.
ACQUISITION AGREEMENTS
TOTTENHAM & CO. On January 1, 1997 the Company completed the acquisition of
Tottenham & Co. which was founded in 1988 by Andrew Tottenham and is engaged in
providing consulting services to gaming companies worldwide. The consideration
paid for Tottenham & Co. by the Company included 500,000 shares of the
Company's Common Stock, and warrants to purchase 250,000 shares at an exercise
price of $.5938, the bid price of the Company's Common Stock on the date of the
acquisition as reported by the Nasdaq SmallCap Market System. In addition,
the Company issued two promissory notes in the aggregate principal amount of
$200,000 bearing interest at the rate of 10% per annum and payable on January
1, 2002 (the "Tottenham Notes"). Beginning January 1, 1998, the Tottenham
Notes and accrued interest thereon are convertible into shares of the Company's
Common Stock at a conversion price of $1.00 per share at the option of the
holders. Such convertibility feature will vest at a rate of 20% per year for
each year after the date of the Tottenham Notes; provided, however, that if the
Company completes a registered public offering of its Common Stock during the
respective terms of the Tottenham Notes, the Tottenham Notes immediately become
100% vested and fully convertible. All of the Common Stock as well as the
Common Stock underlying the warrants, carries certain piggyback registration
rights.
MATS. On April 15, 1997, the Company completed the acquisition of MATS, a
supplier of casino software products. The purchase price was $250,000,
consisting of $15,000 in cash and a $235,000 promissory note which matures in
November, 2000. 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 also receives ten percent (10%) of all
MATS sales as a license royalty.
GOLD COIN ACQUISITION. The Company acquired the interests of Prime and
Chrysolith in the Gold Coin Gaming Facility on December 22, 1994. The Company
acquired the rights of Prime to a 50% interest in the profits of the Gold Coin,
under the terms of an agreement dated September 21, 1994 between Prime and the
Company. Under the Prime Agreement, the Company paid a total of $6 million,
the final payment for which was made on December 23, 1997. The Company also
issued to Prime 120,000 shares of its Common Stock and options to purchase up
to an additional 120,000 shares of Common Stock exercisable at $7.00, which
options expired unexercised on December 23, 1997.
On December 22, 1994, the Company acquired Chrysolith's right to participate in
the profits of the Gold Coin and its sub-leasehold interest therein, for an
aggregate purchase price of $4.5 million, which was paid, in full on July 2,
1996. Pursuant to an Agreement for Exchange of Shares dated July 13, 1994
between the Company and the shareholders of Lee Young Enterprises ("LYE"),
under the Chrysolith Agreement, on December 22, 1994, the Company acquired all
of the issued and outstanding capital stock of LYE in exchange for 100,000
shares of the Company's Common Stock and options to acquire up to an additional
200,000 shares of Common Stock at an exercise price of $7.00, which options
expired unexercised on December 23, 1997.
As of December 23, 1997 all of the outstanding notes issued in connection with
the Gold Coin Acquisition, including a $75,000 obligation of Monarch (as
defined below) which was guaranteed by the Company, were paid in full.
MONARCH ACQUISITION. In April 1994, the Company acquired for $49,000 a 49%
ownership interest in Monarch Casinos ("Monarch"), a Louisiana-licensed video
gaming device operator founded in December 1993. In June and August 1994, the
Company loaned Monarch an aggregate of $55,000 for working capital to manage
the operations of the Woodlands under an agreement between Monarch and the
previous owner of the Woodlands. All of such loans are payable on demand, bear
interest at the rate of 10% and are evidenced by promissory notes executed by
Monarch. In October 1994, the Company credited Monarch $25,000 against prior
advances, among other things, in consideration for the assignment by Monarch to
the Company of an option to purchase the Woodlands. Although, it was
originally intended that Monarch would own, operate and maintain the VLTs at
both the Toledo Palace and the Gold Coin, the Company believed that Chrysolith
was better suited to operate the video poker parlors and entered into a five-
year agreement to do so. In March 1996, the Company learned that as of June
30, 1995, Monarch did not renew its operator's license as required by the State
of Louisiana, and as such, was no longer a licensed video poker operator in the
State. Pursuant to the management agreements between Monarch and the Company,
such a failure to renew or other termination of the operator's license resulted
in a default under the agreements and the agreements were terminated by the
Company on March 14, 1996. On
7
<PAGE>
or about November 6, 1997 Monarch and Michael Edwards, President of Monarch,
filed suit against the Company alleging, among other things, breach of
contract. See Item 13 - "Legal Proceedings".
WOODLANDS ACQUISITION. In October 1994, TWGLa acquired the Woodlands for
approximately $1,000,000 pursuant to the exercise of an option originally
granted to Monarch and assigned by Monarch to the Company. The balance of the
purchase price for the Woodlands was paid in full in July 1996.
BISHKEK AGREEMENT. On January 30, 1998 the Company entered into a twenty-year
management agreement with Jockey Club Casinos LLC ("JCC") for the management
and operation of a casino in the City of Bishkek, the Republic of Krygyz, a
former member of the Soviet Union (the "Bishkek Casino"). In return for an
initial investment by TWG of $250,000, TWG will receive a management fee equal
to sixty percent (60%) of the operating profits from the Bishkek Casino which
is scheduled to open on or about April 4, 1998.
REGULATIONS AND LICENSING
LOUISIANA
VLT LICENSE. The manufacture, distribution, servicing and operation of VLTs in
Louisiana are subject to the Louisiana Video Draw Poker Devices Control Law and
the Rules and Regulations promulgated thereunder (the "Louisiana Act"), and to
licensing and regulatory control by the Video Gaming Division of the Gaming
Enforcement Section of the Office of State Police within the Department of
Public Safety and Corrections (the "Louisiana Authorities"). The laws and
regulations of the State of Louisiana are based upon declarations of policy
which are concerned with protecting the video gaming industry from organized
crime, illegal gambling activities and other harmful elements, and protection
of the public from illegal and unscrupulous gaming to ensure the fair play of
VLTs.
The Company also owns a 49% interest in Chrysolith, a licensed machine operator
in Louisiana. Pursuant to the Chrysolith Operating Agreement with the Company,
Chrysolith maintains, services and operates the VLTs at the Gold Coin and the
Toledo Palace. The license held by Chrysolith is not transferable and must be
renewed annually through payment of fees and continued compliance with the
suitability requirements of the Louisiana Act. The Louisiana Authorities may,
in accordance with certain regulatory procedures, limit, condition, suspend or
revoke the license of Chrysolith for any violation of any rules or regulations
of the Louisiana Authorities or any violations of the Louisiana Act, or for any
other cause deemed reasonable by the Louisiana Authorities. Fines for
violations of gaming laws, rules, or regulations may be levied against the
licensees and the persons involved. Suspension or revocation of the license of
Chrysolith could have a material adverse effect upon the business of the
Company.
The Louisiana Authorities have the authority to conduct overt and covert
investigations of any person, entity, applicant or participant involved
directly or indirectly in the video gaming industry in Louisiana. This
investigation may extend beyond the information provided in the formal
application, including information with regard to the licensee's immediate
family and relatives and their affiliations with certain groups, organizations,
corporations, firms or other business entities. The investigation may also
extend to every person who has or controls more than five percent of the
ownership, income or profit interest in an entity which has or applies for a
license in accordance with the provisions of the Louisiana Act, or exercises a
significant influence over the activities of a licensee. The Louisiana
Authorities require the submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing
must pay a filing fee which also covers the cost of investigation. If such a
stockholder is found unsuitable, the Louisiana Authorities may require his
removal from the venture or refuse to license the applicant. Further, the
Louisiana Authorities, in their discretion, may require holders of the
Company's debt securities, if any, to be found to be suitable persons. All
persons or entities who have invested in companies that provide video gaming
may also be required to meet all suitability requirements and qualifications
for licensees. Determinations of suitability or of questions pertaining to
licensing are subject to review under the provisions of Louisiana's
Administrative Procedures Act and the Louisiana Act. In order for a company,
such as Chrysolith, to be licensed by the Louisiana Authorities, it must be
demonstrated that a majority of the equity securities in that company is owned
by persons who have been domiciled in Louisiana for a period of at least two
years prior to the date of the application.
VLTs must meet strict specifications established by the Louisiana Acts and the
number of VLTs which may be operated at a particular location depends on the
underlying nature of the location. The number of VLTs that may be operated at
a truckstop is based upon average monthly fuel sales: (i) no more than 50 VLTs
if sales equal at least 100,000 gallons per
8
<PAGE>
month and 40,000 of such gallons are diesel; (ii) no more than 40 VLTs if
sales equal at least 75,000 gallons per month and 30,000 of such gallons are
diesel; (iii) no more than 35 VLTs if sales equal at least 50,000 gallons per
month, and 10,000 of such gallons are diesel; (iv) no more than 3 machines if
sales are less than 50,000 gallons per month, and (v) license can be revoked
if sales are less than 25,000 gallons in any single month. See
"Establishment License" below.
ESTABLISHMENT LICENSE. The Louisiana Act provides that a truck stop facility
("Establishment") must obtain a license as an Establishment to allow the
placement and operation of VLTs therein. As of January 1, 1996, in order to
qualify for a license to operate as a truck stop in Louisiana, the location
must have paved parking for at least 50 eighteen-wheelers, a 24 hour on-site
restaurant facility, an on-site repair facility with at least one mechanic
available, five developed contiguous acres, and certain other specified
amenities (the "Qualified Truck Stop"). The Establishment license typically is
granted to the owner of the truck stop facility, but also may be granted to a
lessee of the facility. Prime holds an Establishment license for the Gold Coin
and TWGLa holds an Establishment license for the Toledo Palace.
In accordance with current video gaming law in Louisiana, the licensee of any
license revoked by the Video Gaming Division of the State Police may not
reapply for such license for a period of five years from the date of such
revocation. Prior to having its license revoked by Louisiana Authorities, a
truck stop facility which did not meet all of the requirements as of January 1,
1996 could have voluntarily surrendered its license under certain conditions
and reapply when all criteria are met.
Except under emergency circumstances determined by Louisiana Authorities, if a
licensed Establishment which otherwise was a Qualified Truck Stop, fails to
sell a minimum of 25,000 gallons of fuel in any single month, the
Establishment's video gaming license is subject to immediate revocation without
a hearing.
Establishment and VLT owner licenses are subject to annual renewal in June of
each year and the payment of an annual fee. The Louisiana Authorities have the
same authority to deny, suspend, condition or revoke an Establishment license
and to conduct investigations, including investigations of 5% or more owners,
as it does for VLT owner licenses. The loss by Prime or TWGLa of the
Establishment licenses for the Gold Coin or the Toledo Palace, respectively,
would have a materially adverse effect upon the business of the Company. See
Item 6 - "Management's Discussion and Analysis of Financial Condition or Plan
of Operation - Important Factors to Consider - Possible Loss of Establishment
License."
The Louisiana Act also provides protection to lessees of truck stop facilities.
It provides that if the lease of a licensed Establishment expires or is
terminated without legal cause by the owner of the Establishment, neither the
owner nor any new lessee shall have the right to apply for a VLT license at the
Establishment for six years; unless the owner of the Establishment was also the
holder of the VLT license for the VLTs being operated at the Establishment, and
the former lessee/licensee is given the right to continue operations at the
Establishment by agreement with the owner or any new lessee.
GAMING TAXES. Effective July 1, 1994, the Louisiana Act was amended to
increase the franchise payment rate from 22.5% to 32.5% of net VLT revenues
from licensed truck stop gaming establishments. There can be no assurance that
tax rates, fees or other payments to the State of Louisiana applicable to the
Company's gaming operations will not be increased in the future.
LOUISIANA GAMING REFORM. At the close of a special legislative session on
April 19, 1996, a local option bill was passed which required the residents of
each parish in the state to vote on the future of gambling in their parish. On
November 5, 1996, the residents in Lafayette and Beauregard parishes in
Louisiana, where the Company currently has video poker operations, were among
35 Louisiana parishes that voted to eliminate video poker. As a result, the
Company must cease its video poker operations by June 30, 1999 in both of those
parishes. Currently, these are the only two facilities at which the Company
has operations. The Company, through its Chrysolith affiliate, has joined with
two video poker operators in the State in challenging the vote in the courts.
On January 30, 1998 the Louisiana Supreme Court unanimously denied without
comment a writ application filed by Chrysolith, among others, alleging Election
Code violations, effectively ending the Election Code challenge to the video
poker referenda. The suit will proceed to federal court on a federal civil
rights violation under Title 42 of the United States Code Section 1983. The
Company cannot as of the date hereof predict the outcome of this litigation or
when a decision relating hereto will be rendered.
APPLICATION OF FUTURE OR ADDITIONAL REGULATORY REQUIREMENTS. In the future,
the Company intends to seek the necessary licenses, approvals and findings of
suitability for the Company and its personnel in other jurisdictions. However,
there
9
<PAGE>
can be no assurance that such licenses, approvals or findings of suitability
will be obtained or will not be revoked, suspended or conditioned or that the
Company will be able to obtain the necessary approvals for its future
activities. If a license, approval or finding of suitability is required by
a regulatory authority and the Company fails to seek or does not receive the
necessary license or finding of suitability, the Company may be prohibited
from owning or operating gaming establishments in that jurisdiction.
FEDERAL REGULATION
The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it unlawful,
in general, for a person to manufacture, deliver, or receive gaming machines,
gaming machine type devices, and related components across state lines or to
operate gaming machines unless that person has first registered with the
Attorney General of the United States. In order to manufacture, sell, deliver,
or operate certain of its current and proposed products, the Company must
register and renew its registration annually. In addition, various record
keeping and equipment identification requirements are imposed by the Federal
Act. Violation of the Federal Act may result in seizure and forfeiture of
equipment, as well as other penalties. The Company is currently registered and
maintains the reports required under the Federal Act.
COMPETITION
The Gold Coin and the Toledo Palace also compete with other forms of legal and
illegal gambling, including bingo and pull-tab games, card clubs, pari-mutuel
betting on horse racing and dog racing and state-sponsored lotteries, as well
as other forms of wagering entertainment. See "Industry Overview".
EMPLOYEES
As of January 1, 1998, the Company had 15 full-time employees, (including two
executive officers), eight of whom are involved in managing and operating the
Woodlands. The Company believes that its employee relations are excellent.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's corporate offices are located at One Penn Plaza, Suite 1503, New
York, New York, occupying approximately 1,000 square feet of office space under
a lease at the rental rate of $2,500 per month expiring in October 1999. The
Company leases approximately 550 square feet of office space in London, England
for Tottenham & Co. on a month-to-month basis at approximately $1,200 per
month.
The Company leases space for the Gold Coin under an 18-year sub-lease from
Prime consisting of approximately 5,000 square feet of space, at a rent of
$3,000 per month. TWGLa owns the 20-acre site on which the Woodlands is
located in DeRidder, Louisiana.
ITEM 3. LEGAL PROCEEDINGS.
On or about November 6, 1997, the Company was sued for breach of contract by
Monarch Casinos, Inc. of Louisiana and Michael A. Edwards in the 15th Judicial
District Court, Lafayette Parish, Louisiana, Case No. 97-5037B. This
litigation was filed pro se, but Mr. Edwards has since engaged counsel. Mr.
Edwards claims compensation charges of approximately $2.2 million and punitive
charges of $11.1 million and has alleged that the Company breached a management
contract dated September 21, 1994. The Company has hired local litigation
counsel and believes that these claims are wholly without merit and intends to
defend this action vigorously.
On November 10, 1997, the Company was advised that on October 16, 1997,
National placed Prime on notice that its rights to occupy the 76 Plaza (where
the Gold Coin is located) was to terminate on January 23, 1998, due to an
alleged breach by Prime of the Over-Lease. The Company believes that the
alleged default by Prime may be due, in part, to the failure of Prime to pay
certain sums due to National under the Over-Lease. Consequently, on December
23, 1997, the Company filed a Petition for Concursus in the 15th Judicial
District Court, Lafayette Parish, Louisiana, Case No. 976174-D and paid the
final payment of the Prime Note of $292,000 into the registry of the court,
protesting that such sum is actually due and owing based on the alleged breach
of the Over-Lease by Prime. On or about December 30, 1997, the Company
received notice from Prime that Prime (which was not aware of the Petition for
Concursus) considered the
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<PAGE>
Company in default of the Sub-lease for the Gold Coin premises and demanded
that the Company pay to Prime an amount equal to approximately $299,513 on or
before January 7, 1998 to cure this alleged default. Upon receipt of this
correspondence, the Company contacted counsel for Prime and made him aware of
the Company's prior filing.
On or about January 19, 1998, Prime filed in United States District Court,
Western District of Louisiana, Case No. CV98-0076L-0, a Complaint for Damages
and Violation of the Petroleum Marketing Practices Act against National
alleging breaches by National in the franchise agreement between Prime and
National and seeking to enjoin National from terminating the Over-Lease. On or
about January 21, 1998, Prime filed a Voluntary Petition in bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the
Western District of Louisiana, Case No. 98BK-50087, listing National as the
holder of an unsecured claim of approximately $500,000. The Company has
engaged counsel and intends to intervene in this action in order to protect its
rights under the Prime Agreement and Sub-lease.
The Company, through its Chrysolith affiliate, has joined with two video poker
operators in the State in challenging the Voter Mandate in the courts. On
January 30, 1998 the Louisiana Supreme Court unanimously denied without comment
a writ application filed by Chrysolith, among others, alleging Election Code
violations, effectively ending the Election Code challenge to the video poker
referenda. The suit will proceed to federal court on a federal civil rights
violation under Title 42 of the United States Code Section 1983. The Company
cannot as of the date hereof predict the outcome of this litigation or when a
decision relating hereto will be rendered.
The Company is not currently involved in any other material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this Report.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The executive officers of the Company, their ages and the offices held, as of
March 30, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Position in the Company
- ---- --- -----------------------
<S> <C> <C>
Stanley Kohlenberg 65 Chairman and Director
Andrew Tottenham 40 Chief Executive Officer, President and Director
Dominick J. Valenzano 49 Chief Financial Officer, Treasurer and Director
</TABLE>
Information regarding the business experience of the executive officers of the
Company is set forth below.
STANLEY KOHLENBERG was the Chief Executive Officer and President of the
Company from March 6, 1996 until his retirement on December 31, 1996. He has
been a director of the Company since September 1994, where he has served as
Chairman since March 6, 1996, and has been retained as a consultant through
March 31, 1999. He has been a Managing Director of Tottenham & Co. since
January 1991. Mr. Kohlenberg was the acting Chief Financial Officer for the
start-up and opening of the Teller House Casino in Central City, Colorado in
1991. Prior to January 1991, Mr. Kohlenberg held senior executive positions in
the cosmetics industry as Chief Executive Officer of Alfin Inc. (1989-1991),
President of Sanofi Beauty, Inc. (1984-1989), President of CFT Marketing (1980-
1984), which was acquired by Sanofi Beauty in 1984, President of Calvin Klein
Cosmetics (1977-1980), and Executive Vice President of Revlon, Inc. (1974-
1977).
ANDREW TOTTENHAM has served as President and Chief Executive Officer of
the Company since January 1, 1997. Mr. Tottenham was a consultant to the
Company from July 1996 to December 31, 1996 and has been a director of the
Company since May 1996. He has been the President of Tottenham & Co., since
1988. Mr. Tottenham commenced his career in the gaming industry in 1975 and
has worked for the Silhouette Club, Bally's Park Place, Connoisseur Club, and
Victoria Casino. Mr. Tottenham is the son-in-law of Mr. Kohlenberg.
DOMINICK J. VALENZANO has served as a consultant to the Company since May
1994 and as the Treasurer, Chief Financial Officer and a director of the
Company since September 1994. From September 1992 until May 1994, Mr.
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<PAGE>
Valenzano was a mortgage banking representative for Jennings Mortgage Co., a
mortgage banker. From 1974 to August 1992, Mr. Valenzano was employed by
Control Data Corporation holding various positions, most recently that of
Vice President of Finance in the lottery, racetrack and ticket reservation
divisions.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Effective December 15, 1994, the Company's Common Stock and warrants (the
"$8.50 Warrants") commenced trading on the Nasdaq National Market System under
the symbols IBET and IBETW, respectively. Prior to December 15, 1994, there
was no established public trading market for the Company's Common Stock or the
$8.50 Warrants. On December 17, 1996, trading on the Company's Common Stock
was transferred to the Nasdaq SmallCap Market System for failure to maintain
the minimum bid price requirements of the National Market System. Further on
June 25, 1997 the Company's Common Stock and the $8.50 Warrants were delisted
from the Nasdaq Small Cap Market and trading on the Company's Common Stock was
transferred to the OTC Bulletin Board for failure to maintain a bid price of
$1.00 and minimum capital and surplus requirements.
The following table sets forth the high and low prices of the Company's Common
Stock and the $8.50 Warrants for fiscal years 1996 and 1997:
<TABLE>
<CAPTION>
COMMON STOCK HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter ........... 1 1/2 3/4
Second Quarter ........... 3 1/2 25/32
Third Quarter ........... 3 1/16 1 3/8
Fourth Quarter ........... 1 1/8 3/8
1997
First Quarter ........... 1 7/8 1
Second Quarter ........... 1 3/8 1/2
Third Quarter ........... *11/16 *5/16
Fourth Quarter ........... *7/16 *7/32
$8.50 WARRANTS
1996
First Quarter ........... 1/4 1/8
Second Quarter ........... 1/32 1/8
Third Quarter ........... 3/8 1/4
Fourth Quarter ........... 7/32 1/16
1997
First Quarter ........... 5/16 1/16
Second Quarter ........... 1/4 3/16
Third Quarter ........... *1/16 *1/16
Fourth Quarter ........... *1/32 *1/64
* Quoted on OTC Bulletin Board
</TABLE>
As of the date of this Report March 30, 1998, there were (a) 3,044,286 shares
of Common Stock outstanding held of record by approximately 1,300 persons, (b)
outstanding options to purchase an aggregate of 12,500 shares of Common Stock
not part of the Company's 1993 Incentive Stock Option Plan (the "1993 Plan"),
(c) outstanding $8.50 Warrants to purchase an aggregate of 1,511,429 shares of
Common Stock, (d) outstanding $0.01 Warrants to purchase an aggregate of
499,875 shares of Common Stock issued in connection with the March 1996
Financing (See the Form 10-KSB for the year ended December 31, 1996, Item 6 -
"Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources"), (e) outstanding $11.55 Warrants to purchase an aggregate
of 151,143 shares of Common Stock, (f) outstanding $13.50 Warrants to purchase
an aggregate of 151,143 shares of Common Stock, (g) $4.8 million principal
amount of outstanding Senior Bonds convertible into shares of Common Stock at
conversion prices of $2.00 to $3.125
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<PAGE>
per share, (h) outstanding $1.00 Warrants to purchase an aggregate of 960,000
shares of Common Stock issued in connection with the sale of the Senior
Bonds, (i) outstanding $.5938 Warrants to purchase an aggregate of 250,000
shares of Common Stock issued in connection with the acquisition of Tottenham
& Co. (see Item 1- "Description of Business -Narrative Description of
Business - Acquisition Agreements"), (j) outstanding $.50 warrants to
purchase an aggregate of 220,760 shares of Common Stock issued in connection
with the 1997 Promissory Note (See Item 6 - "Management's Discussion and
Analysis or Plan of Operation - Liquidity and Capital Resources"), and (k)
outstanding $.01 warrants to purchase an aggregate of 42,850 shares of Common
Stock issued in connection with the Bishkek Note (See Item 6 - "Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital
Resources").
The Company has not declared or paid any cash dividends on its Common Stock
since its inception and does not intend to pay any dividends for the
foreseeable future.
There were no securities sold by the Company during the period covered by this
Report.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Form 10-KSB contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-KSB that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will", "expect," "believe,"
"anticipates," "estimates," or "continue" or comparable terminology are
intended to identify certain forward-looking statements in this and other
sections of the Form 10-KSB These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors, including those set forth in the section
below entitled "Important Factors to Consider."
The following discussion and analysis relates to the financial condition and
results of operation of the Company for the two years ended December 31, 1997.
This information should be read in conjunction with the Company's Consolidated
Financial Statements and notes appearing elsewhere herein. All amounts in the
following discussions have been rounded to the nearest thousand except where
indicated.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996
---- -----
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C>
Revenue $6,901 $ 6,655
Pre-Tax Income/(Loss) 80 (12,440)
Net Income/(Loss) 80 (12,760)
Earnings/(Loss) per share - Basic $0.03 $(5.02)
Earnings/(Loss) per share - Assuming Dilution 3,044,286 2,544,286
Weighted Average Common Shares Outstanding $0.02 $(5.02)
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
REVENUES
Net revenues from the Company's video poker operations (defined as those
amounts remaining with the Company after payment of winnings and state gaming
taxes) from the Gold Coin and the Toledo Palace were $4.1 million for the year
ended December 31, 1997, representing an increase of $.2 million or 6% as
compared to the prior year ended December
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<PAGE>
31, 1996. At the Woodlands, the Company derived revenues amounting to $2.7
million for the year ended December 31, 1997 primarily from the sale of fuel,
representing a decrease of $.1 million or 2% over the prior year's total of
$2.8 million. Net revenues from the Tottenham & Co. subsidiary of
approximately $57,000 and from MATS of approximately $27,000 were generated
in 1997 revenues which did not occur in 1996.
COST OF REVENUE
Cost of revenue, which consists of the direct cost of operating both the Gold
Coin and the Toledo Palace, primarily in the areas of labor, security, and
general office expenses on a 24-hour, 7-day schedule, were $1.1 million in
1997, virtually unchanged from the prior year ended December 31, 1996. The
cost of revenue at the Woodlands was $2.3 million ($1.8 million of which was
the cost of fuel) in 1997 as compared to $2.4 million ($1.9 million of which
was the cost of fuel) in 1996, due to the decreased fuel sales at the truck
stop.
EXPENSES
Selling, general and administrative expenses were $2.2 million in 1997
representing a 22% increase over 1996. This increase is primarily attributable
to the Tottenham & Co. and MATS operations which started in 1997. The Company
incurred costs for Tottenham & Co. of approximately $414,000 (primarily labor
and related costs $135,000, travel $89,000 and office costs $103,000) and
approximately $163,000 in costs for MATS (primarily labor and related costs
$102,000, travel $23,000 and office costs of $35,000) which did not occur in
1996.
Amortization and depreciation decreased from $1.1 million in 1996 to $.3
million in 1997 due primarily to the write-off of assets in the fourth quarter
of 1996 resulting from the Voter Mandate (See Item 1 - "Description of
Business"). Interest expense for the year ended December 31, 1997 was $.8
million compared to $1.1 million for the year ended December 31, 1996. The
decrease is due to a one-time interest charge of approximately $416,000 in the
second quarter of 1996 relating to the issuance of 499,875 warrants issued in
connection with certain bridge financings which did not recur in 1997 (See Form
10-KSB for the year ended December 31, 1996, Item 6 - "Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital Resources").
EARNINGS/(LOSS)
The Company generated net earnings of approximately $80,000 for the fiscal year
ended December 31, 1997 as compared to a net loss of $12.8 million in fiscal
year ended December 31, 1996. The 1996 results include an impairment loss of
$11.4 million which did not recur in 1997. (See Item 1 - "Description of
Business").
LIQUIDITY AND CAPITAL RESOURCES
The level of cash decreased by $291,000 for the twelve months ended December
31, 1997, due primarily to four scheduled quarterly repayments of the Prime
Note totaling approximately $1,150,000 offset by net financing proceeds and
investments of approximately $42,000 and cash flows from operating activities
of approximately $821,000.
The Company's obligation due to Prime 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, and secured by the Company's Sub-
lease with Prime for the Gold Coin premises, was paid in full at maturity on
December 23, 1997.
On June 11, 1997, TWG and Value Partners, Ltd., a Texas limited partnership
("Value Partners"), executed a loan agreement under which TWG borrowed
$350,000. This loan is evidenced by an unsecured Senior Promissory Note (the
"Value Partners Note") in favor of Value Partners, for $350,000 due June 11,
1998, with simple interest at the rate equal to the lesser of 17% per annum or
the highest rate then allowed by applicable law.
TWG has agreed to make payments on the Value Partners Note by paying to Value
Partners each quarter an amount equal to 40% of the cash received from the
Boxer Casino located in the Azerbaijan Republic during each such quarter See
Item 1 - "Description of Business". Payment will be applied first to unpaid
fees and expenses of Value Partners arising in connection with the Value
Partners Note, next to unpaid interest, and then to unpaid principal. If such
amount is zero or a negative number, no payment will be due on the Value
Partners Note for such quarter. This provision does not, however, waive TWG's
obligation to make any other payments on the Value Partners Note, including
specifically
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<PAGE>
the balance due on June 11, 1998, the final maturity date. The Value
Partners Note may be prepaid without penalty, upon written affirmative and
negative convenants including, with respect to the former, provision of
quarterly financial statements and, with respect to the latter, restrictions
on incurring senior debt or disposing of assets. The Company used a portion
of the proceeds of the Promissory Note (as defined below), to repay the Value
Partners Note in full on October 29, 1997 and to fund the start-up of the
Boxer Casino (as defined below).
On October 29, 1997, TWG and Value Partners executed a loan, which was
amended on December 19, 1997, (the "First Amended Loan Agreement") under
which TWG has the ability to borrow up to $4,125,000. This loan is evidenced
by a Senior Secured Promissory Note (the "Promissory Note") in favor of Value
Partners for up to $4,125,000 due December 1, 1998 bearing simple interest at
the rate of 12%. Under the terms of the loan agreement, Value Partners is
entitled to warrants to purchase shares of TWG common stock (the "Warrants")
equal to .1714 Warrants for each dollar advanced to TWG to a maximum of
707,025 warrants. The warrants have an exercise price of $.50 per share and
expire on December 31, 1999. As of February 23, 1998, Value Partners has
advanced a net amount of approximately $1,288,000 ($2,088,000 advanced less
$800,000 in repayments), comprised of the following:
(a) On October 28, 1997, Value Partners advanced $821,000
representing a refundable escrow deposit in connection with TWG's
proposed acquisition of the Casino de Zaragoza ("CDZ") a company that
holds an exclusive casino license in Zaragoza, Spain a region of
Aragon (the "Zaragoza Transaction"). The Zaragoza Transaction was not
consummated, and as a result, approximately $800,000 (net of bank fees
and currency exchange) was returned to Value Partners on December 21,
1997.
(b) On October 29, 1997, Value Partners advanced approximately
$407,000 to TWG which amount was used to repay the Value Partners Note
of $350,000 plus accrued interest of $23,000 with the balance of
$34,000 used by TWG for working capital purposes.
(c) On December 22, 1997, Value Partners advanced $335,000 to TWG
which amount was used to pay the final scheduled quarterly payment
under the Prime Note of approximately $292,000 on December 23, 1997;
the balance of $43,000 used by TWG for working capital purposes.
(d) On January 15, 1998, Value Partners advanced $525,000 to TWG
which amount was used as a deposit on the Czech Transaction.
The Company has issued 220,760 Warrants in connection with the funds transfer
as part of the First Amended Loan Agreement through March 18, 1998. The
Company expects to limit its borrowing of the $4,125,000 credit facility to
approximately $1,288,000, not including the Bishkek Note described below.
On March 19, 1998, the Company and Value Partners executed a Lenders Waiver and
Option Agreement (the "Waiver") under which the Company borrowed $250,000 to
fund the acquisition of the Bishkek Casino (the "Bishkek Note"). See Item 1 -
"Description of Business", and "Acquisition Agreements - Bishkek Agreement".
The Bishkek Note, which was funded on March 24, 1998, bears interest at 12% per
annum and Value Partners was issued 42,850 warrants to purchase the Company's
Common Stock at an exercise price of $.01 per share which expire on December
31, 2005. Under the terms of the Bishkek Note, the Company will repay the
principal and accrued interest in twelve monthly installments starting May 1,
1998 from the Company's 60% share of the operating profits of the Bishkek
Casino.
On December 29, 1997, TWG engaged the services of Libra Investments, Inc., Los
Angeles, California ("Libra"), to act as the Company's exclusive financial
advisor and placement agent in connection with the issuance and sale by TWG
(and certain wholly owned subsidiaries) of up to $17 million aggregate gross
proceeds of subordinated senior debt securities and warrants of TWG (the
"Private Placement"). The $17 million principal amount of Senior Secured Notes
(the "Notes") will carry interest at 12% per annum payable semi-annually in
cash and mature on March 31, 2005. The Notes will be senior obligations of TWG
and will rank PARI-PASSU with Company's other outstanding unsecured and
unsubordinated indebtedness. In addition, TWG will issue warrants to purchase
approximately 7.4 million shares of TWG Common Stock (the "Libra Warrants")
representing 40% of the Company's fully diluted Common Stock. The Libra
Warrants will have an exercise price of $.01 per share and expire on or about
April 1, 2008. The proceeds of the Private Placement will be used to purchase
and fund improvements of the Czech Transaction ($12.6 million), retire the
Promissory Note ($1.3 million), pay fees and expenses of the Private Placement
($1.1 million) and for working capital ($2.0 million).
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As of December 31, 1997, the principal amount of the Company's indebtedness
under Senior Bonds issued in connection with a private placement of debt and
warrants completed in the second quarter of 1996 (See Form 10-QSB for the
quarter ended June 30, 1996, Item 6 - "Management's Discussion and Analysis or
Plan of Operation - Liquidity and Capital Resources" was $4.8 million. The
Senior Bonds mature on June 30, 1999 and may be converted into TWG Common Stock
at $2.50 per share through June 30, 1998 and $3.125 per share from July 1, 1998
to June 30, 1999. The Company and the holders of the Senior Bonds (the
"Bondholders") are negotiating to amend the terms of the Senior Bond as
follows: (i) between May 1, 1998 and June 30, 1999 the Company will use the
cash flow from the Company's operations in Louisiana to pay off the debt; (ii)
the Bondholders will agree to convert the obligation to a cash flow note and to
extend the maturity of the Senior Bonds will be to December 31, 2005; (iii) the
conversion feature of the Senior Bonds will be eliminated; and (iv) the
Bondholders will receive warrants to purchase 3,200,000 shares of TWG common
stock at an exercise price of $1.50 per share which will expire on June 30,
2008. In addition, approximately 1.6 million Warrants will be issued under
the terms of the Baker Warrants. (See Item 1 - "Description of Business")
under the anti-dilution requirement of the June 1996 Baker Bridge. (See Item 6
- - Form 10-KSB for the fiscal year ended December 31, 1996, "Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital
Resources".) The Baker Warrants will modified, among other things, to exclude
any anti-dilution provisions beyond March 31, 1998. The amendment is
contingent upon the successful completion of the Private Placement.
The Company believes that, although there can be no assurance, the net proceeds
from the Private Placement and existing cash flow from current operations
(assuming the closing of the Stock Purchase Agreement) will be sufficient to
satisfy its liquidity and capital requirements for the next twelve months. If
the Private Placement is not completed and if the Senior Bonds are not amended,
the Company will require additional financing to meet its obligations.
Notwithstanding the Private Placement, the Company will also require financing
to complete the construction of the third casino in the Czech Transaction, See
Item 1 - "Description of Business". 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.
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.
The Voter Mandate in certain parishes in Louisiana in November 1996, ordered
the closing of all video poker operations in such parishes by June 30, 1999.
As a result of the Voter Mandate, the Company must close both the Gold Coin and
the Toledo Palace no later than June 30, 1999. As of December 31, 1997, the
Gold Coin and the Woodlands, including the Toledo Palace operations, accounted
for virtually all of the Company's annual revenues. Currently, the Company is
seeking to develop or acquire interests in gaming operations at other locations
including the Czech Republic and Bishkek (See Item 1 - "Description of
Business, Future Operations") so that the Company will generate positive cash
flow by 1999; however, there can be no assurance that the Company will be able
to develop or acquire any such new operations by June 1999, at which time
certain 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 revenues and its
overall financial condition.
YEAR 2000 CONVERSION
The Company does not believe that the Year 2000 Conversion, as it relates to
computer applications that perform date intensive calculations beyond
December 31, 1999, will have a material adverse effect on the Company's
operation.
IMPORTANT FACTORS TO CONSIDER
ACCUMULATED DEFICIT; OPERATING LOSSES
On December 31, 1997, the Company had an accumulated deficit of approximately
$13.2 million and a working capital deficit of approximately $.9 million.
For the fiscal year ended December 31, 1997, the Company generated net income
of approximately $.1 million and for the fiscal year ended December 31, 1996,
the Company incurred a net loss of
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approximately $12.8 million which resulted primarily from an $11.4 million
impairment of assets accounting charge under FASB No. 121 relating to the
referendum to discontinue video poker described above. The ability of the
Company's U.S. operations to achieve profitability depends upon the
successful operation of gaming establishments at the Lafayette and DeRidder
locations 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; POSSIBLE LOSS OF SUB-LEASE FOR GOLD COIN
On December 22, 1994, the Company acquired from Chrysolith and Prime, which
leases a truckstop in which the Gold Coin is located from National, certain
rights including an 18 year sub-leasehold interest, subject to the terms of an
Over-lease between Prime, as lessee and National, as lessor. Should this Over-
Lease be terminated, the Company could lose all of its rights under the Sub-
lease and Prime would lose its establishment license for video poker in the
State of Louisiana. The Company acquired from Prime the right to a 50%
interest in the profits of the Gold Coin under the terms of the Prime Agreement
under which the Company agreed to pay a total of $6.0 million for such profit
interest. The Company's obligation under the Prime Agreement due to Prime is
evidenced by the Prime Note, the final installment of which was paid in full on
December 23, 1997.
On November 10, 1997, the Company was advised that on October 16, 1997,
National placed Prime on notice that its rights to occupy the 76 Plaza (where
the Gold Coin is located) was to terminate on January 23, 1998, due to an
alleged breach by Prime of the Over-Lease. The Company believes that the
alleged default by Prime may be due, in part, to the failure of Prime to pay
certain sums due to National under the Over-Lease. Consequently, on December
23, 1997, the Company filed a Petition for Concursus in the 15th Judicial
District Court, Lafayette Parish, Louisiana, Case No. 976174-D and paid the
final payment of $292,000 into the registry of the court, protesting that such
sum is actually due and owing based on the alleged breach of the Over-Lease by
Prime. On or about December 30, 1997, the Company received notice from Prime
that Prime (which was not aware of the Petition for Concursus) considered the
Company in default of the Sub-lease for the Gold Coin premises and demanded
that the Company pay to Prime an amount equal to approximately $299,513 on or
before January 7, 1998 to cure this alleged default. Upon receipt of this
correspondence, the Company contacted counsel for Prime and made him aware of
the Company's prior filing.
On or about January 19, 1998, Prime filed in United States District Court,
Western District of Louisiana, Case No. CV98-0076L-0, a Complaint for Damages
and Violation of the Petroleum Marketing Practices Act against National
alleging breaches by National in the franchise agreement between Prime and
National and seeking to enjoin National from terminating the Over-Lease. On or
about January 21, 1998, Prime filed a Voluntary Petition in bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the
Western District of Louisiana, Case No. 98BK-50087, listing National as the
holder of an unsecured claim of approximately $500,000. The Company has
engaged counsel and intends to intervene in this action in order to protect its
rights under the Prime Agreement and Sub-lease.
POSSIBLE LOSS OF SUB-LEASE FOR GOLD COIN DUE TO TERMINATION OF OVER-LEASE
As noted above, the Sub-lease for the Gold Coin is subject to the terms and
conditions of the Over-Lease between Prime and National. Although National is
aware of the Company's use of the Gold Coin facilities, National has not yet
granted its written consent to the Sub-lease, as required by the Over-Lease.
The Over-Lease expires September 30, 1999, subject to the right of Prime to
extend the term for up to five successive three-year periods. Prime 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 defaults, under the terms of the Over-Lease, or if Prime does not renew a
franchise relationship between National and Prime. 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 or otherwise, will result in the termination of the Company's
sub-lease for the Gold Coin gaming facility premises, and any such termination
would have a materially adverse effect on the U.S. operations of the Company.
TERMINATION OF LOUISIANA OPERATIONS IN 1999; NEED TO DIVERSIFY
In November 1996, residents in 35 parishes in Louisiana, including the two
parishes in which the Gold Coin and the Toledo Palace are located, voted to
discontinue video poker effective June 30, 1999. The Company is currently
involved in litigation to overturn the voter referendum. See Item 3 - "Legal
Proceedings." No assurances can be given that such
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litigation will be successful. At this time, the Company has no U.S. gaming
operations other than the Gold Coin and the Toledo Place. The Company is
currently seeking to develop or acquire interests in gaming operations at
other locations; however, there can be no assurance that the Company will be
able to develop or acquire such new operations by that time.
TAXATION OF GAMING OPERATIONS
Gaming operators are typically subject to significant taxes and fees in
additional to federal and state corporate income taxes, and such taxes and fees
are subject to increase to 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 VLTs to be operated
at a truck stop location in Louisiana, the truck stop must meet certain
requirements relating to its operation as a truck stop, including the operation
of a 24-hour restaurant, the availability of mechanic services 24 hours/7 days
a week, paved parking for at least 50 18-wheeled vehicles and the sale of at
least 100,000 gallons of fuel per month, of which 40,000 gallons must be diesel
fuel. The Company believes that Woodlands although for business reasons the
Company has decided to install only 33 VLTs 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 qualified truck stop
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 (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.
DEPENDENCE UPON KEY PERSONNEL
The Company's ability successfully to implement its strategy, manage the Czech
Casinos if acquired and maintain a competitive position will depend in a large
part on the ability of Andrew Tottenham, the Company's President and Chief
Executive Officer. Mr. Tottenham is a well-known international gaming
consultant and provides the Company with an extensive network of worldwide
contacts in the gaming industry, as well as experience and expertise in
international casino development, marketing and management. The Company may
also be highly dependent upon other key employees, casino managers and
consultants whom the Company may retain from time to time. Although Mr.
Tottenham has an employment agreement with the Company that continues for an
additional four years, there can be no assurances that the Company will be able
to continue to retain Mr. Tottenham or any of such other personnel.
NEED FOR ADDITIONAL FINANCING
The Company believes, although there can be no assurance, that existing cash,
together with anticipated cash flows from operations, and the net proceeds of
the Private Placement will be sufficient to satisfy its liquidity and capital
requirements for the next twelve months. After twelve months, the Company may
require additional capital in particular, after June 1999 when its operations
in Louisiana will be required to close 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
and for the construction of the third Czech casino assuming the Czech
Transaction is completed, (See Item 1 - "Description of Business"). 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.
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LICENSING AND REGULATION
The Company's operations are subject to regulation by each jurisdiction in
which it operates or plans to operate business, as well as federal laws and the
laws of any foreign country. Each of the Company's officers, 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 from
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 failure to obtain any license for properties upon which the Company plans
to operate or manage a gaming establishment in the future would have a
materially adverse effect on the Company's business. Obtaining required
licenses can be time consuming and costly with no assurance of success. In
addition, the Company is subject to changes in the laws of the jurisdictions in
which it operates, which could materially limit the Company's ability to
conduct business profitably. In the event that a required license is not
granted for any particular location, the Company's options would include
effecting a transfer of substantially all of its related gaming assets to a
different location or selling its interest in the gaming operations at that
location to a third party. There can be no assurance that the Company would be
able to relocate gaming assets or sell its interests on acceptable terms or at
all, and the inability to do so would have a materially adverse effect upon the
business and prospects of the Company.
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 does. The Company believes that competition in the
gaming industry is based on the quality and location of gaming facilities, the
effectiveness of marketing resources and customer service and satisfaction.
There are four gaming operations within five miles of the Gold Coin and one
gaming operation within five miles of the Toledo Palace, all of which contain
50 VLTs. There are also numerous restaurants, bars and hotels located near the
Gold Coin, which are limited to three VLTs each. As of January 1, 1998, 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 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
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quickly or in a timely way, or that such a licensee would agree to operate
VLTs at the Toledo Palace and the Gold Coin on terms acceptable to the
Company. There can be no assurance that Chrysolith will be able to
successfully operate the VLTs at the Gold Coin and Toledo Palace. If the
Company were required to find a replacement for Chrysolith and were unable to
do so expeditiously, its business and financial condition would be materially
adversely affected.
LIABILITY INSURANCE
The Company currently maintains and intends to maintain general liability
insurance with coverage limits of $1,000,000 per occurrence, $2,000,000 per
year in the aggregate. The Company also maintains a $1,000,000 umbrella
liability insurance policy (with a $10,000 self-insured retention). There can
be no assurance that liability claims will not exceed the coverage limits of
such policies or that such insurance will continue to be available on
commercially reasonable terms or at all. There can be no assurance that such
insurance will be adequate to cover unanticipated liabilities.
NO DIVIDENDS
The Company has not paid any dividends to date on its Common Stock, and does
not expect to declare or pay any dividends in the foreseeable future. The
Company intends to retain future earnings for investment in its business.
POSSIBLE 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.
DILUTIVE EFFECT OF WARRANTS TO BE ISSUED
In connection with, and assuming the successful completion of, the Private
Placement, the Company will issue warrants to purchase approximately 9.0
million shares of the Company's Common Stock. In addition, assuming the
successful restructuring of the Senior Bonds, the Company will issue
approximately 3.2 million warrants to purchase the Company's Common Stock. The
issuance of such securities will have a dilutive effect on the Company's
earnings on a fully diluted basis.
ITEM 7. FINANCIAL STATEMENTS.
The following items are included in this Report:
<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- ----
<S> <C>
Index to Consolidated Financial Statements................................ F-1
Independent Auditor's Report.............................................. F-2
Consolidated Balance Sheet................................................ F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Change in
Stockholders Deficit .................................................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The information under the caption "Proposal for Election of Directors -
Nomination - Information about Nominees and - Other Information About
Nominees" contained in the 1998 Proxy Statement, with respect to
directors of the Company, is incorporated herein by reference. The
information concerning executive officers of the Company is included in
this Report under Item 4A, "Executive Officers of the Company."
(b) COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" contained in the 1998 Proxy Statement, is
incorporated therein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information under the captions "Executive Compensation" and
"Proposal for Election of Directors - Directors' Compensation"
contained in the 1998 Proxy Statement, is incorporated therein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Principal Shareholders and Beneficial
Ownership of Management" is contained in the 1998 Proxy Statement is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions" contained in the
1998 Proxy Statement is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Reference is made to the Exhibit Index hereinafter contained, at
Pages E-1 through E-4 of this Report.
A copy of any exhibits listed or referred to herein will be
furnished at a reasonable cost to any person who was a shareholder
of the Company as of April 19, 1998, upon written request from any
such person. Requests should be sent to: Dominick J. Valenzano,
Chief Financial Officer and Treasurer, Trans World Gaming Corp.,
One Penn Plaza, Suite 1503, New York, New York 10119-0002.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this
Annual Report on Form 10-KSB pursuant to Item 13 (a) (3):
A. Employment Agreement dated March 6, 1996 between the Company
and Stanley Kohlenberg (incorporated by reference to Exhibit
10.11 in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995 (File No. 0-25244)).
B. Employment Agreement between the Company and Dominick J.
Valenzano (incorporated by reference to Exhibit 10.12 in the
Company's Registration Statement on Form SB-2 (File No.
33-85446-A)).
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C. 1993 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.13 in the Company's Registration Statement on
Form SB-2 (File No. 33-85446-A)).
D. Consulting Agreement dated January 1, 1997 between the
Company and Stanley Kohlenberg (incorporated by reference to
Exhibit 10.23 in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996 (File No. 0-25244)).
E. Employment Agreement dated January 1, 1997 between the
Company and Andrew Tottenham (incorporated by reference to
Exhibit 10.24 in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996 (File No. 0-25244)).
F. Employment Agreement dated February 1, 1997 between the
Company and Christopher Moore (incorporated by reference to
Exhibit 10.25 in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996 (File No. 0-25244)).
G. Employment Agreement dated April 15, 1997 between the Company
and James Hardman (filed herewith).
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the last quarter of the
fiscal year ended December 31, 1997.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRANS WORLD GAMING CORP.
(registrant)
Dated: March 30, 1998 By: /s/ Andrew Tottenham
--------------------------------------
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below the following persons on behalf of the Registrant
on March 30, 1998 in the capacities indicated.
SIGNATURE AND TITLE
/s/ Andrew Tottenham
------------------------------------------
Andrew Tottenham
President, Chief Executive Officer
(principal executive officer), and Director
/s/ Dominick J. Valenzano
------------------------------------------
Dominick J. Valenzano
Chief Financial Officer, Treasurer
(principal financial and accounting
officer), and Director
/s/ Stanley Kohlenberg
------------------------------------------
Stanley Kohlenberg
Chairman and Director
23
<PAGE>
TRANS WORLD GAMING CORP.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Item No. Item Method of Filing
- -------- ---- ----------------
<S> <C> <C>
3.1 Articles of Incorporation Incorporated by reference to
Exhibit 3.1 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
3.2 By-laws Incorporated by reference to
Exhibit 3.2 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
4.1 Specimen Common Stock Certificate Incorporated by reference to
Exhibit 4.1 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
4.2 Specimen Redeemable Common Stock Incorporated by reference to
Purchase Warrant Exhibit 4.2 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
4.3 Form of Warrant Agreement Incorporated by reference to
Exhibit 4.3 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
4.4 Confidential Private Placement Incorporated by reference to
Memorandum dated June 30, 1999 Exhibit 4.4 contained in Form 10-
KSB for the fiscal year ended
December 31, 1996. (File No. 0-
25244)
4.5 Supplement No. 1 dated January 14, Incorporated by reference to
1997 to Confidential Private Exhibit 4.5 contained in Form 10-
Placement Memorandum dated June KSB for the fiscal year ended
30, 1999 December 31, 1996. (File No. 0-
25244)
4.6 Indenture dated as of November 1, Incorporated by reference to
1996 between the Company and Trans Exhibit 4.6 contained in Form 10-
World Gaming of Louisiana, Inc., KSB for the fiscal year ended
as Issuer, and U.S. Trust Company December 31, 1996. (File No. 0-
of Texas, N.A., as Trustee 25244)
4.7 Form of 12% Secured Convertible Incorporated by reference to
Senior Bond due June 30, 1999 Exhibit 4.7 contained in Form 10-
KSB for the fiscal year ended
December 31, 1996. (File No. 0-
25244)
4.8 Form of Warrant to Purchase Common Incorporated by reference to
Stock Dated July 1, 1996 Exhibit 4.8 contained in Form 10-
KSB for the fiscal year ended
December 31, 1996. (File No. 0-
25244)
4.9 Form of Warrant for Purchase of Incorporated by reference to
Shares of Common Stock dated Exhibit 4.9 contained in Form 10-
January 1, 1997 KSB for the fiscal year ended
December 31, 1996. (File No. 0-
25244)
4.10 Form of Non-Negotiable Promissory Incorporated by reference to
Note dated January 1, 1997 Exhibit 4.10 contained in Form 10-
KSB for the fiscal year ended
December 31, 1996. (File No. 0-
25244)
4.11 First Amended Senior Secured Filed Electronically.
Promissory Note
E-1
<PAGE>
dated December 19, 1997
4.12 Form of Warrant for Purchase of Filed Electronically.
Shares of Common Stock dated
January 15, 1998
4.13 Lenders Waiver and Option Filed Electronically.
Agreement dated March 9, 1998
10.1 Agreement for Exchange of Shares Incorporated by reference to
dated July 13, 1994, between the Exhibit 10.1 contained in the
Company and the shareholders of registration statement on Form SB-
Lee Young Enterprises, Inc. 2 (File No. 33-85446-A).
10.2 Asset Purchase Agreement dated as Incorporated by reference to
of September 21, 1994, between the Exhibit 10.2 contained in the
Company and Chrysolith, L.L.C. registration statement on Form SB-
2 (File No. 33-85446-A).
10.3 Agreement of Sale dated as of Incorporated by reference to
September 21, 1994, between the Exhibit 10.3 contained in the
Company and Prime Properties, Inc. registration statement on Form SB-
2 (File No. 33-85446-A).
10.4 Form of Lease between Prime Incorporated by reference to
Properties, Inc. and the Company. Exhibit 10.4 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
10.5 Agreement dated September 21, Incorporated by reference to
1994, among Chrysolith, L.L.C., Exhibit 10.5 contained in the
Prime Properties, Inc., Monarch registration statement on Form SB-
Casinos, Inc. of Louisiana 2 (File No. 33-85446-A).
("Monarch") and the Company
10.6 Asset Purchase Agreement dated Incorporated by reference to
September 21, 1994, between Exhibit 10.6 contained in the
Chrysolith L.L.C. and Monarch registration statement on Form SB-
2 (File No. 33-85446-A).
10.7 Lease (with option) dated May 10, Incorporated by reference to
1994 among Lula Miller, Inc., Exhibit 10.7 contained in the
Charles A. Jones III and Kelly registration statement on Form SB-
McCoy Jones, as Lessor, and 2 (File No. 33-85446-A).
Monarch, as Lessee.
10.8 Offer to Purchase dated October 4, Incorporated by reference to
1994, among Trans World Gaming of Exhibit 10.8 contained in the
Louisiana, Inc., Monarch, Lula registration statement on Form SB-
Miller, Inc., Charles A. Jones III 2 (File No. 33-85446-A).
and Kelly McCoy Jones.
10.9 Memorandum of Agreement dated Incorporated by reference to
March 18, 1994 between the Company Exhibit 10.9 contained in the
and Yves Gouhier and Camille registration statement on Form SB-
Costard to acquire shares of 2 (File No. 33-85446-A).
Casino Cherbourg, S.A., as amended
(English translation, except
amendment is in French).
10.10 Shareholder Agreement dated April Incorporated by reference to
7, 1994, between the Company and Exhibit 10.10 contained in the
Michael A. Edwards, as the registration statement on Form SB-
shareholders of Monarch 2 (File No. 33-85446-A).
10.11 Employment Agreement dated March Incorporated by reference to
6, 1996 between the Company and Exhibit 10.11 contained in the
Stanley Kohlenberg Form 10-KSB for the fiscal year
ended December 31, 1995 (File No.
0-25244).
E-2
<PAGE>
10.12 Employment Agreement between the Incorporated by reference to
Company and Dominick J. Valenzano Exhibit 10.12 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
10.13 1993 Incentive Stock Option Plan Incorporated by reference to
Exhibit 10.13 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
10.14 Form of 41/2% Bridge Note Incorporated by reference to
Exhibit 10.14 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
10.15 Form of 10% Secured Bridge Incorporated by reference to
Exhibit 10.15 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
10.16 Collateral Mortgage relating to Incorporated by reference to
the Woodlands Travel Plaza. Exhibit 10.16 contained in the
registration statement on Form SB-
2 (File No. 33-85446-A).
10.17 Operating Agreement dated as of Incorporated by reference to
December 22, 1994 between the Exhibit 10.17 contained in the
Company and Chrysolith relating to Form 10-KSB for the fiscal year
the Gold Coin. ended December 31, 1994 (File No.
0-25244).
10.18 Note in principal amount $75,000 Incorporated by reference to
payable by Monarch (and assumed by Exhibit 10.18 contained in the
the Company). Form 10-KSB for the fiscal year
ended December 31, 1994 (File No.
0-25244).
10.19 Lease Agreement dated May 1, 1993 Incorporated by reference to
between National Auto/Truck Stops, Exhibit 10.19 contained in the
Inc. and Prime Properties with Form 10-KSB for the fiscal year
respect to the 76 Plaza ended December 31, 1995 (File No.
0-25244).
10.20 Agreement and General Release Incorporated by reference to
dated as of March 6, 1996 between Exhibit 10.20 contained in the
the Company and R. K. Merkey. Form 10-KSB for the fiscal year
ended December 31, 1995 (File No.
0-25244).
10.21 Forbearance Agreement dated Incorporated by reference to
January 19, 1996 between the Exhibit 10.21 contained in the
Company and Chrysolith Form 10-KSB for the fiscal year
ended December 31, 1995 (File No.
0-25244).
10.22 Letter Agreement dated January 30, Incorporated by reference to
1996 between the Company and Exhibit 10.22 contained in the
Chrysolith regarding forbearance Form 10-KSB for the fiscal year
payments ended December 31, 1995 (File No.
0-25244).
10.23 Consulting Agreement dated January Incorporated by reference to
1, 1997 between the Company and Exhibit 10.23 contains in Form 10-
Stanley Kohlenberg KSB for the fiscal year ended
December 31, 1996 (File No. 0-
25244).
10.24 Employment Agreement dated January Incorporated by reference to
1, 1997 between the Company and Exhibit 10.24 contains in Form 10-
Andrew Tottenham KSB for the fiscal year ended
December 31, 1996 (File No. 0-
25244).
10.25 Employment Agreement date February Incorporated by reference to
1, 1997 between the Company and Exhibit 10.25 contains in Form 10-
Christopher Moore KSB for the fiscal year ended
December 31, 1996 (File No. 0-
25244).
E-3
<PAGE>
10.26 Cancellation Agreement dated as of Incorporated by reference to
October 3, 1996 between the Exhibit 10.26 contained in the
Company and Mid-City Associates Form 10-KSB for the fiscal year
ended December 31, 1996 (File No.
0-25244).
10.27 Agreement of Lease dated as of Incorporated by reference to
October 2, 1996 between the Exhibit 10.27 contained in the
Company and Mid-City Associates Form 10-KSB for the fiscal year
ended December 31, 1996 (File No.
0-25244).
10.28 Stock Purchase Agreement dated as Incorporated by reference to
of January 1, 1997 among the Exhibit 10.28 contained in the
Company, Andrew Tottenham and Form 10-KSB for the fiscal year
Robin Tottenham ended December 31, 1996 (File No.
0-25244).
10.29 Employment Agreement dated April Filed electronically.
15, 1997 between Company and James
Hardman
10.30 Stock Purchase Agreement dated as Filed electronically.
of January 20, 1998 between the
Company and 21st Century Resorts
10.31 Form of the Subscription Agreement Filed electronically.
for the Private Placement
10.32 Escrow Agreement dated March 17, Filed electronically.
1998 among the Company, TWG
Finance Corp., TWG International
U.S. Corporation as Issuer and
U.S. Trust Company of Texas, N.A.,
as Trustee
16.1 Letter from Bederson & Co. (the Incorporated by reference to
Company's former independent Exhibit 16.1 contained in the Form
public accountants) relating to a 10-KSB for the fiscal year ended
change of accountants December 31, 1995 (File No. 0-
25244).
21.1 Subsidiaries Incorporated by reference to
Exhibit 21.1 contained in the Form
10-KSB for the fiscal year ended
December 31, 1995 (File No. 0-
25244).
27.1 Financial Data Schedule Filed electronically.
E-4
</TABLE>
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
DECEMBER 31, 1997
Table of Contents
Page
Independent Auditor's Report F-2
Consolidated Balance Sheet at December 31, 1997 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 F-4
Consolidated Statements of Changes in Stockholders' (Deficit)
for the years ended December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Trans World Gaming Corp.
We have audited the accompanying consolidated balance sheet of Trans World
Gaming Corp. and Subsidiaries as of December 31, 1997, and the related
statements of operations, changes in stockholders' (deficit) and cash flows for
each of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Trans World Gaming
Corp. and Subsidiaries at December 31, 1997, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
The voters in the parishes in Louisiana where the Company's video poker
operations are located voted to eliminate video poker. As a result, the
Company must cease its video poker operations by June 30, 1999. In addition,
due to legal proceedings, the continuous usage of the gaming license for one of
the established video poker operations is uncertain. In an effort to diversify
their revenue stream from video poker operations, the Company has acquired
certain businesses and entered into consulting agreements during 1997 (see note
1).
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the
preceding paragraph, there is no assurance that the current operations will
continue and be sufficient to generate cash flows or working capital to fund
operations and to meet debt service payments. This raises substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. However, as more fully described in note 10, the
Company has executed definitive agreements relating to the acquisition of two
operating casinos in the Czech Republic and a private placement of debt
securities to raise $17 million, and, has an agreement in principle with
respect to the restructuring of its debt, all of which are scheduled to close
on March 31, 1998. Management believes that these transactions will provide
sufficient cash flow to fund operations and meet debt service payments as they
become due.
PANNELL KERR FORSTER PC
New York, NY
February 25, 1998, except for note 10 as
to which the date is March 24, 1998
F-2
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1997
Assets
<TABLE>
<CAPTION>
<S> <C>
Current assets
Cash $ 198,056
Accounts and other receivable,
(net of allowance for doubtful
accounts of $37,000) 422,407
Inventories 57,488
Other current assets 80,431
-------------
Total current assets 758,382
Property held for sale 400,000
Equipment, net 25,676
Investment at equity 75,000
Deferred debt issuance costs, net 483,925
Deposits and deferred costs on investments 363,239
Goodwill 653,900
Deferred costs and other assets 310,348
-------------
Total assets $ 3,070,470
-------------
Liabilities and Stockholders' (Deficit)
Current liabilities
Current portion of long-term debt $ 846,190
Accounts payable and accrued expenses 800,947
-------------
Total current liabilities 1,647,137
-------------
Long-term debt, net of current portion 5,149,687
-------------
Commitments and contingencies
Stockholders' (deficit)
Capital stock
Preferred stock, $.001 par value
per share; 2,000,000 shares authorized;
none issued - Common stock, $.001 par value
per share; 3,044
50,000,000 shares authorized;
3,044,286 shares issued and outstanding
Additional paid-in capital 8,895,960
Stock warrants outstanding 536,812
Accumulated (deficit) (13,162,170)
-------------
Total stockholders' (deficit) (3,726,354)
-------------
Total liabilities and stockholders' (deficit) $ 3,070,470
-------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended
December 31
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues
Gaming revenues $ 4,109,507 $ 3,892,238
Truck stop sales 2,707,071 2,762,696
Consulting services 84,444 -
------------ ------------
Total revenues 6,901,022 6,654,934
------------ ------------
Costs and expenses
Gaming 1,151,420 1,136,109
Truck stop 2,333,317 2,454,342
Selling, general and administrative 2,197,044 1,804,101
Amortization and depreciation 344,415 1,098,990
Gaming development 39,305 101,083
Impairment loss - 11,383,100
------------ ------------
Total costs and expenses 6,065,501 17,977,725
------------ ------------
Income (loss) before interest expense and taxes 835,521 (11,322,791)
Interest expense 755,741 1,117,529
------------ ------------
Income (loss) before Federal and State
income taxes 79,780 (12,440,320)
Federal and State income taxes - 320,000
------------ ------------
Net income (loss) 79,780 (12,760,320)
------------ ------------
Net income (loss) per share of common stock - basic .03 (5.02)
------------ ------------
Net income (loss) per share of common stock -
assuming dilution .02 (5.02)
------------ ------------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' (Deficit)
<TABLE>
<CAPTION>
Additional Stock
Common Paid-in Warrants Accumulated
Shares Stock Capital Outstanding (Deficit) Total
--------- -------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 2,544,286 $ 2,544 $ 8,599,560 $ - $ (481,630) $ 8,120,474
Issuance of stock warrants - - - 536,812 - 536,812
Net (loss) - - - - (12,760,320) (12,760,320)
------------ ------------
Balance at December 31, 1996 2,544,286 2,544 8,599,560 536,812 (13,241,950) (4,103,034)
Issuance of stock - Acquisition of
Tottenham & Co. 500,000 500 296,400 - - 296,900
Net income - - - - 79,780 79,780
--------- -------- ------------ ----------- ------------ ------------
Balance at December 31, 1997 3,044,286 $ 3,044 $ 8,895,960 $ 536,812 $(13,162,170) $(3,726,354)
--------- -------- ------------ ----------- ------------ ------------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
December 31
--------------------------
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 79,780 $(12,760,320)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Provision for doubtful accounts 32,000 5,000
Amortization of discount on note payable 11,080 -
Impairment loss - 11,383,100
Amortization and depreciation 344,415 1,098,990
Deferred income tax - 320,000
Amortization of debt issuance cost 39,600 436,612
Accrued interest included in note payable 20,004 -
Changes in certain other accounts
Accounts and other receivables (57,085) (120,540)
Inventories (1,000) (13,160)
Other current assets 28,482 (50,902)
Accounts payable and accrued expenses 324,034 142,795
------------- ------------
Net cash provided by operating activities 821,310 441,575
------------- ------------
Cash flows from investing activities
Deposits and deferred costs on investments (363,239) (15,000)
Purchase of equipment (7,846) (11,943)
Payment for consulting agreement (315,327) -
------------- ------------
Net cash (used) by investing activities (686,412) (26,943)
------------- ------------
Cash flows from financing activities
Debt issuance costs (35,059) (1,027,757)
Proceeds from bridge loan 350,000 375,000
Payment of bridge loan (350,000) (375,000)
Proceeds from long-term debt 762,982 4,800,000
Payment of long-term debt (1,153,620) (3,913,881)
------------- ------------
Net cash (used) by financing activities (425,697) (141,638)
------------- ------------
(Decrease) increase in cash (290,799) 272,994
Cash at beginning of year 488,855 215,861
------------- ------------
Cash at end of year $ 198,056 $ 488,855
------------- ------------
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Year Ended
December 31
--------------------------
1997 1996
------------- ------------
<S> <C> <C>
Schedule of noncash investing and financing
activities
Issuance of stock warrants with debt $ - $ 536,812
------------- ------------
Goodwill acquired through issuance of notes
payable 378,200 -
------------- ------------
Goodwill acquired through issuance of
common stock 296,900 -
------------- ------------
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 677,707 $ 684,461
------------- ------------
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION
Trans World Gaming Corp. (the "Company"), a Nevada corporation is engaged in
the gaming business through local gaming properties featuring video poker
parlors. The Company seeks to retain some or all of the key management, and
expand the operations of each gaming property acquired. The Company seeks
further geographical diversification of its acquisitions in order to insulate
its properties from regional economic and legislative influences.
GAMING OPERATIONS
The Company's only gaming operations to date are two video poker parlors ("Gold
Coin" and "Toledo Palace") in Louisiana. The Gold Coin was acquired during
1994 and the Toledo Palace commenced operations in October 1995. Both are
situated at truck stops. The Company's video poker operations in Louisiana are
managed by Chrysolith, LLC ("Chrysolith"), a Louisiana licensed video gaming
operator in which the Company owns 49% of its Class B membership units.
In November 1996, the voters in the parishes in Louisiana where the Company's
video poker operations are located voted to eliminate video poker. As a
result, the Company must cease its video poker operations by June 30, 1999.
Chrysolith, with two other major video operators in Louisiana, filed suit
against the State of Louisiana for redress of violation of constitutional
rights, declaring the local option gaming elections void. On January 30, 1998
the Louisiana Supreme Court denied a writ application filed by Chrysolith
effectively ending the election code challenge to the video poker referenda.
The suit will proceed to Federal Court on a Federal civil rights violation.
The Company, in 1996, reviewed the carrying amount of the long-lived assets,
identifiable intangibles and goodwill related to those video poker parlors and
the truck stops at which the video poker parlors are located. Based on a
comparison of the recorded values of those assets against the expected future
cash flows to be generated by the video poker parlors, the Company recorded an
asset impairment charge of $10,686,656, representing the unamortized deferred
license cost, deferred participant fee and goodwill. The Company is offering
for sale an associated truck stop property. Upon reviewing the fair value of
that property which was less than the carrying amount, an impairment writedown
of $696,444 was recorded in 1996.
The Company intends to continue operating the Gold Coin and the Toledo Palace
as they are presently being operated. However, the Company has made available
for sale its Woodlands truck stop (the site of the Toledo Palace). Because
this property is collateral for existing debt, any proceeds from its sale is
unlikely to be available for general corporate purposes without the approval of
the lenders.
The Company had entered into a sublease agreement with Prime Properties, Inc.,
the lesser of the Gold Coin facility, that includes the right to operate under
its gaming license. In January 1998, Prime Properties, Inc. filed a voluntary
Chapter 11 petition under the U.S. Bankruptcy Code in an attempt to avoid the
threatened cancellation by its lessor of its lease of the truck stop premises.
Since the gaming license for the truck stop is held by Prime Properties, Inc.,
cancellation of the lease could have a materially adverse affect upon the
business of the Company.
1997 ACTIVITY
In January 1997, the Company purchased Art Marketing, Ltd. d/b/a Tottenham &
Co., a United Kingdom corporation. Andrew Tottenham, who became president of
the Company on January 1, 1997, was the principal stockholder and chief
executive officer of the company acquired. The
F-8
<PAGE>
purchase price of $496,900 was paid for by the issuance of 500,000 shares of
the Company's common stock and the delivery of 10% promissory notes in the
aggregate principal amount of $200,000 (note 5). Tottenham & Co., an
international gaming consultory, provides clients in the United States and
abroad with assistance in corporate strategy development, mergers and
acquisitions, feasibility studies, operational reviews, and casino
development.
In March 1997, Tottenham & Co. signed a twenty-year consulting agreement with
the owner and operator of Boxer Casino located in Gyandja, Azerbaijan Republic.
Under the agreement, the Company provided approximately $315,000 for funding of
renovations and equipment, and will provide consultation services with respect
to the casino's operations. The consulting fees are equal to 40% of the
operating profits. In January 1998, the President of the Azerbaijan Republic
temporarily closed all bars, night clubs, restaurants and casinos including the
Boxer Casino. As of February 25, 1998 the casino had not yet reopened,
however, the Company believes the closing will not be permanent.
On April 15, 1997, the Company acquired 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 (see note 5). In addition, the
Company entered into a five-year employment agreement with Mr. James Hardman,
Jr., the previous owner of MATS. Mr. Hardman will also receive ten percent
(10%) of all MATS sales as a license royalty. MATS markets various software
programs that assist casino operators to perform a variety of functions
including accounting, maintenance control and management, and player tracking.
GOING CONCERN
The Company's consolidated financial statements have been prepared on the basis
that it is a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company
has neither established a trend of profitable operations nor a sufficient cash
flow without outside financing. Furthermore, the Company has working capital
and net capital deficiencies.
Although the Company believes that existing cash and anticipated cash flow from
current operations will be sufficient to satisfy its liquidity and capital
requirements for 1998, it continues to explore avenues to raise additional
financing through the private placement of debt securities (see note 10).
However, no assurance can be given that the Company will achieve a level of
profitable operations that will generate sufficient cash flow or that the
Company will be successful in obtaining additional financing.
USE OF ESTIMATES
Management makes estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Certain estimates used by management are particularly susceptible to
significant changes, such as the useful lives and recoverability of the
carrying amount of property held for sale, deferred costs, and goodwill.
Management believes that, as of December 31, 1997, the estimates used are
adequate based on the information currently available.
NOTE - 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All intercompany
F-9
<PAGE>
transactions and balances have been eliminated in consolidation.
CASH
Cash consists of cash in banks and on hand. The Company maintains its bank
accounts at several financial institutions and at times, cash on deposit
exceeded the insured limits. The Company has not experienced any loss on its
deposits.
DEPRECIATION METHODS
The cost of equipment is depreciated over estimated useful lives of 5 and 7
years. Depreciation is computed on straight-line and accelerated methods for
both financial reporting and income tax purposes. Depreciation of the property
ceased upon it becoming available for sale.
AMORTIZATION
Goodwill represents the excess of cost of companies acquired over the fair
value of their assets at dates of acquisition and is being amortized on a
straight-line method over 15 years. During 1997, the Company allocated the
entire purchase price of Tottenham & Co. ($496,900) and MATS ($193,200 - net of
promissory note discount) to goodwill. Goodwill is reflected in the
accompanying consolidated balance sheet net of $36,200 of accumulated
amortization.
The carrying value of goodwill is periodically reviewed by the Company based
upon the expected future undiscounted operating cash flows of the related
business. Based upon its most recent analysis, the Company believes that no
material impairment of goodwill exists.
GAMING DEVELOPMENT COSTS
Gaming development costs incurred in connection with the pursuit and
development of new gaming projects in various jurisdictions are expensed as
incurred.
INVENTORIES
Inventories are stated at the lower of cost determined by the first-in, first-
out method or market. Inventories consist of truck stop fuel and retail store
items.
RECLASSIFICATION
Certain items reflected in the 1996 financial statements and notes thereto have
been reclassified to conform to the 1997 presentation.
INVESTMENT CARRIED AT EQUITY
The investment is carried at cost and adjusted for the Company's proportionate
share of undistributed earnings or losses (see note 8).
INCOME TAXES
The Company follows the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and for the expected future tax benefit to be
derived from tax loss carryforwards. Deferred tax assets and liabilities are
measured using the enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled or when a benefit
is derived. Deferred tax assets are reflected at their likely realizable
amount.
F-10
<PAGE>
NET INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128
(SFAS 128), "Earnings per Share". SFAS 128 replaced the calculation of primary
and fully diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements.
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Income Per Share
(Loss) Shares Amount
------------- --------- ---------
<S> <C> <C> <C>
1997
Earnings per share of common stock - basic $ 79,780 3,044,286 $ .03
Dilutive securities
Stock options - 131,514 -
Warrants - 655,186 -
------------- --------- ---------
Earnings per share of common stock -
assuming dilution 79,780 3,830,986 .02
------------- --------- ---------
1996
(Loss) per share of common stock - basic $(12,760,320) 2,544,286 $ (5.02)
------------- --------- ---------
</TABLE>
In 1996 diluted (loss) per share is the same as basic since the inclusion of
stock options, warrants and convertible debt would be antidilutive.
For 1997, there were outstanding stock options and warrants not included in the
computation of diluted earnings per share of common stock because the options
and warrants exercise price was greater than the average market price of the
common shares. In 1997, the number of stock options and warrants not included
in the computation were 304,500 and 2,773,715, respectively. Additionally, the
effects on earnings per share of the 12% secured convertible bonds (see note
5), which are convertible into 2.5 million shares of common stock, would have
been antidilutive and therefore are not included in the above computation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable, accrued expenses and long-term debt
approximate fair values.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Therefore, the estimates are not necessarily
indicative of the amounts which could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amount.
DEFERRED DEBT ISSUANCE COSTS
Costs incurred in connection with the Company's debt financing have been
deferred and are being amortized on a straight-line basis over the term of the
related debt. Amortization expense amounted to $275,385 and $126,212 for the
years ended 1997 and 1996, respectively, and are reflected as amortization
expense in the accompanying consolidated statement of operations.
F-11
<PAGE>
Costs assigned to detachable warrants, included as part of debt financing, have
also been deferred and are being amortized on a straight-line basis over the
term of the respective debt. Amortization expense amounted to $39,600 and
$19,800 in 1997 and 1996, respectively, and are included as a component of
interest expense in the accompanying consolidated statement of operations.
Additionally, warrants issued in connection with a 1996 bridge financing were
valued at $416,812 and were amortized to interest expense during 1996.
Deferred debt issuance costs is reflected in the accompanying consolidated
balance sheet net of $460,997 of accumulated amortization.
NOTE 3 - DEPOSITS AND DEFERRED COSTS ON INVESTMENTS
In October 1997, the Company paid a $178,487 non-refundable deposit to acquire
90% of the shares of the Casino de Zaragaza which holds an exclusive license
for the operation of a casino in the Aragon region in Spain. Subsequently, the
Company withdrew from this transaction; however, renegotiations of the terms
which include the deposit are proceeding in 1998.
The Company has paid a $40,000 deposit and has incurred $144,752 of costs in
connection with the acquisition of the casinos in the Czech Republic (see note
10).
Management believes that these amounts will be either returned or applied
towards the costs of the respective acquisitions in 1998. Accordingly such
amounts have been reflected as an asset in the accompanying consolidated
balance sheet.
NOTE 4 - EQUIPMENT
Equipment is recorded at cost and is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment 53,672
Office equipment 27,247
------
Total 80,919
Less accumulated depreciation 55,243
------
Net equipment 25,676
------
</TABLE>
Depreciation charged to operations for the years ended December 31, 1997 and
1996 amounted to $17,597 and $106,834, respectively.
NOTE 5 - LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
12% Secured Convertible Senior Bonds due June 30, 1999.
Interest only is payable semi-annually (a) $ 4,800,000
12% Senior Secured Promissory Note which requires quarterly 762,981
payments based on Company operations, as defined.
Payments are applied first to interest and the balance
to reduction of principal. The note matures December
31, 1998. (b)
Unsecured notes payable in the aggregate of $200,000, plus 220,004
F-12
<PAGE>
accrued interest, in connection with the acquisition of
Tottenham & Co. Principal and unpaid accrued interest at
10% per annum, is due January 1, 2002. (c)
Unsecured note payable in connection with the acquisition 189,280
of Multiple Application Tracking Systems, Inc., payable
in three equal annual installments, without interest, of
$78,333 commencing on November 1, 1998. The note
matures on November 1, 2000. (d)
Note payable in connection with the purchase of equipment, 23,612
requires monthly payments of $4,922, applied first to ---------
interest at an annual rate of 17% and the balance to
reduction of principal. The note matures May 1, 1998.
Total long-term debt 5,995,877
Less current portion 846,190
---------
Long-term portion 5,149,687
---------
</TABLE>
(a) The bonds are secured by the assets of the Louisiana properties. The
bonds are convertible by the holder at a conversion price of $2 per share
through June 30, 1997; at $2.50 per share until June 30, 1998; and, at
$3.125 per share thereafter. The Company may redeem the bonds at 100% of
the principal amount within six months following a public offering that
raises not less than $6 million. (See note 10).
(b) The Company has the ability to borrow up to $4,125,000. Value
Partners ("the holder") is entitled to warrants to purchase shares of
the Company's common stock equal to .1714 warrants for each dollar
advanced to a maximum of 707,025 warrants. The warrants have an
exercise price of $.50 per share and expire on December 31, 1999. As of
December 31, 1997 the holder advanced $762,981 to the Company, and in
connection therewith, the Company issued 130,775 warrants. A portion of
the proceeds were used to satisfy the principal ($350,000) and accrued
interest ($22,973) on a bridge loan obtained in June 1997.
In January 1998 the holder advanced $525,000 to the Company which was
used as a deposit on the Czech Republic transaction (see note 10), in
connection therewith the Company issued an additional 89,985 warrants.
(c) Interest may be payable in cash on July 1 and January 1 of each
year or at the option of the holder added to principal. In 1997,
interest amounting to $20,004 was added to principal. Beginning January
1, 1998 the notes are convertible to shares of the Company's common
stock at a conversion price of $1.00 per share at the option of the
holder. Such convertibility feature will vest at a rate of 20% per year
through January 2002. However, if the Company completes a registered
public offering during the term of the note, the note shall immediately
become 100% vested and fully convertible.
(d) The $235,000 note payable has been discounted at an interest rate
of 10% to its net present value of $178,200. At December 31, 1997 the
unamortized discounted amounted to $45,720. In addition, the amount of
discount amortized to interest expense during 1997 totaled $11,080.
F-13
<PAGE>
Maturities of long-term debt, excluding the potential effects of the amended
terms of the Senior Bonds as discussed in note 10, is as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 846,190
1999 4,865,638
2000 64,045
2001 -
2002 220,004
----------
Total $5,995,877
----------
</TABLE>
NOTE 6 - INCOME TAXES
Components of the Company's provision for income taxes consisted of the
following:
<TABLE>
<CAPTION>
For Year Ended
December 31
-----------------------
1997 1996
--------- --------
<S> <C> <C>
Current $ - $ -
--------- --------
Deferred
Federal - 255,000
State - 65,000
--------- --------
Total deferred - 320,000
--------- --------
Total provision for income taxes $ - $320,000
--------- --------
</TABLE>
The deferred tax asset (liability) consists of the following:
<TABLE>
<CAPTION>
December 31
--------------------------
1997 1996
----------- ------------
<S> <C> <C>
Deferred tax assets
Loss carryforwards $ 1,092,000 $ 804,000
Impairment loss reserve 4,008,000 4,311,000
Equipment and other 21,000 -
----------- ------------
5,121,000 5,115,000
Deferred tax liabilities
Amortization of deferred costs - (132,000)
----------- ------------
Net deferred tax assets 5,121,000 4,983,000
Valuation allowance $(5,121,000) $(4,983,000)
----------- ------------
F-14
<PAGE>
Total - -
</TABLE>
The Company has recorded a valuation allowance to offset the entire net
deferred tax asset since its future utilization is uncertain.
The provision for income taxes differs from the amount computed at the Federal
statutory income tax rate as a result of the following:
<TABLE>
<CAPTION>
For Year Ended
December 31
--------------------
1997 1996
-------- -----------
<S> <C> <C>
Federal tax expense (benefit) at statutory rate $ 27,100 $(4,230,000)
Effect of net operating loss carryforward and
valuation allowance (27,100) 4,550,000
Federal and State income taxes - 320,000
</TABLE>
The Company has net operating loss carryforwards available for income tax
reporting purposes of approximately $2,800,000 expiring in the years 2009
through 2012.
NOTE 7 - STOCKHOLDERS' (DEFICIT)
WARRANTS
In 1997, the Company issued 250,000 warrants at an exercise price of $0.59 per
share and 130,775 warrants at an exercise price of $0.50 per share in
connection with the acquisition of Tottenham & Co. and the senior secured
promissory note (see note 5), respectively. The warrants include demand
registration rights and anti-dilution provisions.
Information concerning warrants is summarized for 1997, as follows:
<TABLE>
<CAPTION>
Outstanding Outstanding Exercisable
Price Beginning End of End of Expiration
Per Share of Year Granted Year Year Date
- ----------- ------------ --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 8.50 1,511,429 - 1,511,429 1,511,429 12/15/99
11.55 151,143 - 151,143 151,143 12/15/99
13.50 151,143 - 151,143 151,143 12/15/99
.01 299,925 - 299,925 299,925 03/26/02
.01 199,950 - 199,950 199,950 06/03/02
1.00 960,000 - 960,000 960,000 06/30/01
.50 - 130,775 130,775 130,775 12/31/99
.59 - 250,000 250,000 250,000 12/31/01
------------ --------- ----------- ----------- ----------
3,273,590 380,775 3,654,365 3,654,365
------------ --------- ----------- -----------
</TABLE>
There were no warrants exercised and no warrants expired during 1997. As
described in note 5(b), the Company issued an additional 89,985 warrants on
January 15, 1998.
The warrants to purchase 499,875 shares of the Company's common stock at $.01
also contain anti-dilution provisions which are appropriate to maintain the
percentage ownership of the holder in the common stock of the Company on a
fully dilutive basis.
F-15
<PAGE>
STOCK WARRANTS OUTSTANDING
During 1996, the Company issued detachable warrants in connection with certain
debt financing. The difference between the value assigned to the warrant and
the exercise price has been reflected as a separate component of shareholders'
equity. There was no value assigned to the warrants issued in 1997.
STOCK OPTION PLANS
The Company has incentive and nonstatutory stock option plans under which
certain key employees may purchase up to a total of 500,000 common shares of
the Company. Under the incentive stock option plan, the exercise price can not
be less than the fair market value of a share on the date of grant or at 110
percent of the fair market value on the date of grant, if, any employee owns
more than 10 percent of the total combined voting
power of all classes of outstanding stock of the Company. In addition the
incentive stock option plan provides for an automatic grant of an option to
purchase 1,000 shares of common stock to non-employee directors on a quarterly
basis. In the case of a nonstatutory stock option, the exercise price may be
any amount determined by the Board on the date of grant, but not less than the
par value of the stock subject to the option.
Information concerning stock options is summarized for 1997, as follows:
<TABLE>
<CAPTION>
Option Outstanding Outstanding Exercisable
Price Beginning End of End of
Per Share of Year Granted Expired Year Year
- --------- ----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 3.13 21,000 - - 21,000 21,000
1.44 25,000 - - 25,000 25,000
.91 25,000 - - 25,000 25,000
1.59 20,000 - - 20,000 20,000
1.59 2,000 - - 2,000 2,000
1.00 147,000 - - 147,000 147,000
7.00 320,000 - (320,000) - -
9.00 12,500 - - 12,500 12,500
.30 - 211,000 - 211,000 211,000
1.00 - 2,000 - 2,000 2,000
.56 - 2,000 - 2,000 2,000
.35 - 2,000 - 2,000 2,000
1.31 - 25,000 - 25,000 25,000
2.00 - 25,000 - 25,000 25,000
----------- --------- -------- ----------- -----------
572,500 267,000 (320,000) 519,500 519,500
----------- --------- -------- ----------- -----------
</TABLE>
Information concerning stock options is summarized for 1996, as follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
Option Outstanding Outstanding Exercisable
Price Beginning End of End of
Per Share of Year Granted Expired Year Year
- --------- ----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 3.13 50,000 - (29,000) 21,000 21,000
7.00 320,000 - - 320,000 320,000
9.00 12,500 - - 12,500 12,500
1.44 - 25,000 - 25,000 25,000
0.91 - 25,000 - 25,000 25,000
1.59 - 20,000 - 20,000 20,000
1.59 - 2,000 - 2,000 2,000
1.00 - 147,000 - 147,000 147,000
----------- --------- -------- ----------- -----------
382,500 219,000 (29,000) 572,500 572,500
----------- --------- -------- ----------- -----------
</TABLE>
There were no options exercised during 1997 and 1996. The option price per
share was equal to or above the market value of the underlying stock on the
date of grant. Options generally expire five years after the date of grant or
earlier upon termination as defined in the plan.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans and, accordingly, no compensation cost
has been recognized because stock options granted under the plans were at
exercise prices which were equal to or above the market value of the underlying
stock at date of grant. Had compensation expense been determined as provided
in SFAS 123 using the Black-Sholes option-pricing model, the pro forma effect
on the Company's net income (loss) and per share amounts would have been:
<TABLE>
<CAPTION>
1997 1996
--------- -------------
<S> <C> <C>
Net income (loss)
As reported $ 79,780 $(12,760,320)
Pro forma (55,450) (12,951,300)
Income (loss) per share
Basic
As reported .03 (5.02)
Pro forma (.02) (5.09)
Assuming dilution
As reported .02 (5.02)
Pro forma (.02) (5.09)
</TABLE>
The fair value of each option grant is calculated using the following weighted
average assumptions:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Expected life (years) 5 5
Interest rate 6.67% 6.27%
Volatility 135.88% 109.96%
Dividend yield 0.0% 0.0%
</TABLE>
NOTE 8 - SUMMARIZED FINANCIAL INFORMATION
The Company has a nonvoting 49% interest in Chrysolith and entered into an
agreement with Chrysolith pursuant to which Chrysolith owns,
F-17
<PAGE>
maintains and operates the video lottery terminals at the Gold Coin and
Toledo Palace properties. During 1995, the Company contributed $75,000 of
equipment to Chrysolith. The Company will receive 100% of the net operating
revenues (the "Net Win") derived from the Gold Coin and the Toledo Palace,
after payment of all the gaming taxes payable to the State of Louisiana and
payout of winnings from the gaming establishment. The Company will pay a
management fee to Chrysolith in an amount equal to the direct operating
expenses of the gaming establishment. A summary of the December 31, 1997
financial information of Chrysolith is as follows:
<TABLE>
<CAPTION>
<S> <C>
Assets 419,896
Liabilities 344,899
Stockholders' equity 74,997
Net (loss) for year ended December 31, 1997 (3)
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company is obligated for office space located in New York City under an
operating lease expiring October 31, 1999.
The Company is obligated under an operating lease for the Gold Coin facilities
located in Lafayette, Louisiana expiring September 30, 1999.
The Company leases office space located in London, England on a month-to-month
basis at approximately $1,200 per month.
Minimum future rentals for the remaining lease terms are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 61,790
1999 48,495
-------
Total 110,285
-------
</TABLE>
Rent expense amounted to $66,754 and $104,280 for 1997 and 1996, respectively.
EMPLOYEE/CONSULTING AGREEMENTS
The Company has entered into agreements with its various executives and a
consultant which provide for annual remuneration plus, in most cases,
participation in future benefit programs and stock option plans. The future
annual remuneration is as follows:
<TABLE>
<CAPTION>
Executives Consultant
---------- ----------
<S> <C> <C>
1998 360,000 60,000
1999 360,000 15,000
2000 259,200 -
2001 250,000 -
2002 100,000 -
--------- -------
Total 1,329,200 75,000
--------- -------
</TABLE>
Remuneration expense amounted to $463,500 and $340,000 in 1997 and 1996,
respectively.
F-18
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 31, 1997
CONTINGENCIES
The Company is defendant in an action brought by the former operator of its
gaming facilities. The plaintiff has alleged breach of a management contract
and seeks compensation and punitive damages. The Company believes that these
claims are wholly without merit and intends to defend this action vigorously.
The Company is also involved in certain other legal actions which arose during
the normal course of business. The eventual disposition of these actions, in
the opinion of management, will not have a material adverse effect on the
financial position of the Company.
NOTE 10 - SUBSEQUENT EVENTS
In January 1998, the Company entered into a Stock Purchase Agreement with 21st
Century Resorts ("Resorts") and affiliated companies to acquire two casinos and
land in the Czech Republic including all permits, operating assets and
properties owned or leased by Resorts for a cash purchase price of
approximately $11.5 million (the "Czech Transaction"). The acquisition is
subject to a number of conditions precedent including, among other things,
evidence of the Company's ability to raise sufficient capital to close the
transaction by March 31, 1998. The Company has placed in escrow a deposit of
$525,000 ($385,000 of which is refundable) which will be applied against the
purchase price at closing. On December 29, 1997, the Company engaged the
services of Libra Investments, Inc., ("Libra") to act as placement agent for
the Company's $17 million private placement of the Company's debt and
securities in connection with this proposed acquisition. In March 1998, the
Company executed subscription agreements with thirteen sophisticated investors
who placed $17 million in escrow to fund the closing of the Stock Purchase
Agreement in exchange for $17 million of 12% Senior Secured Notes. A condition
of the closing of the subscription agreements is the Company's successful
renegotiation of the terms of the Company's outstanding $4.8 million 12%
Secured Convertible Senior Bonds and the outstanding warrants related thereto.
The $17 million principal amount of 12% Senior Secured Notes ("Notes") will
carry interest at 12% per annum payable semi-annually in cash and will mature
on March 31, 2005. The Notes will be senior obligations of the Company's other
outstanding unsecured and unsubordinated indebtedness. In addition, the
Company will issue warrants to purchase approximately 7.4 million shares of the
Company's common stock (the "Warrants") representing 40% of the Company's
common stock outstanding on a fully diluted basis, as defined. The Warrants
have an exercise price of $.01 per share and expire on or about April 1, 2008.
The proceeds of the Private Placement will be used to purchase and fund
improvements of the Czech Transaction ($12.6 million), retire the Value
Partners Note ($1.3 million), fees and expenses of the Private Placement ($1.1
million) and for working capital ($2.0 million).
The Company and the holders of the 12% Secured Convertible Senior Bonds due
June 30, 1999 are currently negotiating to amend the terms of the Senior Bond
as follows: (i) between May 1, 1998 and June 30, 1999 the Company will use
cash flows from the Company's operations in Louisiana and Bishkek (see below)
after administrative costs to paydown a portion of the Senior Bonds; (ii) the
Bondholders will agree to extend the maturity of the Senior Bonds to December
31, 2003 and (iii) the Bondholders will receive 3,200,000 warrants to purchase
the Company's common stock at an exercise price of $1.50 per share in an amount
equal to the original amount of the Bondholders investment in the Senior Bonds.
The amendment is contingent upon the successful completion of the above
mentioned $17 million Private Placement.
In February 1998, the Company entered into a twenty-year management agreement
with Jockey Club Casinos ("JCC") for the management and operation of a casino
in Bishkek, the Krygyz Republic, (the "Bishkek Casino") a former member of the
Soviet Union Republic. In return for an initial funding of $250,000, the
Company will receive a management fee equal to sixty percent (60%) of the
operating profits from the Bishkek Casino which is scheduled to open in April
1998. In March 1998, The Company and Value Partners executed a lenders waiver
and option agreement under which the Company borrowed $250,000 to fund the
Bishkek Casino (the "Bishkek Note"). The Bishkek Note Bears interest at 12%
per annum. Value Partners was issued 42,850 warrants to purchase the Company's
common stock at an exercise price of $.01 per share which expire on December
31, 2005. Under the terms of the Bishkek Note, the Company will repay the
principal and interest in twelve monthly installments starting May 1, 1998 from
the management fee earned based upon 60% of the operating profits of the
Bishkek Casino.
F-19
<PAGE>
NOTICE AND CERTIFICATION OF
NO ORAL AGREEMENTS
THIS NOTICE AND CERTIFICATION OF NO ORAL AGREEMENTS (this "Agreement")
is made by and among VALUE PARTNERS, LTD., a Texas Limited Partnership,
("Lender") and Trans World Gaming Corp., a Nevada Corporation as of December
19, 1997 ("Borrower").
Lender hereby gives the following notice to Borrower and Borrower hereby
acknowledges and agrees with such notice:
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
FOR PURPOSES OF THIS NOTICE, THE WRITTEN LOAN DOCUMENTS ARE COMPRISED OF
THE FOLLOWING (all of which are dated as of December 19, 1997);
1. First Amended Loan Agreement;
2. First Amended Senior Secured Promissory Note in the principal sum
of $4,125,000.00;
3. Notice and Certification of No Oral Agreements;
4. Resolutions By the Unanimous Written Consent of the Directors of
Borrower;
5. Resolutions By the Unanimous Written Consent of the General Partner
of Lender; and,
6. Form of Warrant
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.
NOTICE AND CERTIFICATION OF NO ORAL AGREEMENTS
PAGE 1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date first above written.
LENDER:
VALUE PARTNERS, LTD.
By: Fisher Ewing Partners,
a Texas general partnership
General Partner
By:
---------------------------------------------
Timothy Ewing
Its: General Partner
--------------------------------------------
BORROWER:
TRANS WORLD GAMING CORP.,
A NEVADA CORPORATION
By:
---------------------------------------------
Its:
--------------------------------------------
NOTICE AND CERTIFICATION OF NO ORAL AGREEMENTS
PAGE 2
<PAGE>
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared
___________________________________, the General Partner of Fisher Ewing
Partners, general partners of Value Partners, Ltd. who stated that he has
read the foregoing, and that the information contained therein is within his
personal knowledge and is true and correct.
____________________________________
SUBSCRIBED AND SWORN TO BEFORE ME, on this the ______ day of __________,
1997 to certify with my hand and seal of office.
_________________________________
Notary Public in and for the State of Texas
My Commission Expires:_____________
_________________________________
Printed Name of Notary Public
NOTICE AND CERTIFICATION OF NO ORAL AGREEMENTS
PAGE 3
<PAGE>
STATE OF NEW YORK Section
Section
COUNTY OF NEW YORK Section
BEFORE ME, the undersigned authority, on this day personally appeared
___________________________________, the _______________ of Trans World
Gaming Corp. who stated that he has read the foregoing, and that the
information contained therein is within his personal knowledge and is true
and correct.
____________________________________
SUBSCRIBED AND SWORN TO BEFORE ME, on this the ______ day of __________,
1997 to certify with my hand and seal of office.
_________________________________
Notary Public in and for the
State of New York
My Commission Expires:_____________
_________________________________
Printed Name of Notary Public
NOTICE AND CERTIFICATION OF NO ORAL AGREEMENTS
PAGE 4
<PAGE>
THE TRANSFER OF THIS NOTE IS RESTRICTED - SEE SECTION 9 HEREOF
FIRST AMENDED
SENIOR SECURED PROMISSORY NOTE
$4,125,000.00 December 19, 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
FOUR MILLION ONE HUNDRED TWENTY-FIVE THOUSAND
AND NO/100 DOLLARS
($4,125,000.00)
together with interest on the outstanding principal balance hereof remaining
from time to time unpaid at the rate provided in Section 2 hereof. This Note
amends, renews, reinstates, modifies, restates and replaces in its entirety
that certain Senior Secured Promissory Note in the principal balance of
$2,625,000.00 dated October 27, 1997 (the "Prior Note"). This Note is
entitled to all of the liens, benefits, priorities, rights and privileges of
the Prior Note and that certain Loan Agreement dated as of October 27, 1997,
as amended, which Prior Note shall, upon execution and delivery hereof be
canceled and deemed null and void and of no effect.
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
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FIRST AMENDED SENIOR SECURED PROMISSORY NOTE, PAGE 1
<PAGE>
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 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 First Amended Loan Agreement dated as of
the date hereof, 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 payableDecember 31, 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
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FIRST AMENDED SENIOR SECURED PROMISSORY NOTE, PAGE 2
<PAGE>
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 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
Hlder 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
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FIRST AMENDED SENIOR SECURED PROMISSORY NOTE, PAGE 3
<PAGE>
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.
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.
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FIRST AMENDED SENIOR SECURED PROMISSORY NOTE, PAGE 4
<PAGE>
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: _______________________________
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FIRST AMENDED SENIOR SECURED PROMISSORY NOTE, PAGE 5
<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: January 15, 1998
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 89,985 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 First Amended Loan
Agreement dated as of December 19, 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
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<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
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<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, 1998, 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.
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<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
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<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
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<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
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<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.
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<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
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<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 January
15, 1998.
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:_____________________________
Title:__________________________
-11-
<PAGE>
LENDER'S WAIVER AND OPTION AGREEMENT
Value Partners, Ltd., a Texas limited partnership (the "Lender"), the
lender in that First Amended Loan Agreement, dated December 19, 1997 ("Loan
Agreement") and Trans World Gaming, Corp., a Nevada corporation (the
"Borrower"), the borrower in the Loan Agreement, do hereby agree as follows:
1. Borrower has requested an advance in the sum of $250,000 pursuant
to he Loan Agreement to fund the Bishkek casino acquisition (the "Bishkek
Transaction") as set forth in the Loan Agreement.
2. Lender acknowledges that the Borrower has disclosed the following
as to the referenced Sections in the Loan Agreement:
a. Section 9 -- The Zaragoza Transaction and the Florida
Transaction are not advancing as of the date hereof.
b. Section 10 - Due to governmental decree, the Borrower has
closed the Boxer Casino, believes that such closure could be temporary, but
cannot predict whether or when the Boxer Casino may reopen (if at all).
c. Section 13(d) -- The following litigation has been commenced,
involving the Borrower, since the date of the Loan Agreement:
i. Petition for Concursus regarding the sub-lease with Prime
Properties, Inc. ("Prime Properties") in the 15th Judicial District Court,
Lafayette Parish, Louisiana, Case No. 97-6174-D;
ii. PRIME PROPERTIES, INC. V. NATIONAL AUTO/TRUCK STOPS,
INC., U.S. District Court, Western District of Louisiana, Case No.
CV98-0076-L-O regarding Prime's claim of the breach of its franchise
agreement with the defendant therein; and,
iii. Voluntary Petition in Bankruptcy of Prime, U.S Bankruptcy
Court for the Western District of Louisiana, Case no. 98BK-50087.
iv. Monarch Casinos, Inc. of Louisiana et al. v. Trans World
Gaming Corp., 15th Judicial District Court, Case No. 97-5037, Div. B,
Lafayette Parish, Louisiana.
d. Section 13(f) -- The Borrower is negotiating to sell the New
Issue, which will contain warrants for up to 40%, on a fully diluted basis,
of the Borrower's common stock.
e. Section 13(i)(ii) -- The Borrower intends to (i) pledge all of
the stock of a subsidiary which will hold the shares of 21st Century Resorts
and its affiliates to be acquired pursuant to the Stock Purchase Agreement
dated January 20, 1998 (the
Page 1
<PAGE>
"SPA"), (ii) grant a first priority leasehold mortgage on the casino to be
acquired in Ceska Kubice, Czech Republic, (iii) grant a first priority
mortgage on the casino to be acquired in Rozvadov, Czech Republic, (iv) grant
a mortgage on the Snojmo project to be acquired, and (v) grant a security
interest in substantially all of the other assets (excluding gaming licenses
if not permissible) of the casinos to be acquired, to the extent reasonably
obtainable.
f. Section 13(i)(iv) -- If the SPA is consummated, the Borrower
will need to consummate the New Issue and obtain further financing to
complete the Snojmo project.
g. Section 15(h)(ii) -- Because the Boxer Casino was closed on
January 28, 1998, financial statements will not be prepared unless and until
the Boxer Casino is reopened for business.
h. Section 16 -- The Borrower will be the co-obligor on $17.0
million Senior Secured Notes in the New Issue.
i. Section 9 -- The terms of the Bishkek Transaction have been
modified, as set forth in Exhibit "A" hereto.
3. Pursuant to Sections 5 through 10 of the Loan Agreement, the Lender
hereby agrees to waive, for purposes of this $250,000 advance, any violation
of the Loan Agreement arising from those matters disclosed by Borrower to
Lender as set forth in paragraph 2 above.
This waiver is, as to the matters set forth in paragraph 2 above,
limited to Borrower's obligation to comply with Sections 6 through 10 of the
Agreement to receive the requested advance. This is not a waiver of any
right or remedy of Value Partners, Ltd., including that those items set forth
in paragraph 2 constitute the basis for the declaration of a default and
acceleration of the collection of all sums due, including the sums advanced
pursuant to the terms of this waiver.
4. Pursuant to Section 4 of the Loan Agreement, in the event of a New
Issue, as that term is defined in the Loan Agreement, Value Partners intends
to require the repayment of all sums advanced pursuant to the Note from the
proceeds of the New Issue (other than sums advanced pursuant to the terms
hereof). Borrower and Lender agree that in addition to the rights granted in
Section 4, at the election of Value Partners a new note shall be executed as
to sums advanced pursuant to this Lender's Waiver and Option Agreement and,
to the extent and at such time as is permissible under the provisions of that
certain Indenture issued in association with the $4.8 million Secured
Convertible Senior Bonds Due 1999, (the "Indenture"), such advance shall be
secured by all assets acquired with such advance, including an assignment of
all sums earned pursuant to that certain Management Agreement by and between
Jockey Club Casinos LLC and Trans World Gaming Corp., dated January 30, 1998,
as amended by that certain letter dated February 24, 1998. Such grant of a
security interest shall not occur until such time as the
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<PAGE>
Borrower amends that certain Financing Statement dated January 28, 1998,
executed in association with the Indenture, to clarify the scope of the
security interest granted U.S. Trust Company, N.A. as Indenture Trustee for
the Indenture. The Borrower shall use its best efforts to amend this
Financing Statement promptly, provided that counsel for the Investors renders
a letter concurring that such amendment is consistent with the intent of the
parties as of the date of such Indenture. Such new Note shall be payable in
twelve monthly installments commencing May 1, 1998 of principal and interest
and bear interest at the same rate as the Loan Agreement. To the extent that
a second advance is requested to develop the Bishkek's "slot Room", Lender
shall have the right, at its election, to make such advance pursuant to the
Loan Agreement, as modified herein, provided that such advance, or the right
to make such advance, does not conflict with covenants of other loan
agreements of the Borrower. The warrants issued pursuant to such advance
shall, at Value Partners' option, be on the same terms (including strike
price and number of shares) as those issued pursuant to the Loan Agreement or
those issued pursuant to the Subscription Agreement dated March 17, 1998 in
association with the New Issue.
5. The Borrower represents and warrants that all facts as set forth
above are correct.
Dated: March 20, 1998 VALUE PARTNERS, LTD.
By: Ewing & Partners, a
Texas general partnership
By: ______________________
Timothy G. Ewing
Managing Partner
TRANS WORLD GAMING CORP.
By: __________________________
Its: __________________________
Page 3
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of April 15, 1997 between
MULTIPLE APPLICATION TRACKING SYSTEMS, INC. (The "Company"), a Colorado
corporation with offices c/o Trans World Gaming Corp. ("TWG") at One Penn
Plaza, Suite 1503, New York, New York 10019-0002, and JAMES R. HARDMAN, JR.,
with an address at 14114 West 1st Drive, Golden, Colorado 80401 (the
"Employee").
The Company desires to engage Employee to perform services on behalf of the
Company, and Employee desires to perform such services, on the terms and
conditions hereinafter set forth:
1. EMPLOYMENT PERIOD
The Company agrees to employ the Employee in the capacity of
President of the Company and Employee agrees to serve on the terms and
conditions of this Agreement for a period commencing on the date of this
Agreement first above written and ending five (5) years hereinafter (the
"Employment Period").
2. DUTIES & SERVICES
(a) During the Employment Period, Employee shall be employed in the
capacity of President of the Company. In performance of his duties, Employee
shall be subject to the direction of and report to the Board of Directors of
the Company. Employee agrees to devote full time to the affairs of the
Company, to discharge his duties hereunder to the best of his abilities and
to take no action outside of the ordinary course of business that he is not
specifically authorized to take by the Board of Directors of the Company.
The foregoing provisions of this Section 2 shall constitute material terms of
this Agreement. Employee's office shall be based in the Denver, Colorado
area, but Employee shall be available to travel as the needs of the business
and his obligations hereunder require. Employee shall not engage in any
other business, profession or occupation for compensation or otherwise
without the prior written consent of the Company's Board of Directors.
(b) The provisions of Section 2(a) above notwithstanding, the
parties agree that Employee owns the "Reserved Assets" set forth
in Exhibit 2(b) hereto and made a part hereof. Employee may
separately pursue the "Reserved Assets" so long as Employee does
not engage in any material sales, marketing, development, or
other substantive tasks, and so long as such matters do not
interfere with Employee's full-time duties under this Agreement.
In the event Employee believes a new idea, product, business or
other matter is worthwhile to pursue, Employee shall present same
to the Company for review. Should Company decide to pursue such
matter, it shall do so on terms it deems appropriate; if not,
Employee may not pursue any such matter independently.
3. COMPENSATION.
As full compensation for his services hereunder, the Company shall
pay Employee, during the Employment Period, as follows:
<PAGE>
(a) A basic salary payment in semi-monthly installments at the annual
rate of one hundred thousand dollars ($100,000) for each year of the Employment
Agreement, such payments to be made in accordance with the Company's usual
payroll practices.
(b) Employee will be eligible for participation in Trans World Gaming
Corp.'s ("TWG's") November 1996 Management Incentive Plan and TWG's Incentive
Stock Plan, as these plans may be amended or replaced from time to time, or
equivalent plans of the Company as may be established from time to time
(collectively, the "Plans"). For purposes of the Plans, Employee shall be
entitled to benefits at the level of and deemed to be a "Vice President of
Operations" or "VP Operations".
(c) The Company has no current plan relative to cost of living
increases or salary increased, although the Company reserves the right, in its
sole discretion, in the future to grant such cost of living or salary increases.
(d) Employee shall further be entitled to participate in the present
or future employee benefit plans of the Company as may be established by the
Company from time to time subject to the approval of the Board of Directors if
Employee meets the eligibility requirements thereof.
4. EXPENSES.
Employee shall be entitled to reimbursement for reasonable travel
and out-of-Pocket expenses as are reasonable and necessarily incurred in the
performance of Employee's duties hereunder, upon submission of written
statements and/or bills in accordance with the then regular policies and
procedures of the Company then in effect.
5. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE
Employee represents and warrants to the Company that Employee is
under no Contractual or other restriction which is inconsistent with the
execution of this Agreement or performance of any of Employee's duties
hereunder.
6. INVENTIONS/NON-COMPETITION/CONFIDENTIAL INFORMATION.
(a) DEFINITIONS
(i) "Confidential Information" includes all past, current or
future business information and records which relate to the Company (for
purposes of this Section 6, "Company" shall include Company's parent
companies, subsidiaries or affiliates) and which are not known to the public
generally, including but not limited to technical notebook records,
copyrights, patent applications, machine equipment, processes and product
designs including any drawings and descriptions thereof; unwritten knowledge
and "know-how"; operating instructions; training manuals; production and
development processes; production schedules; customer lists; customer buying
and other customer related records; product sales records; territory
listings, market surveys' marketing plans; long-range plans, salary
information; contracts; supplier lists; and correspondence, and all
summaries, compilations, analyses and reproduction of the above in whatever
form or format.
<PAGE>
(ii) "Invention" shall mean any discovery, invention,
improvement, trademark, design, logo, copyright, development, process, idea, or
other intellectual property right.
(b) INVENTIONS.
(i) Employee shall disclose promptly to the Company any
Invention, patentable or otherwise, which during the Employment Period has been
or may be hereafter conceived, developed or perfected by Employee, either alone
or jointly with another or others, and either during or outside the hours of
such employment, and which pertains to any activity, business, process,
equipment, material or product whether or not the company has a direct or
indirect interest therein except for the Reserved Assets only.
(ii) Employee hereby grants to the Company all his right,
title and and to any such Invention, together with all United States and
foreign Letters Patent Patent, any and all of which (whether made, held or
owned by Employee, directly or indirectly), and any and all other interests
or intellectual property rights shall be for the sole use and benefit of the
Company, which shall be at all times entitled thereto. At the request and
expense of the instrument (including descriptions, sketches, drawings and
other papers), and render all such other assistance as in the opinion of the
Company may be necessary or desirable to (a) vest full right and title to
each such Invention in the Company, (B) enable it lawfully to obtain and
maintain such full right and title in any country whatsoever, (C) prosecute
applications for and secure patents (including the reissue, renewal and
extension thereof), trademarks, copyrights and any other form of protection
with regard to such Invention, and (D) prosecute or defend any interference
or opposition which may be declared involving any such application or patent,
and any litigation in which the Company may be involved with respect to any
such Invention. The employment, and shall be binding on Employee's
executors, administrators or assigns, unless waived in writing by the Company.
(c) CONFIDENTIAL INFORMATION. Except in the event that (i) this
Agreement is Terminated for a reason other than for "Cause" by the Company,
and (ii) Company and/or TWG has not paid the "Copyright Transfer Payments"
(defined in the "License Agreement") as defined below) or otherwise exercised
its or their right to make such Copyright Transfer Payment upon termination
(in which event both Company (and/or TWG) and Employee may use such
Confidential Information), Employee will not, director or indirectly, during
or at any time after the Employment Period, use for himself or others, or
disclose to others, any Confidential Information, where or not conceived,
developed or perfected by Employee and no matter how it became known to
Employee, unless he first secures the written consent of the Company to such
disclosure or use, or until the same shall have lawfully become a matter of
public knowledge.
(d) RETURN OF RECORDS. Except in the event that (i) this Agreement
is terminated for a reason other than for "Cause" by the Company, and (ii)
Company and/or TWG has not paid the Copyright Transfer Payment in the License
Agreement or otherwise exercised its or their right to make the Copyright
Transfer Payment upon termination (in which event both Company and Employee may
use or maintain such records), upon termination of his employment for any
reason, or at any other time upon request by Company, Employee will promptly
deliver to the Company all Confidential Information and documents and records
which are in his possession or under his control and which pertain to the
Company, any of its activities or any of Employee's activities in the course of
his employment with Company. Such documents and records include but are not
limited to technical notebook records, technical reports, patent applications,
drawings, reproductions, and process or design disclosure information, models,
schedules, lists of customers
<PAGE>
and sales, sales records, sales requests, lists of suppliers, plans,
correspondence and all copies and reproductions thereof. Employee will not
retain or deliver to any third person copies, analyses, compilations,
summaries or reproductions of any such documents or records.
(e) NON-COMPETITION. Except in the event that (i) this Agreement is
terminated for a reason other than for "Cause" by the Company, and (ii) Company
and/or TWG has not paid the Copyright Transfer Payment in the License Agreement
or otherwise exercised its or their right to make the Copyright Transfer Payment
upon termination, during the Employment Period and for the one (1) year period
which immediately follows the termination of employment, Employee will not,
without the written consent of the Company, either as principal, shareholder,
agent, consultant, employee, officer, director, partner, owner of equity
interest, or otherwise engage in any work or other activity (x) in or directly
related to the specific areas or subject matters to the specific areas or
subject matters in which Employee worked during the Employment Period or (y)
involving or directly related to specific areas or subject matters in which
Employee worked during the Employment Period or (z) involving or directly
related to Confidential Information of which Employee became aware or to which
Employee had access during the Employment Period. Employee shall consult the
Company before engaging in any activity which might violate the provisions of
this section, it being understood that his activities shall be limited hereby
only to the extent that such limitation is reasonably necessary for the
protection of the Company's interests for the period determined in accordance
with this section.
(f) NON-SOLICITATION. Except in the event that (i) this Agreement is
terminated for a reason other than for "Cause" by the Company, and (ii) Company
and/or TWG has not paid the Copyright Transfer Payment in the License Agreement
or otherwise exercised its or their right to make the Copyright Transfer Payment
upon termination, during the Employment Period and for the one (1) year period
which immediately follows the date of termination of employment, Employee shall
not, directly or indirectly, knowingly, or under circumstances in which he
reasonably should have known, induce any employee of the Company to engage in
any activity in which Employee is prohibited from engaging by Section 6(e) above
or to terminate his employment with the Company and shall not, directly or
indirectly, knowingly, or under circumstances in which Employee reasonably
should have known, employ or offer employment to any such person unless such
person shall have ceased to be employed by the Company and such cession of
employment shall have occurred at least twelve (12) months prior thereto.
(g) Nothing in this Section 6 shall limit Employee's obligations
under applicable law with respect to the subject matter hereof or Company's
rights and remedies under applicable law.
7. SPECIFIC PERFORMANCE AND OTHER REMEDIES
Employee acknowledges and agrees that the Company has no adequate
remedy at Law for a breach or threatened breach of any of the provisions of
Section 6, and, in recognition of this fact, Employee agrees that, in the
event of such a breach or threatened breach, in addition to any remedies at
law, the Company, without posting any bond and with written notice of two (2)
business days to the Employee, shall be entitled to obtain equitable relief
in the form of specific equitable remedy which may then be available.
Nothing in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies at law or in the equity that it may have or any
other rights that it may have under any other agreement.
8. KEY-MAN LIFE INSURANCE
<PAGE>
If reasonably requested by the Company, Employee shall submit to
such reasonable physical examinations and otherwise take such actions and
deliver such documents as may be reasonably necessary to enable the Company
at its expense and for its own benefit, to obtain "key-man" life insurance or
similar insurance on the life of Employee.
9. TERMINATION
Upon a termination of Employment Period prior to the scheduled
expiration date, Employee shall be entitled to the payments described in this
Section 9.
(a) FOR CAUSE BY THE COMPANY; BY EMPLOYEE WITHOUT GOOD REASON.
The Employment Period may be terminated prior to its scheduled
expiration date by the Company, subject to the provisions of
this Section 9(a), "for Cause" (as defined below) or by
Employee "without Good Reason" (as defined below). If the
Employment Period is terminated by the Company for Cause or by
Employee with Good Reason, Employee shall be entitled to
receive his base salary through the date of termination, and
any unreimbursed business expenses, payable promptly following
the latter of the date of such termination and the date on
which the appropriate documentation is provided. All other
benefits following a termination of the Employment Period
pursuant to this Section 9(a) shall cease except for continued
medical benefits under COBRA, and vested benefits, if any,
under ERISA.
(b) DEATH DISABILITY; BY THE COMPANY WITHOUT CAUSE; BY EMPLOYEE
WITH GOOD REASON.
(i) Employment Period shall terminate effective upon the
death of the Employee.
(ii) If the Employee incurs a "Disability" (as defined in the
Management Incentive Plan), the Employment Period shall terminate pursuant to
the applicable provisions of the Management Incentive Plan.
(ii) The Employment Period may be terminated prior to the
scheduled expiration date by the Company without cause or
by the Employee with good reason. In such events,
Employee shall receive (A) continued payment of base
salary in a lump sum on the termination date for the
lesser or one (1) year or the remainder of the Employment
Period and benefits, if any, which may have accrued as of
the termination date under the Management Investment
Plan; and (B) any unreimbursed business expenses payable
promptly following the latter of the date of such
termination and the date upon which the appropriate
documentation is provided.
(c) DEFINITIONS. For purpose of this Section 9, the following
shall have the following meanings:
(i) "Cause" shall mean:
<PAGE>
(A) Employee's willful or negligent failure to
substantially Perform his duties under the Agreement, or a breach of this
Agreement including, without limitation, the provisions of Section 6 hereof;
which failure or breach continues for more than sixty (60) days after receipt
by the Employee of written notice setting forth the facts and circumstances
identified by the Company as constituting adequate grounds for termination
under this clause (A),
(B) any willful or negligent act or omission by Employee
constituting dishonesty, fraud or other malfeasance, and any act or omission by
Employee constituting immoral conduct, which in any such case is injurious to
the financial condition or business reputation of the Company or any of its
affiliates;
(C) Employee's indictment for a felony under the laws of
the United States or any state thereof or any other jurisdiction in which the
Company conducts business,
(D) Employee's resignation, or
(E) Termination of the License Agreement (the "License
Agreement") of even date hereof between Employee (as Owner-licensor) and TWG
(as license) as a result of Employee's breach thereof.
(ii) "Good Reason" shall mean a material breach by the
Company of any of its obligations under the Agreement and the License Agreement
which continues for more than sixty (60) days after detailed notice to Company.
(d) In the event of (i) termination of this Agreement or the License
Agreement for any reason except as a result of a breach by Company hereunder or
by TWG under the License Agreement, and (ii) the "Copyright Transfer Payment"
(as defined in the License Agreement) has not already been paid by the Company
and/or TWG as of such termination date, the Company and/or TWG may, in its or
their sole discretion, pay the remaining balance of the Copyright Transfer
Payment to acquire full legal and equitable title to the Licensed Product,
Licensed Software and Copyrights (as those terms are defined in the License
Agreement (free of any encumbrances or restrictions pursuant to the provisions
of Section 12(e) of the License Agreement.
(e) Neither Employee nor Company and/or TWG may terminate this
Agreement or the License Agreement during the initial twenty-four (24) months of
the Employment Period as a result of levels of Company sales or funding and
marketing levels for Company products and services.
(f) NOTICE OF TERMINATION. Any purported termination of the
Employment Period prior to its scheduled expiration by the Company or by
Employee shall be communicated by written notice of termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable details the facts and
circumstances claimed to provide a basis for termination under the provision so
indicated. The written notice referred to in Section 9(a) shall satisfy the
requirements of this Section 9(f) if the determination of the Board of Directors
referred to in Section 9(a) is subsequently made in accordance with such Section
9(a), but the Employee's termination of employment shall not be
<PAGE>
effective until the Board of Directors by majority vote has made such
determination in accordance with such Section 9(a).
Nothing contained in this Section 9 shall be deemed to limit any
other right the Company may have to terminate the Employee's employment
hereunder upon any ground permitted by law.
10. SURVIVAL
The convenants, agreements, representations and warranties
contained in or made Pursuant to this Agreement shall survive Employee's
rightful termination of employment. If any such termination is wrongful,
then, except, as provided in Section 6, such convenants, agreements,
representations and warranties shall not survive.
11. MODIFICATIONS/ENTIRE AGREEMENT
Except to the extent that the parties have certain obligations and
rights under the License Agreement, this Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof;
supersedes all existing agreements between the parties concerning such
subject matter, and may be modified only by a written instrument duly
executed by both of the parties hereto.
12. NOTICES
Any notice or other communication permitted or required to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested or delivered against receipt to the party to whom it is to
be given; if to Employee, at his address set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in
writing and in accordance with the provisions of this Section 12), and if to
the Company, as follows: Multiple Application Tracking System, Inc. c/o
Trans World Gaming Corp., at One Penn Plaza, Suite 1503, New York, NY
10119-0002, Attn: Mr. Dominick J. Valenzano, with a copy to Oppenheimer,
Wolff & Donnelly, One Citicorp Center, 153 East 53 Street, 26th Floor, New
York, New York 10022-4611, Attn: Richard P. Altieri, Esq. Notice to the
estate of Employee shall be sufficient if addressed to Employee as provided
in this Section 12. Any notice of other communication given by certified
mail shall be deemed given at the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
13. WAIVER/SEVERABILITY
(a) WAIVER. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be waiver
of any other breach of such provision or of any breach of any other provision
of this Agreement. The failure of a party to insist upon strict adherence to
any term of this Agreement on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver must
in writing.
(b) SEVERABILITY It is expressly understood and agreed that
although Employee and the Company consider the restrictions contained in Section
6 to be reasonable, if a final judicial determination is made by the court of
competent jurisdiction that the time or territory restriction in Section 6 or
any other restriction contained in Section 6 is an unenforceable
<PAGE>
restriction against Employee, such provision shall not be rendered void, but
shall be deemed amended to apply to such maximum time and territory, if
applicable, or otherwise to such maximum extent as such court may judicially
determine or indicate to be enforceable. Alternatively, if any court of
competent jurisdiction finds that any restriction contained in Section 6 is
unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained therein. In the event that any one or more of
the other provisions of this Agreement shall be or become invalid, illegal or
unenforcable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby
14. BINDING EFFECT
Employee's rights and obligations under this Agreement shall not be
transferable Assignment or otherwise, such rights shall not be subject to
communications, encumbrances or other claims of Employee's creditors and any
attempt to do any of the foregoing shall be void. The Company's rights or
obligation under this Agreement shall not be transferable by assignment or
otherwise, unless Employee at his sole option, elects to accept and by bound
by such transfer or assignment, provided that, for purposes hereof, a change
in ownership or control, corporate restructuring, merger or the like, or
transfer to an affiliated entity of Company shall not be deemed a transfer or
assignment requiring Employee's approval. The provisions of this Agreement
shall be binding upon and inure to the benefit of Employee and his heirs and
personal representative and shall be binding upon and inure to the benefit of
the Company and its successors and assigns.
15. NO THIRD PARTY BENEFICIARIES
This Agreement does not create and shall not be construed as
creating any rights enforceable by any person not a party to this Agreement,
except as is provided in Sections 9 and 14 of this Agreement.
16. HEADING
The headings in this Agreement are solely for the convenience of
reference and shall be given no effect in the construction or interpretation
of this Agreement.
17. COUNTERPARTS, GOVERNING LAW
This Agreement may be executed in any number of counterparts, each
of which Shall be deemed an original, but all of which together shall
constitute one and the same instrument. It shall be governed and construed
in accordance with the laws of the State of Colorado without giving effect to
conflict of laws.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above-written.
COMPANY:
MULTIPLE APPLICATION
TRACKING SYSTEM, INC.
By:
--------------------------
Name: Andrew Tottenham
Title: President
EMPLOYEE:
----------------------------
James R. Hardman, Jr.
<PAGE>
SUBSCRIPTION AGREEMENT
TRANS WORLD GAMING CORP.
TWG INTERNATIONAL US CORPORATION
TWG FINANCE CORP.
This is a SUBSCRIPTION AGREEMENT (the "Agreement"), dated as of March
16, 1998, by and among TRANS WORLD GAMING CORP., a Nevada Corporation (the
"Parent"), TWG INTERNATIONAL U.S. CORPORATION, a Nevada corporation and a
wholly-owned subsidiary of Parent (the "Operating Subsidiary"), TWG Finance
Corp., a Delaware orporation and a wholly-owned subsidiary of the Parent (the
"Finance Subsidiary" which, together with the Operating Subsidiary shall be
referred to herein as the "Subsidiaries") and the undersigned (the
"Subscriber"). The Parent and Subsidiaries shall be referred to herein as
the "Company".
BACKGROUND
1. The Units. The Parent and Subsidiaries desire to sell a unit (the
"Unit"), such Unit consisting of (i) a 12% Senior Secured Note due [DUE DATE]
of the Parent and the Subsidiaries (the "Notes") and (ii) warrants to
purchase shares of Common Stock of the Parent (the "Warrants"). The
Subscriber desires to purchase the Unit. The Unit shall be comprised of a
Note in the principal amount of, and a Warrant as to the number of shares,
both of which are set forth opposite the Subscriber's name on Exhibit "A"
attached hereto. The term "Units" shall refer to the total of each unit
purchased pursuant to this offering. The total subscription shall be between
$15,000,000 and $17,000,000.
2. The Acquisition. The Parent has formed the Operating Subsidiary to
acquire (the "Acquisition") the equity interest in entities which own two
operating casinos and real property on which to build a third casino
(collectively the "Czech Casinos"), all in the Czech Republic as set forth
in that certain Confidential Private Placement Summary, as amended by the
Supplement thereto dated March 1998 (the "Summary") dated February 1998. The
terms of the Acquisition are evidenced by that certain Stock Purchase
Agreement by and among Trans World Gaming Corp., 21st Century Resorts, a.s.,
Gameway Leasing Limited, Monarch Leasing Limited, and The Named Individuals
(the "Acquisition Agreement"). Certain proceeds from the sale of the Units
will be used to fund the purchase price of the Acquisition and the expenses
related thereto (the "Acquisition Price"). The Closing of this Agreement and
of the Acquisition Agreement shall be simultaneous.
3. The Finance Company. The Parent has formed the Finance Subsidiary
for the sole purpose of obtaining an enforceable pledge of a security
interest in certain entities acquired or formed pursuant to the Acquisition.
At the Closing, sums advanced pursuant to the Escrow Agreement to fund the
purchase price of the Units shall be deemed advanced to the Finance
Subsidiary and then be deemed advanced by the Finance Subsidiary to the
Operating Subsidiary. The Note evidencing this advance from the Finance
Subsidiary to the Operating Subsidiary (the "Financing Note") shall be deemed
issued at the Closing simultaneously with the Closing of this Agreement and
the Acquisition Agreement. The Financing Note shall be secured as set forth
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herein. The Financing Note shall be pledged by the Finance Subsidiary to
secure repayment of the Notes.
4. Funding. In order to effectuate the closing of the Acquisition
Agreement pursuant to its terms, cash representing the purchase price of all
of the Units must be deposited by no later than March 17, 1998 with U.S.
Trust Company of Texas, N.A. (the "Escrow Agent") pursuant to the terms of
that certain Escrow Agreement attached hereto as Exhibit "B" and by this
reference incorporated herein (the "Escrow Agreement"). Sums adequate to
close the Acquisition Agreement will then be transferred to an escrow account
controlled by the Escrow Agent (the "Acquisition Funds"). Upon satisfaction
of the terms and conditions set forth in the Escrow Agreement, on March 30,
1998, the Acquisition Funds will be transferred from the Escrow Agent to an
account in trust in the name of Barnett Sampson Solicitors, London, England
(the "Barnett Sampson Account"), counsel for the Sellers of the Czech Casino
entities (the "Sellers"), to be released sequentially while in escrow to the
Finance Subsidiary, the Operating Subsidiary and the Sellers, simultaneously
upon the closing of the Acquisition Agreement on March 31, 1998. No interest
shall be credited to the Subscriber for the period of time the funds reside
in the escrow account unless such funds are disbursed to the Subscriber in
accordance with the terms of the Escrow Agreement. The remaining sums
representing the purchase price of the Units shall be disbursed as set forth
in the Escrow Agreement.
TERMS
Intending to be legally bound, in consideration of the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. SALE AND PURCHASE. Subject to the terms and conditions set forth
herein and in the Escrow Agreement, at the Closing (as defined in Section 2,
below) the Company will issue and sell to the Subscriber a Note in the
principal amount, and the Parent will issue and sell to the Subscriber the
number of Warrants, set forth opposite the Subscriber's name on Exhibit "A"
hereto.
2. THE CLOSING.
(a) The purchase and sale of the Units will take place at a closing
(the "Closing") to occur simultaneously at 11:00 a.m., Prague, Czech Republic
time, on Tuesday, March 31, 1998 (the "Closing Date") at the office of Becker
& Poliakoff, P.A., Prague, Czech Republic and at the offices of White & Case,
1155 Avenue of the Americas, New York, New York, 10019. The date and time of
Closing is referred to herein as the "Closing Date."
(b) Subject to the terms and conditions set forth herein, at the
Closing the purchase price for the Units shall be paid in full in immediately
available funds pursuant to the terms of paragraph 8 below.
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<PAGE>
(c) Subject to the terms and conditions set forth herein, at the
Closing the Parent and the Subsidiaries shall deliver to the Subscriber
against payment of the purchase price therefor, the Note and Warrant
registered in such name or names as shall be designated by the Subscriber.
Delivery of the Note and Warrant dated March 31, 1998 (to accrue interest
from March 17, 1998) to the Purchasers' Counsel, as that term is defined in
Section 8, shall be deemed delivery to the Subscriber. This subscription may
be accepted or rejected in whole or in part in the sole and absolute
discretion of Parent and Parent may allocate to the Subscriber a lower dollar
amount than that for which the Subscriber has subscribed hereby. The
offering conducted by the Parent hereby may be cancelled or terminated by
Parent at any time, in Parent's sole discretion, without liability on the
part of Parent or Subsidiaries and all funds obtained from Subscriber shall
be returned to Subscribers with interest earned, if any.
(d) If at the Closing the Parent and the Subsidiaries shall fail to
tender such Unit to the Subscriber as provided above in this Section 2 or if
any of the conditions specified in Section 8 below shall not have been
fulfilled to the Subscriber's satisfaction, Subscriber shall, at its
election, be relieved of any further obligations under this Agreement,
without thereby waiving any rights it may have by reason of such failure or
such non-fulfillment.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As of the Closing
Date, the Company represents and warrants to the Subscriber that:
(a) ORGANIZATION, STANDING, ETC. Parent 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. The Operating
Subsidiary 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 to carry on its business
as presently conducted. The Financing Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state
of Delaware and has all requisite corporate power and authority to own its
assets and to carry on its business as presently conducted. Parent and
Subsidiaries have all requisite corporate power and authority to (i)
execute, deliver, and perform their obligations under this Agreement, the
Escrow Agreement, the Indenture, the Notes, the Warrants, the Finance Note
and all other agreements and instruments executed and delivered pursuant to
or in connection with this Agreement, the Indenture and the Finance Note
(collectively the "Operative Agreements"), and (ii) issue the Units.
(b) AUTHORIZATION AND EXECUTION; UNITS VALIDLY ISSUED. The execution,
delivery and performance by Parent and Subsidiaries of this Agreement and the
other Operative Agreements, and the issuance of the Unit hereunder have been
duly and validly authorized by Parent and Subsidiaries. This Agreement and
the other Operative Agreements have been duly executed and delivered by
Parent and Subsidiaries and constitute valid and binding agreements of Parent
and Subsidiaries enforceable against Parent and Subsidiaries in accordance
with their respective terms. Upon the payment of the purchase price for the
Units and the delivery of documents evidencing the Units, the Notes will be
valid and binding obligations of the Parent and Subsidiaries and the shares
of common stock issuable pursuant to the Warrants will upon issuance be duly
and validly
3
<PAGE>
issued and outstanding, fully paid and nonassessable (other than the exercise
price of the Warrants).
(c) CONTRAVENTION. Assuming that the holders of the 1999 Notes (as
defined herein) restructure such 1999 Notes as a condition to the Closing the
execution, delivery and performance of this Agreement and the other Operative
Agreements and the consummation of the transactions contemplated thereby 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 Parent or Subsidiaries or on the Units, (ii) the Articles
of Incorporation and Bylaws of Parent or Subsidiaries, or (iii) any
agreements, judgment, injunction, order, decree or other instrument binding
upon Parent or Subsidiaries or any of their assets or properties, the
violation of which would have a material adverse effect on Parent or
Subsidiaries or on the Units.
For purposes of this Agreement, a "material adverse effect" means a
material adverse effect on (a) the business, operations, property or
condition (financial or otherwise) of Parent and Subsidiaries, (b) the
ability of the Parent or Subsidiaries to perform their respective obligations
under this Agreement, or any other Operative Agreement to which any of them
is a party, or (c) the validity, enforceability, perfection or priority of
this Agreement or the rights or remedies of the Trustee or the holder of the
Notes.
(d) LITIGATION, PROCEEDINGS, DEFAULT. Other than (i) a lawsuit
commenced by the Borrower against the State of Louisiana, Docket No.
434,700-D, pending in East Baton Rouge Parish; (ii) MONARCH CASINOS, INC. OF
LOUISIANA ET. AL. V. TRANS WORLD GAMING CORP., 15th Judicial District Court,
Case No. 97-5037, division B, Lafayette Parish, Louisiana; (iii) a petition
for Concursus regarding the sub-lease with Prime Properties, Inc. in the 15th
Judicial District Court, Lafayette Parish, Louisiana, Case No. 97-6174-D;
(iv) PRIME PROPERTIES, INC. V. NATIONAL AUTO/TRUCK STOPS, INC., U.S. District
Court, Western District of Louisiana, Case No. CV98-0076-L-O regarding the
claim of Prime Properties, Inc. of the breach of its franchise agreement with
the defendant therein; (v) Voluntary Petition in Bankruptcy of Prime
Properties, Inc. in the U.S Bankruptcy Court for the Western District of
Louisiana, Case No. 98BK-50087, there is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Parent or
Subsidiaries, threatened against or affecting, Parent or Subsidiaries or
their assets or any of the Units before or by any court or arbitrator or any
governmental body, agency, department, instrumentality or official which
would have a material adverse effect on Parent or Subsidiaries or their
assets or any of the Units. Parent and Subsidiaries are not in violation of
their Articles of Incorporation or Bylaws, and Parent and Subsidiaries are
not in violation of or in default under any provision of any applicable law
or regulation or of any agreement, judgment, injunction, order, decree or
other instrument binding upon Parent or Subsidiaries which violation or
default (i) would effect the validity of this Agreement, the Units, or any
other Operative Agreement, or (ii) would impair the ability of Parent or
Subsidiaries to perform in any material respect the obligations which they
have under this Agreement or any other Operative Agreement.
(e) GOVERNMENTAL REGULATIONS. Except as required pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and State securities
laws, Parent and Subsidiaries are not subject to any foreign,
4
<PAGE>
Federal or State law or regulation limiting their ability to enter into this
Agreement or any other Operative Agreement, to issue the Units or to perform
their obligations required thereby.
(f) CAPITALIZATION OF PARENT. Parent's authorized capital stock
consists of 50,000,000 shares of Parent Common Stock and 2,000,000 shares of
Parent Preferred Stock. As of the date of this Agreement, 3,044,286 shares
of Parent Common Stock and no shares of Parent Preferred Stock were issued
and outstanding. All outstanding shares have been duly authorized, validly
issued and are fully paid and nonassessable. To the best of its knowledge,
the Company has not violated any applicable federal or state securities laws
in connection with the offer, sale and issuance of any of its capital stock.
As of the Closing Date, there will be no rights, subscriptions, warrants,
options, conversion rights, or agreements of any kind outstanding to purchase
from the Parent, or otherwise require the Parent to issue, any shares of
capital stock of the Parent or securities or obligations of any kind
convertible into or exchangeable for any shares of capital stock of Parent
and the Parent will not be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock, except for the Warrants and as set forth on Exhibit "C".
Except for certain warrants outstanding owned by Mr. Baker as set forth on
Exhibit "C", neither the issuance of the Warrants, nor the issuance of the
Parent Common Stock upon exercise of the Warrants, will result in an
anti-dilution adjustment or otherwise increase the number of shares of Parent
Common Stock issuable upon conversion or execution of any of the Warrants or
Options set forth on Exhibit "C". The Parent Common Stock underlying the
Warrants has been duly reserved for issuance upon exercise of the Warrants
and, when so issued against payment of the Warrant exercise price therefore,
will be duly authorized, validly issued and outstanding, fully paid and
nonassessable. Neither the issuance and delivery of the Warrants nor the
issuance and delivery of the Parent Common Stock upon exercise of the
Warrants is subject to any preemptive right of any stockholder of the Parent
or to any right of first refusal or other similar right in favor of any
person.
(g) DEBT OF SUBSIDIARY. The holders of the Notes will have a first
lien and security interest in the stock of the Subsidiaries and the Finance
Note. The Finance Note shall be secured by a sixty-six percent (66%) interest
in a certain acquired and subsequently acquired or created direct
subsidiaries of TWG International to the extent permissible under applicable
law and regulation.
(h) OWNERSHIP OF PROPERTY. Each of the Parent and Subsidiaries has
good record title in fee simple to, or a valid and subsisting leasehold
interest in, all its real property, and good title to all of its other
property, in each case which is necessary or useful in the conduct of its
business. Each lease agreement under which either such entity holds an
interest in leased property is in full force and effect, to the best of the
Parent's knowledge, other than a lease by the Parent's Louisiana subsidiary
of a casino property.
(i) DOCUMENTATION; NO MATERIAL MISSTATEMENTS. All of the necessary
documents related to the consummation of this transaction which have been
requested by the Subscriber to be provided have been provided by Parent and
Subsidiaries to the Subscriber and are true, correct and complete in all
material respects. No written representation or warranty made by the Parent
and Subsidiaries in or pursuant to this Agreement and the Summary contains
any untrue statement of
5
<PAGE>
a material fact or omits to state any material fact necessary to make such
representation or warranty not misleading to a purchaser of securities from
Parent and Subsidiaries.
(j) PRIVATE SALE; VOTING AGREEMENTS. Subject to the accuracy of the
Subscriber's representations contained herein, neither the offer, sale and
issuance of the Notes and the Warrants hereunder nor the issuance and
delivery of any Common Stock upon the exercise of any Warrants requires
registration under the Securities Act or any state securities law. To the
best of the Parent's knowledge, there are no agreements of any shareholders
of the Parent with respect to the voting or transfer of shares of its capital
stock.
(k) ACQUISITION AGREEMENT. The Parent has delivered to Purchaser's
Counsel a true and complete copy of the Acquisition Agreement (including each
amendment, consent or waiver in respect thereof). Such Agreement is in full
force and effect, and is the valid, binding and enforceable obligation of the
Parent, and to the best of Parent's knowledge, of the parties thereto.
Neither the Parent, nor, to the best of Parent's knowledge, the other parties
to the Acquisition Agreement, are in breach of their obligations thereunder
and to the best of the Parent's knowledge, no such breach is anticipated or
threatened.
(l) LICENSES, COMPLIANCE WITH LAW, OTHER AGREEMENTS, ETC. The Parent
and Subsidiaries have, and upon completion of the Acquisition of the Czech
Casinos will have, all necessary franchises, permits, gaming and other
licenses and other rights to allow it to conduct its business as presently
conducted and as proposed to be conducted upon acquisition of the Czech
Casinos. The Parent's and Subsidiaries businesses have been conducted in
compliance with all federal, state and local laws, ordinances, rules and
regulations except where such violations, defaults or noncompliance would not
have a material adverse effect on the Parent or the Subsidiaries.
(m) EMPLOYEES. Set forth on Schedule 3(m) is a list and summary
description of all agreements between the Parent and any employee thereof.
(n) NO UNDISCLOSED LIABILITIES. Except as forth on Schedule 3(n), the
Parent has no indebtedness, liabilities or obligations (whether absolute or
contingent, liquidated or unliquidated, or due or to become due) except (i)
as and to the extent of the amounts reflected or reserved against on the most
recent Form 10-QSB of the Parent filed with the Securities and Exchange
Commission, and (ii) indebtedness, liabilities and obligations incurred in
the ordinary course of business of the Parent and the Subsidiaries since the
date thereof.
(o) AFFILIATE TRANSACTIONS. Except as set forth on Schedule 3(o),
Parent and Subsidiaries have not entered into any agreement, arrangement or
transaction with any officer, director, shareholder or other affiliate within
the past twelve months, and none of the such persons or entities own property
or rights, tangible or intangible, which are used in the Parent's or
Subsidiaries business.
(p) TAXES. The Parent and Subsidiaries have prepared and filed all tax
returns, including information returns, declarations, reports estimates and
statements (collectively, "Tax
6
<PAGE>
Returns"), required to be filed by it under any United States federal, state
or local law or any foreign law, which Tax Returns are true, correct and
complete. The Parent and Subsidiaries have paid or made provision for the
payment of all taxes, charges, fees, levies or other assessments, including
all net income, gross income, gross receipts, gaming, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment,
excise, estimated, severance, stamp, occupation, property or other taxes
fees, assessments or charges, together with any interest and any penalties or
additional amounts thereon (collectively "Taxes"), that are due or claimed to
be due from it by any authority. There are no liens for any such Taxes upon
any assets, tangible or intangible, of the Parent or Subsidiaries. The
reserves for Taxes reflected on the most recent balance sheet of the Parent
in the most recent Form 10-QSB are sufficient for payment of all unpaid Taxes
(whether or not currently disputed) incurred with respect to the periods
ended on the date thereof and for all periods ended prior to such date.
There are no pending claims, disputes or questions relating to, or claims
for, Taxes of the either the Parent or Subsidiaries. Neither the Parent nor
the Subsidiaries have been granted any extension of the period of limitations
applicable to any claim for Taxes.
(q) All information regarding the status of the Subscriber shall be
kept strictly confidential, except where disclosure is required by applicable
law and regulation or by order of a court of competent jurisdiction.
(r) Parent and Subsidiaries shall use the proceeds only as set forth in
the Summary, unless set forth to the contrary in this Agreement or the Escrow
Agreement.
(s) Neither Parent nor Subsidiaries is an "investment company" under
the Investment Company Act of 1940.
4. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER. The Subscriber
hereby represents and warrants to and covenants with the Company and to each
director, officer and, controlling person of the Company as follows:
(a) GENERAL.
(i) The Subscriber was not organized for the specific purpose of
acquiring the Unit.
(ii) The Subscriber has all requisite legal power and
authority to purchase and own the Unit under applicable state and federal law
and regulation. This Agreement has been duly authorized by all necessary
action on the part of the Subscriber, has been duly executed and delivered by
an authorized officer or representative of the Subscriber, and is a legal,
valid and binding obligation of the undersigned enforceable in accordance
with its terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the rights and remedies of creditors and
by general equitable principles, regardless of whether such enforceability is
considered in a proceeding in law or in equity. The Subscriber has delivered
herewith the full purchase price for the Unit subscribed.
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<PAGE>
(b) INFORMATION CONCERNING THE COMPANY.
(i) The Subscriber acknowledges receipt of the Summary, is
familiar with the business and financial condition, properties, operations,
risks and prospects of the Company and, at a reasonable time prior to the
execution of this Subscription Agreement, has been afforded the opportunity
to ask questions of and received satisfactory answers from the Company's
officers and directors, or other persons acting on the Company's behalf,
concerning the business and financial condition, properties, operations,
risks and prospects of the Company and concerning the terms and conditions of
the offering of the Unit and has asked such questions as it desired to ask
and all such questions have been answered to the full satisfaction of the
Subscriber. The Subscriber has received no other offering literature,
information or advertisements relating to the Units other than the Summary.
(ii) The Subscriber understands that, unless the Subscriber
notifies the Company in writing to the contrary before the Closing, all the
representations and warranties contained in this Subscription Agreement will
be deemed to have been reaffirmed and confirmed as of the Closing Date,
taking into account all information received by the Subscriber.
(iii) The Subscriber understands that the purchase of the
Unit involves various risks, including, but not limited to, those outlined in
this Subscription Agreement and the Summary.
(iv) The Subscriber is relying solely on the information
contained in the Summary and in this Subscription Agreement and the answers
to the questions with respect thereto furnished to the Subscriber by the
Company. No representations or warranties have been made to the Subscriber by
the Company other than as set forth in this Agreement or as to the tax
consequences of this investment, or as to profits, losses, return on
investment, or cash flow which may be received or sustained as a result of
this investment, other than those contained herein.
(v) All documents, records and books pertaining to a
proposed investment in the Unit which the Subscriber has requested have been
made available to the Subscriber.
(vi) The Units have not been registered under the Securities
Act of 1933, as amended, or the securities acts of any state and no federal
or state agency has made any finding or determination as to the fairness of
the Offering of the Units, or any recommendation or endorsement of the
Offering or the Units.
(vii) The forward looking statements and projections made by
the Company in the Summary were intended for illustration purposes only and
no assurances were given that actual results will correspond with the results
presented therein.
(c) STATUS OF THE SUBSCRIBER.
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<PAGE>
(i) The Subscriber is in a financial position to hold the
Notes until maturity and is able to bear the economic risk and withstand a
complete loss of investment in the Unit.
(ii) The Subscriber has such knowledge and experience in
financial and business matters that the Subscriber is capable of evaluating
the merits and risks of the prospective investment in the Unit and has the
net worth to undertake such risks.
(iii) The Subscriber has obtained, to the extent the Subscriber
deems necessary, the Subscriber's own personal professional advice with
respect to the risks inherent in the investment in the Unit, and the
suitability of the investment in the Unit in light of the Subscriber's
financial condition and investment needs.
(iv) The Subscriber believes that the investment in the Unit
is suitable for the Subscriber based upon the Subscriber's investment
objectives and financial needs, and the Subscriber has adequate means
providing for the Subscriber's current financial needs and has no need for
liquidity of investment with respect to the Unit.
(v) The Subscriber realizes that (i) the purchase of the Unit
is a long-term investment; (ii) the Subscriber must bear the economic risk of
investment until the Notes mature and because the Notes have not been
registered under the Securities Act, the Notes cannot be sold unless they are
subsequently registered under the Act or an exemption from such registration
is available; and (iii) there is presently no public market for the Notes.
It is not anticipated that a public market will develop and the Subscriber
may not be able to liquidate the Subscriber's investment in the event of an
emergency or otherwise or pledge the Notes as collateral security for loans.
(vi) The Subscriber acknowledges that the Unit is being
purchased for the Subscriber's own account and for investment and without the
intention of reselling or redistributing the same, and that the Subscriber
made no agreement with others regarding the sale, transfer or disposition of
any of the Unit.
(vii) The Subscriber has no agreements (written or oral),
understandings or commitments with any other investor subscribing for Unit.
(viii) The Subscriber represents that the Subscriber is (CHECK
EACH CATEGORY OF "ACCREDITED INVESTOR" BELOW, IF ANY, WHICH IS APPLICABLE TO
THE SUBSCRIBER):
() (A) a natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
() (B) a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with
that person's spouse in excess
9
<PAGE>
of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
() (C) a bank as defined in Section 3(a)(2) of the
Securities Act or a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity; a broker or dealer registered pursuant to
Section 15 of the Exchange Act; an insurance company as defined in Section
2(13) of the Securities Act; an investment company registered under the
Investment Company Act of 1940 or a business development company as defined
in Section 2(a)(48) of that Act; a Small Business Investment Company licensed
by the U.S. Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; a plan established and maintained by a
state, its political subdivisions, or any agency or instrumentality of a
state or its political subdivisions, for the benefit of its employees if such
plan has total assets in excess of $5,000,000; or an employee benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974
("ERISA"), if the investment decision is made by a plan fiduciary, as defined
in Section 3(21) of ERISA, which fiduciary is either a bank, savings and loan
association, insurance company or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that are
Accredited Investors (as listed in categories (A)-(G));
() (D) a private business development company as defined in
Section 202(a)(22) of the Investment Advisors Act of 1940;
() (E) an organization described in Section 501(c)(3) of
the Internal Revenue Code, a corporation, business trust, or a partnership,
with total assets in excess of $5,000,000, and which was not formed for the
specific purpose of acquiring the Unit;
() (F) a trust, with total assets in excess of $5,000,000
not formed for the specific purpose of acquiring the Unit whose purchase is
directed by a person who has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of an
investment in Unit;
() (G) an entity in which all of the equity owners are
"Accredited Investors" (as listed in categories (A)-(F)); or
() (H) The Subscriber is a "qualified institutional buyer"
as defined by the Act under Rule 144A(a)(1); or
() (I) The Subscriber is resident in a country other than
the United States of America and does not intend to sell the Unit, and will
not sell the Unit, to any resident of the United States of America for at
least one (1) year after the Closing Date.
(ix) The statements made by the Subscriber herein are true and
correct and are confirmed hereby, and the Company shall be entitled to rely
thereon.
10
<PAGE>
(x) The Subscriber agrees to furnish any additional
information requested to assure compliance with applicable federal and state
securities laws in connection with the purchase and sale of the Unit.
(d) RESTRICTIONS ON TRANSFER OR SALE OF THE UNITS.
(i) The Subscriber is acquiring the Unit described solely for
the Subscriber's own beneficial account, for investment purposes, and not
with a view to, or for resale in connection with, any distribution of the
Unit. The Subscriber understands that the offer and the sale of the Units
have not been registered under the Securities Act or any state securities law
by reason of specific exemptions under the provisions thereof which depend in
part upon the investment intent of the Subscriber and of the other
representations made by the Subscriber in this Subscription Agreement. The
Subscriber understands that the Parent is relying upon the representations,
covenants and agreements contained in this Subscription Agreement (and any
supplemental information) for the purposes of determining whether this
transaction meets the requirements for such exemptions.
(ii) THE SUBSCRIBER UNDERSTANDS THAT THE UNITS ARE "RESTRICTED
SECURITIES" UNDER APPLICABLE FEDERAL SECURITIES LAWS AND THAT THE SECURITIES
ACT AND THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") PROVIDE, IN SUBSTANCE, THAT THE SUBSCRIBER MAY DISPOSE OF THE
UNIT ONLY PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR AN EXEMPTION THEREFROM, AND THE SUBSCRIBER UNDERSTANDS THAT
THE PARENT HAS NO OBLIGATION OR INTENTION TO REGISTER THE NOTES OR WARRANTS
PURCHASED BY THE SUBSCRIBER HEREUNDER OR TO TAKE ACTION SO AS TO PERMIT SALES
PURSUANT TO THE SECURITIES ACT (INCLUDING RULE 144 THEREUNDER). AS A
CONSEQUENCE, THE SUBSCRIBER UNDERSTANDS THAT THERE IS NO PUBLIC MARKET FOR
THE NOTES OR WARRANTS (NOR IS ONE EXPECTED TO DEVELOP) AND THE SUBSCRIBER
THEREFORE MUST BEAR THE ECONOMIC RISKS OF THE INVESTMENT IN THE NOTES OR
WARRANTS FOR AN INDEFINITE PERIOD OF TIME. THE SUBSCRIBER UNDERSTANDS THAT
THE SUBSCRIBER MAY NOT AT ANY TIME DEMAND THE PURCHASE BY THE COMPANY OF THE
SUBSCRIBER'S UNIT.
(iii) The Subscriber agrees: (A) that the Subscriber will not
sell, assign, pledge, give, transfer or otherwise dispose of the Unit or any
interest therein, or make any offer or attempt to do any of the foregoing,
except pursuant to a registration of the Unit under the Securities Act and
all applicable state securities laws or in a transaction which is exempt from
the registration provisions of the Securities Act and all applicable state
securities laws; (B) that the Parent and any transfer agent for the Unit
shall not be required to give effect to any purported transfer the Unit
except upon compliance with the foregoing restrictions; and (C) that a legend
in substantially the following form will be placed on the certificates
representing the Units:
"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
11
<PAGE>
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED."
(iv) The Subscriber has not offered or sold any portion of the
subscribed for Unit and has no present intention of dividing such Unit with
others or of reselling or otherwise disposing of any portion of such Unit
either currently or after the passage of a fixed or determinable period of
time or upon the occurrence on nonoccurrence of any predetermined event or
circumstance in violation of the Securities Act or applicable state
securities laws.
5. SURVIVAL AND INDEMNIFICATION. All representations, warranties and
covenants contained in this Agreement and the indemnification contained in
this Paragraph 5 shall survive (i) the acceptance of the Subscription
Agreement by the Company, (ii) changes in the transactions, documents and
instruments described herein which are not material or which are to the
benefit of the Subscriber, and (iii) the death or disability of the
Subscriber. The Subscriber acknowledges the meaning and legal consequences
of the representations, warranties and covenants in determining the
Subscriber's qualification and suitability to purchase the Unit. The
Subscriber hereby agrees to indemnify, defend and hold harmless the Company,
and its officers, directors, employees, agents and controlling persons, from
and against any and all losses, claims, damages, liabilities, expenses
(including attorneys' fees and disbursements), judgments or amounts paid in
settlement of actions arising out of or resulting from the untruth of any
representation herein or the breach of any warranty or covenant herein.
Notwithstanding the foregoing, however, no representation, warranty, covenant
or acknowledgment made herein by the Subscriber shall in any manner be deemed
to constitute a waiver of any rights granted to it under the Securities Act
or state securities laws.
6. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell the Unit specified herein is subject to the condition that
the representations and warranties of the Subscriber contained in Paragraph 4
hereof shall be true and correct on and as of the Closing Date in all
respects with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
7. ESCROW. An Escrow to fund the purchase price of the Units shall be
established as follows:
(a) Establishment of Escrow. The Company and the Escrow Agent shall
enter into the Escrow Agreement substantially in the form attached hereto as
Exhibit "B".
(b) Payment into Escrow. Upon execution of this Agreement by the
Issuer and the Subscriber, and not later than March 17, 1998, the Subscriber
shall transfer to the Escrow Agent the principal amount of the Note set forth
opposite the Subscriber's name on Exhibit "A" hereto.
(c) Effect of Escrow. The execution of this Agreement and the deposit
of the above sums into escrow shall not be deemed the purchase of the Unit by
the Subscriber. Rather, such sums shall be held in escrow with either the
Escrow Agent (or in the Barnett Sampson Account upon satisfaction of the
conditions specified in the Escrow Agreement) pending the simultaneous
12
<PAGE>
closing of the Acquisition Agreement, the Financing Note and this Agreement
(the "Final Closing"). The purchase of the Units shall occur upon the Final
Closing.
(d) Repayment. Should the Closing not occur, the Company shall cause
all sums delivered to the Escrow Agent and disbursed by the Escrow Agent
pursuant to the terms of the Escrow Agreement to be collected by the Escrow
Agent. Such sums shall then be repaid to the Subscriber pursuant to the
terms of the Escrow Agreement.
8. SUBSCRIBER CONDITIONS FOR CLOSING.
The Company's Obligations. The Subscriber's obligation to purchase the
Unit on the Closing Date shall be subject to the performance by the Company
of its agreements hereunder which, by the terms hereof, are to be performed
at or prior to the time of delivery of the Unit and to the following further
conditions precedent:
(a) Closing Certificates.
(i) From the Company. Jack R. Bird, Esq. of Bergman,
Yonks, Stein & Bird, L.L.P. (the "Purchasers' Counsel"), shall have
received a certificate dated the Closing Date, signed by an authorized
officer of both the Parent and Subsidiaries, the truth and accuracy of
which shall be a condition to Subscriber's obligation to purchase the
Unit proposed to be sold to Subscriber and to the effect that (1) the
representations and warranties of the Parent and Subsidiaries herein are
true and correct on and as of the Closing Date, (2) the Parent and
Subsidiaries have performed all of its obligations hereunder which are
to be performed on or prior to the Closing Date, (3) no default has
occurred and is continuing in either this Agreement or the Acquisition
Agreement, (4) the corporate good standing of the Parent and
Subsidiaries, and (5) that all contingencies necessary to close the
Acquisition Agreement and the Financing Note have been satisfied or
waived and that the Parent and Subsidiaries shall close the Acquisition
Agreement upon authorization by Purchasers' Counsel pursuant to
paragraph 8(a)(ii).
(ii) From Subscriber's Special Counsel. The Purchasers'
Counsel, on behalf of the Subscribers, shall have delivered (i) a
certificate to counsel for the Company authorizing the release of the
Purchase Price (as defined in the Acquisition Agreement) from the
Barnett Sampson Account to the Sellers of the Czech Casinos, and (ii) a
certificate to the Escrow Agent directing the release of the remaining
escrowed sums pursuant to the Escrow Agreement.
(b) Related Transactions. The Company shall have consummated
the sale of the minimum amount of the Units comprising the offering and all
such Subscribers shall
13
<PAGE>
have wire transferred to the Escrow Agent an amount equal to the principal
amount of the Notes so purchased in compliance with paragraph 7 above.
(c) The Indentures. The Parent, the Subsidiaries and the Trustee
shall have simultaneously authorized, executed and delivered the Indentures.
The Indentures shall be in full force and effect and shall constitute the
valid, binding and enforceable obligation of the Parent, Subsidiaries and the
Trustee, except that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the rights and remedies of creditors and
by general equitable principles, regardless of whether such enforceability is
considered in a proceding at law or in equity, and no default on the part of
the Parent or Subsidiaries shall exist thereunder.
(d) Operative Agreements. Each of the other Operative Agreements
to be executed and delivered on or before the Closing Date shall have been
duly authorized and simultaneously executed and delivered by each of the
Parent, the Subsidiaries and other parties thereto (including the Finance
Note and related indenture and all related documents necessary to grant the
liens and security interests contemplated therein), shall be in full force
and effect and shall constitute the valid, binding and enforceable obligation
of each party, except that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the rights and remedies of creditors and
by general equitable principles, regardless of whether such enforceability is
considered in a proceeding in law or in equity.
(f) Proceedings. All proceedings in connection with the
transaction contemplated by the Operative Agreements shall be reasonably
satisfactory to the Purchaser's Counsel and the Purchaser's Counsel shall
have received all such counterpart originals or certified or other copies of
such documents Purchaser's Counsel may reasonably request.
(g) Opinion of Counsel. On the Closing, Subscribers shall have
received an opinion of counsel in a form reasonably acceptable to
Purchaser's Counsel.
(h) The Acquisition Agreement and the Financing Note shall close
simultaneously with this Agreement, although the Units shall close
sequentially immediately prior to the Financing Note.
(i) The Parent shall deliver executed documents of the
restructured 1999 Notes which extend the maturity date thereof to not less
than six (6) months beyond the maturity date of the Notes and convert the
fixed interest payments to a cash flow feature, on terms acceptable to
Subscribers investing three quarters of the dollar of this Subscription.
(j) Either (i) each of the outstanding Warrants set forth on
Exhibit C attached hereto shall have been amended so as to (a) eliminate the
anti-dilution provisions contained therein and replace them with customary
anti-dilution protections substantially identical to those granted to the
holders of the Warrants hereunder, and (b) waive any anti-dilution
adjustments for the issuance of the Warrants hereunder or the issuance of the
Common Stock upon exercise thereof, or
14
<PAGE>
(ii) the holders of the Warrants hereunder shall be entitled to the most
favorable of such anti-dilution provisions contained in such warrants such
that the Warrants issued hereunder shall at all times after the issuance date
be exercisable into 40% of the shares of Parent Common Stock outstanding
(fully diluted for (a) the exercise of such Warrants, (b) the exercise of any
warrants or other securities issued to the holders of the Company's
outstanding 12% Secured Convertible Senior Bonds in connection with the
restructuring thereof, and (c) the exercise of the Company's currently
outstanding warrants having an exercise price less than $7.00 per share
(taking into consideration any anti-dilution adjustments contained therein
for the issuance of the Warrants or the issuance of the Parent Common Stock
upon exercise thereof)) or (iii) such other actions shall be taken to resolve
any anti-dilution provided for in the warrants set forth on Exhibit "C" as
are otherwise acceptable to the Subscribers of 75% in dollar face amount of
the Units.
9. EXPENSES AND CONSENTS.
9.1 Expenses. Whether or not the transactions contemplated hereby
shall be consummated, the Company will pay all reasonable expenses in
connection with such transactions and in connection with any amendments or
waivers (whether or not the same become effective) under or in respect of the
Operative Agreements, including, without limitation: (i) the cost and expense
of preparing and reproducing the Operative Agreements, of furnishing all
opinions by counsel for the Company as to any legal matter arising hereunder
and all certificates on behalf of the Company; (ii) the cost of delivering to
Subscriber's principal office, insured to Subscriber's satisfaction, the
certificates representing the Unit issued and sold to Subscriber hereunder;
(iii) the reasonable fees, expenses and disbursements of Bergman, Yonks,
Stein & Bird, L.L.P. and White & Case, and other necessary European Special
Counsel, as counsel to the Subscriber's in connection with such transactions
and any such amendments or waivers; (iv) the costs and expenses, including
attorneys' fees, incurred by Subscriber or any subsequent holder of the Notes
or Warrants in enforcing (or determining whether or how to enforce) any
rights under any Operative Agreement or in responding to any subpoena or
other legal process in connection with any Operative Agreement or the
transactions contemplated hereby; and (v) the reasonable out-of-pocket
expenses incurred by Purchaser's Counsel on behalf of Subscriber in
connection with such transactions and any such amendments or waivers. The
Parent will also pay, and will save Subscriber and each holder of any Unit
harmless from, all reasonable claims in respect of the fees, if any, of
brokers and finders (unless engaged by Subscriber) and any transfer and all
liabilities with respect to any transfer taxes (including interest and
penalties) which may be payable in respect of the execution and delivery
hereof of the Notes and Warrants hereunder and any amendment, waiver or
forbearance under or in respect hereof or of the Notes and Warrants.
9.2 Consents.
(a) Jack R. Bird, Esq. of Bergman, Yonks, Stein & Bird, LLP, counsel to
the purchasers in this transaction, also represents Value Partners, Ltd.
which is the holder of a majority of Trans World Gaming Corp. 12% Secured
Convertible Senior Bonds due 1999 (the "1999 Notes") and a major investor in
the Notes offered hereby. By executing this Agreement, you shall be deemed
to have advised Mr. Bird that after consideration of the above matters and
such consultation with independent counsel and others as you have deemed
necessary, you have consented to representation
15
<PAGE>
by Mr. Bird of Value Partners, Ltd. and of the purchasers as a group in
connection with the preparation of the documents in connection with this
transaction, as well as to Mr. Bird's continued representation of Value
Partners, Ltd. and their affiliates in connection with matters, including as
to the interest acquired by Value Partners, Ltd., in this transaction. In
addition, you hereby waive any conflict of interest that might arise by
reason of Mr. Bird 's representation of Value Partners, Ltd. and the
purchasers as a group in connection with the preparation of the documents
contemplated hereby and of Mr. Bird's representation of Value Partners in the
proposed restructure of the 1999 Notes.
(b) You further represent that you have received and reviewed each of
the closing documents and your acceptance hereof and your signature hereon
shall constitute acceptance of the terms and conditions of each of the
closing documents. In doing so, you acknowledge that the documents provided
to you are in substantially the form which shall be executed and delivered at
Closing, but may be modified, prior to Closing, consistent with the terms of
the transaction as set forth herein, in the Memorandum and in such documents.
(c) You further acknowledge that no representation or warranty, express
or implied, is made by Libra Investments, Inc. ("Libra") or any of its
representatives as to the accuracy or completeness of the information set
forth herein or in the Confidential Private Placement Summary, and nothing
contained herein or in the Confidential Private Placement Summary is, or
shall be relied upon as, a promise or representation by Libra or any of its
representatives, whether as to the past or the future. Neither Libra nor any
of its representatives has independently verified any of such information and
they do not assume any responsibility for its accuracy or completeness.
(d) You further acknowledge that you are not relying upon Bergman,
Yonks, Stein & Bird, L.L.P. for advice or counsel as to the tax and
securities laws consequences of this Agreement.
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained in this Agreement or the other Operative Agreements,
or made in writing by or on behalf of the Parent, the Subsidiaries or the
Subscriber, in connection with the transactions contemplated by this
Agreement or the other Operative Agreements, shall survive the execution and
delivery of this Agreement and the other Operative Agreements. All
statements contained in any certificate or other instrument delivered by or
on behalf of the Parent or the Subsidiaries pursuant to this Agreement and
the other Operative Agreements or in connection with any amendment, waiver or
modification of this Agreement or any of the other Operative Agreements shall
be deemed representations and warranties of the Parent and Subsidiaries or
the Subscriber (as the case may be) under this Agreement.
11. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LEGAL OR EQUITABLE
ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
UNITS OR ANY OTHER OPERATIVE AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY
OR THEREBY OR THE SUBJECT MATTER
16
<PAGE>
OF ANY OF THE FOREGOING.
12. NOTICES. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid, telex, telecopier or overnight air courier guaranteeing next
day delivery:
(a) if to the Company, to it at the following address:
Trans World Gaming Corp.
One Penn Plaza
Suite 1503
New York, New York 10119
Attn: Dominick Valenzano, Chief Financial Officer
(b) if to the Escrow Agent, to it at the following address:
U.S. Trust Company of Texas
2001 Ross Avenue
Dallas, Texas 75201
Attn: John Stohlmann, Vice President
(c) if to the Subscriber, to the address set forth on the signature
page hereto, or at such other address as either party shall have
specified by notice in writing to the other.
All notices and communications shall be deemed to have been duly given:
at the time delivered by hand, if personally delivered; five business days
after being deposited in the mail, certified mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt is orally acknowledged,
if telecopied; and the next business day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
13. HOLD HARMLESS. Neither the Purchasers' Counsel, nor his firm, nor
any member thereof shall be liable for any action taken or omitted or for any
loss or injury resulting from its actions or its performance or lack of
performance of its duties hereunder or in the Escrow Agreement in the absence
of gross negligence, violation of law or regulation or willful misconduct on
his part. In no event shall the Purchasers' Counsel, his firm or any member
thereof, be liable for acting in accordance with or relying upon any
instruction, notice, demand, certificate or document from the parties hereto,
for any consequential, punitive or special damages. The Purchasers' Counsel,
his firm or any member thereof, shall not incur any liability for not
performing any act or fulfilling any duty, obligation or responsibility
hereunder by reason of any occurrence beyond the control of the Purchasers'
Counsel (including but not limited to any act or provision of any present or
future law
17
<PAGE>
or regulation or government authority, any act of God or war, or the
unavailability of the Federal Reserve Bank wire or, facsimile, Internet,
telex or other wire or communication facility).
14. NOTIFICATION OF CHANGES. The Subscriber and the Company agree and
covenant to notify the other promptly upon the occurrence of any event prior
to the Closing which would cause any representation, warranty, covenant or
other statement contained in this Subscription Agreement by such person so
notifying to be false or incorrect or of any change in any statement made
herein occurring prior to the Closing Date.
15. ASSIGNABILITY. This Subscription Agreement is not assignable by
the Subscriber or the Company, and may not be modified, waived or terminated
except by an instrument in writing signed by the party against whom
enforcement of such modifications, waiver or termination is sought.
16. BINDING EFFECT. Except as otherwise provided herein, this
Subscription Agreement shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, and legal
representatives, and assigns, and the agreements, representations, warranties
and acknowledgments contained herein shall be deemed to be made by and be
binding upon such heirs, executors, administrators, successors, and legal
representatives. and assigns. If the Subscriber is more than one person,
the obligation of the Subscriber shall be joint and several and the
agreements, representations, warranties and acknowledgments contained herein
shall be deemed to be made by and be binding upon each such person and his
heirs, executors, administrators and successors.
17. OBLIGATIONS IRREVOCABLE. The obligations of the Subscriber shall
be irrevocable, (unless the Acquisition does not Close pursuant to the terms
hereof), except with the consent of the Company, until the Closing or earlier
termination of the Offering, which may be terminated at any time in the sole
discretion of the Company.
18. ENTIRE AGREEMENT. This Subscription Agreement constitutes the
entire agreement of the Subscriber and the Company relating to the matters
contained herein, superseding all prior contracts, commitments, or
agreements, whether oral or written.
19. GOVERNING LAW. This Subscription Agreement shall be governed and
controlled as to the validity, enforcement, interpretations, construction and
effect and in all other aspects by the substantive laws of the State of NEW
YORK, without reference to conflicts of laws principles.
20. SEVERABILITY. If any provision of this Subscription Agreement or
the application thereof to any Subscriber or circumstance shall be held
invalid or unenforceable to any extent, the remainder of this Subscription
Agreement and the application of such provision to other subscriptions or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
18
<PAGE>
21. HEADINGS. The headings in this Subscription Agreement are inserted
for convenience and identification only and are not intended to describe,
interpret, define, or limit the scope, extent or intent of this Subscription
Agreement or any provision hereof.
22. COUNTERPARTS. This Subscription Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which together shall be deemed to be one
and the same agreement.
23. DOCUMENTS BEING TENDERED. The Subscriber hereby tenders two
completed and executed copies of this Subscription Agreement,
[This portion of the page is intentionally left blank.]
19
<PAGE>
IN WITNESS WHEREOF, the undersigned Subscriber has executed this Subscription
Agreement this _____ day of March, 1998.
CORPORATE SUBSCRIBER:
By: ____________________________________
Its: ___________________________________
INDIVIDUAL SUBSCRIBER:
By: ____________________________________
PARTNERSHIP SUBSCRIBER:
By: ____________________________________
Its: ___________________________________
Accepted this ___ day of March, 1998, as to the Unit.
TRANS WORLD GAMING CORP:
By: ____________________________________
By: ____________________________________
TWG INTERNATIONAL U.S. CORPORATION:
By: ____________________________________
By: ____________________________________
TWG FINANCE CORP:
By: _______________________________________
Its: ________________________________________
20
<PAGE>
SCHEDULE 3(M)
EMPLOYMENT AGREEMENTS AS OF MARCH 2, 1998:
1. Andrew Tottenham, Pres. & CEO of TWG; by agreement dated 12/26/96
and concluding 12/31/01; salary of $150,000 per annum
2. James Hardman, Pres. MATS by agreement; dated 4/15/97 and
concluding 4/14/02; salary of $100,000 per annum
3. Chris Moore, Dir. of Operations of TWG by agreement; dated 2/1/97
and concluding 1/31/00; salary of $90,000 per annum with a
recoverable draw of $20,000 per annum
Each of the above is covered by the 1993 Stock Option Plan and the 1996
Management Incentive Plan.
21
<PAGE>
SCHEDULE 3(N)
UNDISCLOSED LIABILITIES.
None
22
<PAGE>
SCHEDULE 3(O)
AFFILIATE TRANSACTIONS
None
23
<PAGE>
Exhibit "A"
<TABLE>
<CAPTION>
Number of
Subscriber Principal Amount ---------
---------- of Notes Warrants
-------- --------
<S> <C> <C>
Amir Development $300,000 102,644
Banco Santander $1,000,000 342,148
CS First Boston Corp. $5,000,000 1,710,741
Value Partners, Ltd. $8,000,000 2,737,186
Fort Pitt Investment Fund $750,000 256,611
Lim Investment Management $250,000 85,537
Margolis, Bobby $250,000 85,537
Milner, Reese $100,000 34,215
Morgan Stanley $1,000,000 342,148
Palestra Capital LLC $300,000 102,644
Ravich, Jess $50,000 17,107
</TABLE>
24
<PAGE>
EXHIBIT "B"
ESCROW AGREEMENT
25
<PAGE>
Exhibit "C"
TRANS WORLD GAMING
CAPITAL STRUCTURE(1)(2)
<TABLE>
<CAPTION>
Warrants Options
-------- -------
Common Grant Exercise Expiration Grant Exercise Expiration
Shares # shares Date Price $ Date # shares Date Price Date
------ -------- ---- -------- -------- -------- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IPO 2,544,286 1,511,429 12/15/94 8.50 12/15/99
Underwriter 151,143 12/15/94 11.55 12/15/99
Underwriter 151,143 12/15/94 13.5 12/15/99
CP Baker 299,925 3/26/96 0.01 3/26/02
CP Baker 199,960 6/3/96 0.01 6/2/02
Value Partners 600,000 6/30/96 1.00 6/29/01
Value Partners 220,760 12/19/97 0.50 12/31/99
Anazai Partners 200,000 6/30/96 1.00 6/29/01
New Generation 100,000 6/30/96 1.00 6/29/01
Friedson 20,000 6/30/96 1.00 6/29/01
Fundamental Invest 40,000 6/30/96 1.00 6/29/01
Tottenham 500,000 250,000 1/1/97 0.59375 12/31/01 1,000 10/2/96 1.59375 10/1/01
Tottenham 1,000 12/31/96 1.00 12/30/01
Tottenham 100,000 12/31/97 0.30 12/30/02
Prime Properties 120,000 12/22/94 7.00 12/21/97
Prime Properties -120,000 Expired
Chrysolith 200,000 12/22/94 7.00 12/21/97
Chrysolith -200,000 Expired
Stockcomm 12,500 1/18/95 9.00 open
Kohlenberg 1,000 5/22/95 3.125 5/21/00
Kohlenberg 25,000 3/7/96 1.4375 3/6/01
Kohlenberg 75,000 12/31/96 1.00 12/30/01
Kohlenberg 1,000 3/31/97 1.00 3/30/02
Kohlenberg 1,000 6/30/97 0.56 6/29/02
Kohlenberg 1,000 9/30/97 0.35 9/29/02
Kohlenberg 1,000 12/31/97 0.30 12/30/02
Valenzano 20,000 5/22/95 3.125 5/21/00
Valenzano 50,000 12/31/96 1.00 12/30/01
Valenzano 50,000 12/31/97 0.30 12/30/02
Taft 1,000 10/2/96 1.59375 10/1/01
Taft 1,000 12/31/96 1.00 12/30/01
</TABLE>
- ----------------------------------
1 This Table does not include the $4,800,000 outstanding principal
amount of 12% Secured Convertible Senior Bonds due 1999 (the "Senior Bonds")
which are presently convertible into common stock at $2.50 per share.
Assuming all such Senior Bonds are restructured on the terms outlined in the
Supplement, the conversion feature will be eliminated and warrants will be
issued to purchase 3,200,000 shares of Common Stock with an exercise price of
$1.50 per share.
2 This Table does not include warrants to purchase 2.0% of the
fully-diluted Common Stock of the Issuer (except for certain out of the money
warrants and options outstanding prior to the private placement) at an
exercise price of $.01 per share to be issued to Libra Investments Inc. in
connection with the private placement. Such warrants are in addition to the
advisory fee equal of 5.0% of the gross proceeds of any securities issued
or sold in the private placement (except that such fee shall be 3.0% of the
gross proceeds of any securities issued or sold to Value Partners, Ltd.)
26
<PAGE>
<TABLE>
<CAPTION>
Warrants Options
-------- -------
Common Grant Exercise Expiration Grant Exercise Expiration
Shares # shares Date Price $ Date # shares Date Price Date
------ -------- ---- -------- -------- -------- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taft 1,000 3/31/97 1.00 3/30/02
Taft 1,000 6/30/97 0.56 6/29/02
Taft 1,000 9/30/97 0.35 9/29/02
Taft 1,000 12/31/97 0.30 12/30/02
Weppler 20,000 12/31/96 1.00 12/30/01
Weppler 5,000 12/31/97 0.30 12/30/02
Moore 25,000 2/1/97 1.3125 2/1/02
Moore 25,000 2/1/97 2.00 2/1/02
Moore 40,000 12/31/97 0.30 12/30/02
Rivas, Sr 25,000 4/19/96 0.90625 4/18/01
Rivas, Sr 20,000 10/2/96 1.59375 10/1/01
O'Gorman 4,000 12/31/97 0.30 12/30/02
Hardman 10,000 12/31/97 0.30 12/30/02
TOTALS 3,044,286 3,744,360 519,500
--------- --------- -------
--------- --------- -------
</TABLE>
27
<PAGE>
ESCROW AGREEMENT
This Escrow Agreement ("Escrow Agreement") is entered into this ____ day
of March, 1998, among U.S. Trust Company of Texas, N.A. (the Escrow Agent),
Trans World Gaming Corp. (TWG), TWG Finance Corp. ("TWG Finance") and TWG
International U.S. Corporation (TWG International and together with TWG and
TWG Finance, collectively the Obligors).
In connection with the closing (the Closing) under the Subscription
Agreements (the Subscription Agreements), each dated as of March 17, 1998,
among the Obligors and the purchasers of $15,000,000 to $17,000,000 aggregate
principal amount of the Obligors' 12% Senior Secured Notes Due March, 2005
(the Notes) and Warrants to purchase shares of Common Stock of TWG in such
number as set forth in the Subscription Agreement (the "Warrants", which with
the Notes are referred to as the "Units") listed on the Schedule of
Purchasers attached hereto as Exhibit "A" and by this reference incorporated
herein (the Purchasers), scheduled to occur on March 31, 1998, it has been
requested that by no later than March 17, 1998, the Purchasers deposit in an
escrow account with the Escrow Agent an amount equal to the principal amount
of such Notes (the Deposited Amount).
The Deposited Amount, together with all interest thereon (collectively,
the Escrow Property) will be held by the Escrow Agent for the benefit of the
Purchasers until distributed as provided in this Escrow Agreement.
The Obligors desire to enter into this Escrow Agreement in order to
induce the Purchasers to deposit the Deposited Amount and to memorialize
their understanding with the Escrow Agent, as set forth in the Escrow
Agreements, as to the terms on which the Escrow Property will be disbursed.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties to this Escrow Agreement agree as follows:
1. Pursuant to the terms of the Subscription Agreements, the
Purchasers will deliver to the Escrow Agent the Deposited Amount and the
Escrow Property will be held in accordance with the terms and conditions of
this Escrow Agreement. In order to induce the Purchasers to make such
deposits, the Obligors, jointly and severally, and the Escrow Agent agree:
(a) In the event that the Closing has not occurred in accordance
with the terms and conditions contained in the Subscription Agreements on or
before March 31, 1998 (unless extended in writing with the consent of Mr.
Jack R. Bird, Esq. which written consent shall state that Mr. Bird is acting
with the written direction of the Subscribers of 75% in dollar face amount of
the Units), absolutely and unconditionally (i) to cause a sum equal to the
Escrow Amount released pursuant to Section 2 herein to be promptly repaid to
the Escrow Agent on behalf of the Purchasers,
1
<PAGE>
and (ii) that all of the Deposited Amount shall be paid (including through
the release of the Deposited Amount in accordance with Section 4(a)) to each
Purchaser in immediately available funds as soon as reasonably possible, but
no later than, prior to 10:00 a.m. (New York City Time) on April 15, 1998, or
as soon as possible thereafter, an amount equal to (x) the amount deposited
by such Purchaser with the Escrow Agent, plus interest earned on such amount
while held in escrow pursuant to this Escrow Agreement, if any, less (y) any
amounts previously returned to such Purchaser by the Escrow Agent out of such
escrow account; and
(b) That, in the event that the Closing occurs under and pursuant
to the terms and conditions of the Subscription Agreements, (i) the Units
received by each Purchaser shall be dated March 17, 1998, and (ii) deposits
with the Escrow Agent of amounts specified opposite each Purchaser's name
shall constitute payment in full of the purchase price of the Units to be
purchased by each Purchaser at the Closing; and
(c) In the event that Mr. Bird notifies the Escrow Agent in
writing on or before March 30, 1998 that the $4,800,000 12% Secured
Convertible Senior Bonds due 1999 have not been amended on terms acceptable
to the Subscribers of 75% in dollar face amount of the Units, such Deposited
Amount shall be paid (including through the release of the Deposited Amount
in accordance with Section 4(a)) to each Purchaser in immediately available
funds, as soon as is reasonably possible following March 30, 1998, in an
amount equal to (x) the amount deposited by such Purchaser with the Escrow
Agent, plus interest earned on such amount while held in escrow pursuant to
this Escrow Agreement, if any, less (y) any amounts previously returned to
such Purchaser by the Escrow Agent out of such escrow account
2. The Escrow Agent shall hold the Escrow Property until such time as
it receives (a) notice in writing from Jack Bird, Esq. with the firm of
Bergman, Yonks, Stein & Bird, L.L.P., counsel to the Purchasers, authorizing
the Escrow Agent to deliver the sum as directed in such letter of the Escrow
Property to the account of Barnett Sampson Solicitors pursuant to the wiring
instructions set forth in Exhibit "B" hereto and by this reference
incorporated herein, and (b) notice in writing from Mr. Bird and an officer
of TWG to deliver the remaining Escrow Property as directed in that joint
letter.
3. The Escrow Fund need not be segregated from other funds of the
Escrow Agent, except to the extent required by law. The Escrow Agent shall
invest money hereinafter as follows: (i) funds received prior to 12 o'clock
noon, New York time on March 16, 1998 in Excelsior Funds, Inc. Government
Money Funds, (ii) funds received after 12 o'clock noon, New York time, and
before 3:00 p.m. New York time, on March 16, 1998, in an overnight time
deposit with United States Trust Company, Morgan Guaranty Trust Company of
New York, The Chase Manhattan Bank or Banker's Trust Company, and (iii) funds
received after 3:00 p.m., New York time on March 16, 1998, shall remain
uninvested, unless the Escrow Agent, without any obligation to do so, is able
to invest such funds in the ordinary course of its business in investments of
the type permitted in clause (i) or (ii) above. Any losses on any such
investments shall be for the account of the Purchasers.
2
<PAGE>
Funds referred to in (ii) and (iii) above shall be invested as provided in
(i) above on the Business Day following the original investments thereof.
4. (a) The Escrow Agent shall not be liable for any loss from said
investments. Income earned on such investments shall become a part of the
Escrow Property. The Escrow Agent is authorized to sell or redeem any such
investments as necessary to make payments or disbursements required hereunder
and shall be held harmless by each of the Obligors and Purchasers with
respect to any losses or penalties incurred thereby. (b) Any portion of the
Escrow Property which remains undisbursed at the close of business in New
York, New York on April 10, 1998 shall, upon receipt by the Escrow Agent of
written instructions from Jack R. Bird, be returned to the Purchasers at the
opening of business in New York, New York on April 15, 1998, pro rata in
accordance with the amounts of their respective deposits under this Escrow
Agreement, unless such instructions delay such return in Mr. Bird's sole
discretion.
5. The Obligors, jointly and severally, shall be responsible for and
shall reimburse the Escrow Agent upon demand for all reasonable expenses,
disbursements and advances incurred or made by the Escrow Agent in connection
with its administration of this Escrow Agreement.
6. The duties, responsibilities and obligations of the Escrow Agent
shall be limited to those expressly set forth herein and no duties,
responsibilities or obligations shall be inferred or implied. The Escrow
Agent shall not be subject to, nor required to comply with, any other
agreement between or among any or all of the Obligors and the Purchasers or
to which any Obligor or Purchaser is a party, even though reference thereto
may be made herein or therein, or to comply with any direction or instruction
(other than those contained herein or delivered in accordance with this
Escrow Agreement) from any Obligor or Purchaser or any entity acting on its
behalf. The Escrow Agent shall not be required to, and shall not, expend or
risk any of its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder.
7. The parties hereto acknowledge that the Purchasers are third-party
beneficiaries of this Agreement. This Escrow Agreement is for the exclusive
benefit of the parties hereto and the Purchasers and their respective
successors hereunder, and shall not be deemed to give, either express or
implied, any legal or equitable right, remedy, or claim to any other entity
or person whatsoever.
8. If at any time the Escrow Agent is served with any judicial or
administrative order, judgment, decree, writ or other form of judicial or
administrative process which in any way effects the Escrow Property
(including but not limited to orders of attachment or garnishment or other
forms of levies or injunctions or stays relating to the transfer of the
Escrow Property), the Escrow Agent is authorized to comply therewith in any
manner as it or its legal counsel of its own choosing deems appropriate;
provided that the Escrow Agent shall give prompt notice thereof to the
parties hereto and the Purchasers. If the Escrow Agent complies with any
such judicial or administrative order, judgment, decree, writ or other form
of judicial or administrative process, the Escrow Agent shall not be liable
to any of the parties hereto or any Purchaser or to any other person or
entity even
3
<PAGE>
though such order, judgment, decree, writ or process may be subsequently
modified or vacated or otherwise determined to have been without legal force
or effect.
9. The Escrow Agent shall safe keep the Deposited Amount and exercise
such care thereover as it does over its own assets, as a prudent person would
exercise under the circumstances. The Escrow Agent shall not be liable for
any action taken or omitted or for any loss or injury resulting from its
actions or its performance or lack of performance of its duties hereunder in
the absence of gross negligence, violation of law or regulation or willful
misconduct on its part. In no event shall the Escrow Agent be liable (i) for
acting in accordance with or relying upon any instruction, notice, demand,
certificate or document from the parties hereto, the Purchasers or any person
or entity acting on behalf of the Purchasers as set forth herein, (ii) for
any consequential, punitive or special damages, (iii) for the acts or
omissions of its nominees, correspondents, designees, subagents or
subcustodians reasonably chosen in good faith, or (iv) for an amount in
excess of the value of the Escrow Property, valued as of the date of deposit.
The Escrow Agent may consult with legal counsel at the expense of the
Obligors as to any matter relating to this Escrow Agreement, and the Escrow
Agent shall not incur any liability in acting in good faith in accordance
with any advice from such counsel. The Escrow Agent shall not incur any
liability for not performing any act or fulfilling any duty, obligation or
responsibility hereunder by reason of any occurrence beyond the control of
the Escrow Agent (including but not limited to any act or provision of any
present or future law or regulation or government authority, any act of God
or war, or the unavailability of the Federal Reserve Bank wire or, facsimile,
Internet, telex or other wire or communication facility).
10. Unless otherwise specifically set forth herein, the Escrow Agent
shall proceed as soon as practicable to collect any collection items at any
time deposited hereunder. All such collections shall be subject to the
Escrow Agent's usual collection practices or terms regarding items received
by the Escrow Agent for deposit or collection. The Escrow Agent shall not be
required, or have any duty, to notify anyone of any payment or maturity under
the terms of any instrument deposited hereunder, nor to take any legal action
to enforce payment of any check, note or security deposited hereunder or to
exercise any right or privilege which may be afforded to the holder of any
such security.
11. The Escrow Agent shall not be responsible in any respect for the
form, execution, validity, value or genuineness of documents or securities
deposited hereunder, or for any description therein, or for the identity,
authority or rights of persons executing or delivering or purporting to
execute or deliver any such document, security or endorsement.
12. Notices, instructions or other communications shall be in writing
and shall be given to the address set forth below the signature of a party on
the signature page hereto or, in the case of the Purchasers, as specified in
the Schedule of Purchasers attached hereto as Exhibit "A". Notices to the
Escrow Agent shall be deemed to be given when actually received by the Escrow
Agent's Corporate Trust Department. The Escrow Agent is authorized to comply
with and rely upon any notices, instructions or other communications believed
by it to have been sent or given by a person
4
<PAGE>
or persons authorized hereunder. Whenever under the terms hereof the time
for giving a notice or performing an act falls upon a Saturday, Sunday, or
banking holiday in New York, such time shall be extended to the next day on
which the Escrow Agent is open for business.
13. The Obligors, jointly and severally, shall be liable for and shall
reimburse and indemnify the Escrow Agent and hold the Escrow Agent harmless
from and against any and all claims, losses, liabilities, costs, damages or
expenses (including reasonable attorneys fees and expenses) (collectively,
Losses) arising from or in connection with or related to this Escrow
Agreement or being the Escrow Agent hereunder (including, but not limited to,
Losses incurred by the Escrow Agent in connection with its successful
defense, in whole or in part, of any claim of gross negligence, violation of
law or regulation or willful misconduct on its part), PROVIDED that nothing
contained herein shall require the Escrow Agent to be indemnified for Losses
caused by its gross negligence, violation of law or regulation or willful
misconduct.
14. In the event of any ambiguity or uncertainty hereunder or in any
notice, instruction or other communication received by the Escrow Agent
hereunder, the Escrow Agent may, in its sole discretion, refrain from taking
any action other than retaining possession of the Escrow Property, unless the
Escrow Agent receives written instructions, signed by all the parties hereto
and Mr. Bird on behalf of the Purchasers, which eliminates such ambiguity or
uncertainty. In the event of any dispute between or conflicting claims by
the Obligors and the Purchasers the determination of a mutually selected
arbitrator shall be dispositive.
15. This Agreement may be enforced only by the parties hereto and shall
be interpreted, construed, enforced and administered in accordance with the
internal substantive laws (and not the choice of law rules) of the State of
New York. Each of the Escrow Agent and the Obligors hereby submits to the
personal jurisdiction of and each agrees that all proceedings relating hereto
shall be brought in courts located within the City and State of New York.
Each of the Escrow Agent and the Obligors hereby waives the right to trial by
jury and to assert counterclaims in any such proceedings. To the extent that
in any jurisdiction any party hereto may be entitled to claim, for itself or
its assets, immunity from suit, execution, attachment (whether before or
after judgment) or other legal process, each hereby irrevocably agrees not to
claim, and hereby waives, such immunity. Each party hereto waives personal
service of process and consents to service of process by certified or
registered mail, return receipt requested, directed to it at the address last
specified for notices hereunder.
16. Except as otherwise permitted herein, this Escrow Agreement may be
modified only by a written amendment signed by all the parties hereto and
consented to by Mr. Bird, and no waiver of any provision hereof shall be
effective unless expressed in a writing signed by the party to be charged and
by Mr. Bird.
17. The rights and remedies conferred upon the parties hereto shall be
cumulative, and the exercise or waiver of any such right or remedy shall not
preclude or inhibit the exercise of any additional rights or remedies. The
waiver of any right or remedy hereunder shall not preclude the subsequent
exercise of such right or remedy.
5
<PAGE>
18. Each party hereby represents and warrants (a) that this Escrow
Agreement has been duly authorized, executed and delivered on its behalf and
constitutes its legal, valid and binding obligation, enforceable against each
of them in accordance with their terms and (b) that the execution, delivery
and performance of this Escrow Agreement by such party does not and will not
violate any applicable law or regulation.
19. The invalidity, illegality or unenforceability of any provision of
this Escrow Agreement shall in no way affect the validity, legality or
enforceability of any other provision. If any provision is held to be
unenforceable as a matter of law, the other provisions shall not be affected
thereby and shall remain in full force and effect.
20. This Escrow Agreement shall constitute the entire agreement of the
parties and the Purchasers with respect to the subject matter hereof and
supersedes all prior oral or written agreements in regard thereto.
21. This Escrow Agreement shall terminate upon the distribution to all
Escrow Property at Closing pursuant to Section 2, or the distribution of all
Escrow Property pursuant to Section 1(a) hereof in the event the closing has
not occurred on or before March 31, 1998 (or any extension thereof). The
provisions of Section 5 through 22 of this Escrow Agreement shall survive
termination of this Escrow Agreement and/or the resignation or removal of the
Escrow Agent.
22. This Escrow Agreement may be executed by each of the parties hereto
in any number of counterparts, each of which counterpart, when so executed
and delivered, shall be deemed to be an original and all such counterparts
shall together constitute one and the same agreement.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Escrow Agreement
to be executed by a duly authorized officer as of the day and year first
written above.
TRANS WORLD GAMING CORP. TWG INTERNATIONAL U.S. CORP.
By: __________________________ By: _____________________________
Name: ____________________ Name: _______________________
Title: ___________________ Title: ______________________
One Penn Plaza One Penn Plaza
Suite 1503 Suite 1503
New York, New York 10119 New York, New York 10119
TWG FINANCE CORP. U.S. TRUST COMPANY OF TEXAS, N.A.,
as Escrow Agent
By: __________________________ By: _____________________________
Name: ____________________ Name: _______________________
Title: ___________________ Title: ______________________
One Penn Plaza 2001 Ross Avenue, Suite 2700
Suite 1503 Dallas, Texas 75201
New York, New York 10119 Attention: Corporate Trust
7
<PAGE>
EXHIBIT "A"
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Number of
Subscriber Principal Amount ---------
---------- of Notes Warrants
-------- --------
<S> <C> <C>
Amir Development $300,000 102,644
Banco Santander $1,000,000 342,148
CS First Boston Corp. $5,000,000 1,710,741
Value Partners, Ltd. $8,000,000 2,737,186
Fort Pitt Investment Fund $750,000 256,611
Lim Investment Management $250,000 85,537
Margolis, Bobby $250,000 85,537
Milner, Reese $100,000 34,215
Morgan Stanley $1,000,000 342,148
Palestra Capital LLC $300,000 102,644
Ravich, Jess $50,000 17,107
</TABLE>
8
<PAGE>
Exhibit "B"
Wire Instructions - Barnett Sampson
Lloyds Bank plc
Covent Garden Branch
22/24 Southhampton Street
London WCZE 7JB
Sort Code: 30:92:32
Account No.: 11232096
"Barnett Sampson Client Dollar Account"
9
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
TRANS WORLD GAMING CORP.,
21ST CENTURY RESORTS A.S.,
GAMEWAY LEASING LIMITED.,
MONARCH LEASING LIMITED
AND
THE NAMED INDIVIDUALS
DATED: JANUARY __, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I AGREEMENT AND PURCHASE AND SALE; CLOSING;
DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Deliveries by the Sellers and the
Company Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.5 Deliveries by the Buyer. . . . . . . . . . . . . . . . . . . . . . . . . 7
1.6 Payments at Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.7 Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY
ENTITIES AND THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Ownership of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Sellers' Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Binding Effect; No Violation; Consents . . . . . . . . . . . . . . . . . 10
2.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . 10
2.8 Compliance with Laws and Terms of License. . . . . . . . . . . . . . . . 11
2.9 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.10 Due Organization; Qualification . . . . . . . . . . . . . . . . . . . . 11
2.11 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.12 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.13 Binding Effect; No Violation; Consents . . . . . . . . . . . . . . . . . 12
2.14 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.15 Absence of Changes or Events; No
Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 14
2.16 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.17 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.18 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.19 Tangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . 17
2.20 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.21 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.22 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.23 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.24 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.25 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.26 No Condemnation or Expropriation . . . . . . . . . . . . . . . . . . . . 24
2.27 Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.28 Contracts and Commitments. . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.29 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . 26
2.30 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.31 Assets Necessary to Business . . . . . . . . . . . . . . . . . . . . . . 27
2.32 Commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.33 Disclosure of All Material Facts . . . . . . . . . . . . . . . . . . . . 28
ARTICLE III REPRESENTATION AND WARRANTIES OF THE BUYER. . . . . . . . . . . . . . . . . . 28
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3 Binding Effect; No Violation; Consents . . . . . . . . . . . . . . . . . 28
3.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.5 Commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IV COVENANTS OF THE SELLERS AND THE COMPANY ENTITIES . . . . . . . . . . . . . . 30
4.1 Operation of the Business. . . . . . . . . . . . . . . . . . . . . . . . 30
4.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.5 Governmental Filings . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.6 Performance; Resignations. . . . . . . . . . . . . . . . . . . . . . . . 34
4.7 Updating of Information. . . . . . . . . . . . . . . . . . . . . . . . . 35
4.8 Monthly Financial Statements; Weekly Gaming Revenue Reports;
Employment Information Updates . . . . . . . . . . . . . . . . . . . . 35
4.9 Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.10 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.11 Confidentiality of Information . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V COVENANTS OF THE BUYER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2 Governmental Filings . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.3 Confidentiality of Information . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VI OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.1 Site Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII CONDITIONS TO OBLIGATION OF THE BUYER . . . . . . . . . . . . . . . . . . . . 42
7.1 Representations and Warranties Correct . . . . . . . . . . . . . . . . . 42
7.2 Performance; No Default. . . . . . . . . . . . . . . . . . . . . . . . . 42
7.3 Delivery of Certificate. . . . . . . . . . . . . . . . . . . . . . . . . 42
7.4 Opinion of Counsel to the Stock Company Entities . . . . . . . . . . . . 42
7.5 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . 42
7.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.7 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . 43
7.9 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
7.10 Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.11 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.12 Non-Competition and Non-Interference Agreements. . . . . . . . . . . . . 43
7.13 Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VIII CONDITIONS TO OBLIGATION OF THE SELLERS . . . . . . . . . . . . . . . . . . . 44
8.1 Representations and Warranties Correct . . . . . . . . . . . . . . . . . 44
8.2 Performance; No Default. . . . . . . . . . . . . . . . . . . . . . . . . 44
8.3 Delivery of Certificate. . . . . . . . . . . . . . . . . . . . . . . . . 44
8.4 Opinion of Counsel to the Buyer. . . . . . . . . . . . . . . . . . . . . 44
8.5 Good Standing Certificate. . . . . . . . . . . . . . . . . . . . . . . . 44
8.6 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.7 Articles of Incorporation. . . . . . . . . . . . . . . . . . . . . . . . 45
8.8 Absence of Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.9 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.10 Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE IX CERTAIN ADDITIONAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 45
9.1 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.2 Non-Interference Agreement . . . . . . . . . . . . . . . . . . . . . . . 46
9.3 Covenant Not to Disclose . . . . . . . . . . . . . . . . . . . . . . . . 46
9.4 Proviso for Activities of Dr. Bezdek and Legal Obligations . . . . . . 47
ARTICLE X TERMINATION; SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.1 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 47
10.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.3 Survival of Representations. . . . . . . . . . . . . . . . . . . . . . . 49
10.4 Statements as Representations. . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.1 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.3 Press Releases and Announcements . . . . . . . . . . . . . . . . . . . . 49
11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.5 Amendment; Extension and Waiver. . . . . . . . . . . . . . . . . . . . . 50
11.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.9 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.10 Words in Singular and Plural Form . . . . . . . . . . . . . . . . . . . 54
11.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.13 Sellers' Representative; Agent for Service. . . . . . . . . . . . . . . 54
11.14 No Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . 55
11.15 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11.16 Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . 55
11.17 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
<PAGE>
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
Exhibit A - Escrow Agreement
Exhibit B - Plans for Construction of Casino in Rozvadov and Chvalovice, Czech Republic
Exhibit C - [DELETED]
Exhibit D - Opinion of Becker and Poliakoff, P.A.
Exhibit E - Opinion of Lionel Sawyer & Collins
Exhibit F - Non-Competition and Non-Interference Agreement
Exhibit G - Bill of Sale and Assignment of Assets
Exhibit H - Assignment of Trademarks
Exhibit I - Allocation of Purchase Price
Exhibit J - Selling Stockholders' Liability Percentages
Exhibit K - Debtors and Accruals of the Stock Company Entities
Exhibit L - Andersen Report
Schedules
- ---------
1.1 Assets to be Acquired
2.1 Share Ownership of Sellers
2.7 Affiliated Transactions
2.10A Articles and By-Laws of the Company Entities
2.10B Jurisdictions Where Qualified to do Business
2.11 Subsidiaries
2.13 Approvals Required
2.14 Financial Statements
2.15A Absence of Changes
2.15B Undisclosed Liabilities
2.16A Real Property
2.16B Leased Property
2.16C Property Use
2.17A Leases Where Company Entity is Lessee
2.17B Leases Where Company Entity is Lessor
2.18 Title to Assets
2.19A Tangible Personal Property
2.19B Leased Tangible Personal Property
2.19C Gaming Devices
2.19D Liens on Tangible Personal Property
2.20 Intellectual Property
2.21A Legal Claims of the Company Entities
2.21B Legal Claims Against the Company Entities
2.22A Insurance Policies
2.22B Invalid Insurance Policies
2.23 Labor Matters
2.24 Employee Benefit Plans
2.25A Environmental Compliance
2.25B Environmental Claims
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.25C Storage Locations
2.27 Suppliers
2.28 Contracts
2.29A Compliance with Law
2.29B Permits
2.29C Applications
2.29D License
2.30 Bank Accounts
2.32 Commissions
3.3 Consents Required to be Obtained by the Buyer
3.5 Buyer Commissions
4.1 Capital Budget
4.10 Interest on Indebtedness
9.1 Exception to Restricted Area
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as
of January __, 1998, by and among TRANS WORLD GAMING CORP., a Nevada, United
States of America corporation ("TWG" or the "Buyer"), and 21st CENTURY
RESORTS a.s., a Czech Republic joint stock company ("Resorts"), GAMEWAY
LEASING LIMITED, a Gibraltar company limited by shares ("Gameway"), MONARCH
LEASING LIMITED, a Gibraltar company limited by shares ("Monarch") and Noel
A. Souter, Hal Taines, C.C. Myers, Derek Ayres, JUDr. Robert Bezdek, Shaun
McClune, Ahmad Ghassabeh, and Dr. Kurt Wagner (each of Resorts, Gameway,
Monarch, and the named individuals individually herein, a "Seller," and
collectively herein, the "Sellers"). All of the above-cited parties shall be
collectively referred to herein as the "Parties" and individually referred to
herein as a "Party."
WITNESSETH:
WHEREAS, (except for one share owned by LMJC, defined below), one
or more of the Sellers, together or individually, own 100% of the outstanding
voting and non-voting ownership interests in or equity securities of Resorts,
such ownership is as set forth on SCHEDULE 2.1, attached hereto and made a
part hereof;
WHEREAS, Resorts owns 100% of the outstanding voting and non-voting
ownership interests in or equity securities of LMJ Casino a.s., a Czech
Republic joint stock company in liquidation ("LMJC") (except for 1 share
owned by Dr. Bezdek), Czech Leisure Management s.r.o., a Czech Republic
limited liability company ("CLM"), LMJ Casino Rozvadov a.s., a Czech Republic
joint stock company ("LMJCR"), LMJ Slots s.r.o., a Czech Republic limited
liability company ("LMJS") and LMJCR owns approximately 98.3% and Resorts
owns approximately 1.7% of the outstanding voting and non-voting ownership
interests in or equity securities of Atlantic Properties s.r.o., a Czech
Republic limited liability company ("Atlantic"). (Resorts, LMJC, CLM, LMJCR,
LMJS, Atlantic, Gameway and Monarch collectively are referred to herein as
the "Company Entities" and individually as a "Company Entity."); and,
WHEREAS, the Sellers desire to sell to the Buyer and the Buyer
desires to purchase from the Sellers 100% of the voting and non-voting
ownership interests in or equity securities (the "Shares") of Resorts, LMJCR,
LMJS and Atlantic (collectively, herein referred to as the "Stock Company
Entities" or, individually, a "Stock Company Entity") and certain assets of
Monarch and Gameway (collectively herein referred to as the "Asset Sellers")
all on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
<PAGE>
Stock Purchase Agreement
Page 2
ARTICLE I
AGREEMENT AND PURCHASE AND SALE; CLOSING; DELIVERIES
1.1 PURCHASE AND SALE
(a)(i) Upon the terms and subject to the satisfaction or
waiver, if permissible, of all of the conditions set forth herein, the
Sellers who are set forth in SCHEDULE 2.1 (the "Selling Stockholders") hereby
agree to sell, convey, transfer and deliver to the Buyer at the Closing (as
defined in Section 1.3 below), and the Buyer agrees to purchase and accept
from such Selling Stockholders at the Closing, all of the Shares, free and
clear of any and all mortgages, pledges, security interests, liens, charges,
options, conditional sales agreements, claims, restrictions, covenants, title
defects or other encumbrances or restrictions of any nature whatsoever
("Liens"). SCHEDULE 2.1 sets forth the name, address, Social Security or
federal tax identification number or other suitable identification number and
telephone number of each Selling Stockholder.
(a)(ii) Immediately prior to the Closing Date, Resorts shall
transfer, convey and deliver to the Selling Stockholders or to such Person as
they shall nominate (being one of their number or otherwise) all of the
shares of capital stock owned by it in LMJC and CLM in proportions as
determined by the Selling Stockholders prior to the Closing Date.
(b) Upon the terms and subject to the satisfaction or
waiver, if permissible, of all of the conditions set forth herein, each of
Monarch and Gameway hereby agrees to sell, convey, transfer and deliver to
the Buyer at the Closing, and the Buyer agrees to purchase and accept from
each of Monarch and Gameway at the Closing, only such assets of each such
Company Entity as set forth in SCHEDULE 1.1 hereto (the "Assets").
(c) Upon the terms and subject to the satisfaction or
waiver, if permissible, of all of the conditions set forth herein, Mr. Souter
hereby agrees to sell, convey, transfer and deliver to the Buyer at the
Closing, and the Buyer agrees to purchase and accept from Mr. Souter at the
Closing, all of the Intellectual Property owned by Mr. Souter, as set forth
in SCHEDULE 2.20, relating to the names "21st Century Resorts" and "Casino
Club Europe" (or any variation or derivation thereof).
1.2 PURCHASE PRICE
(a) Upon the date of the exchange of executed originals of
this Agreement by the Parties, the Sellers' Representative (as defined below)
shall acknowledge in writing receipt of the sum of U.S.$40,000.00, which
shall represent the first of the three deposits (the "Deposits") made by TWG
as required hereby. On such date, TWG shall make a further deposit with the
Sellers' Representative of the sum of U.S.$100,000.00 (both the first and
second deposits shall be referred to was the "Expense Deposits"). The
Sellers' Representative shall thereupon acknowledge in writing receipt of
such sum.
<PAGE>
Stock Purchase Agreement
Page 3
(b) Upon the date of the exchange of executed originals of
this Agreement by the Parties, TWG shall, by wire transfer, deposit into an
escrow account (the "Deposit Escrow") held by Chase Manhattan Bank, London,
England (the "Escrow Agent"), the sum of U.S.$385,000.00, which shall
represent the third of the three Deposits required to be made hereby and
which shall be placed in a 5-year escrow to cover Damage Claims (as defined
in Section 6.2(e)), including but not limited to claims for Taxes by the
Ministry of Finance of the Czech Republic or other applicable taxing
authorities and subject to the Escrow Agreement described below. The Escrow
Agent shall hold the Deposit Escrow in accordance with the Escrow Agreement
as set forth in Section 1.2(c), below.
(c) In consideration of the sale, transfer and conveyance of
the Shares and the Assets to the Buyer by the Sellers and the Asset Sellers,
respectively, and of the other agreements of the Sellers and the Asset
Sellers, as set forth herein, the Buyer will deliver, or cause to be
delivered, to the Sellers and the Asset Sellers, at the Closing,
U.S.$10,500,000.00 (plus U.S.$655,432.38, plus an additional cash amount to
reimburse the Sellers for documented expenditures made from the date hereof
until the Closing in connection with the construction of the casinos in
Rozvadov and Chvalovice as set forth in EXHIBIT B, which is attached hereto
and made a part hereof (the "New Casinos") which sum shall be paid in U.S.
dollars converted at the rate prevailing on the date when this sum shall be
remitted to Barnett Sampson pursuant to Section 1.6 hereof), plus cash on
hand less the outstanding chip liability at all of the casinos as of the
close of business on the Business Day immediately preceding the Closing Date
(as determined by a count conducted jointly by Buyer and Sellers)(such net
amount hereinafter referred to as the "Purchase Price"), less the amount of
the two Deposits paid to the Sellers' Representative as set forth in Section
1.2(a), less the amount of the Deposit Escrow, less the interest accrued on
the Deposit Escrow, less the U.S.$15,000.00, which shall be deposited by TWG
into the Deposit Escrow on the Closing Date (the sum of such net amount
hereinafter referred to as the "Closing Payment"). The escrow agreement (the
"Escrow Agreement"), the form of which is attached hereto as EXHIBIT A, will
be executed by and among the Buyer, the Selling Stockholders and the Escrow
Agent, on the date of the exchange of the execution copies of this Agreement.
The additional consideration to be paid by the Buyer to Mr. Souter for the
Intellectual Property at the Closing shall be U.S.$10.00. TWG shall assume
no liabilities of any Company Entity, except those liabilities of Resorts for
the Indebtedness incurred in connection with the construction of the New
Casinos pursuant to EXHIBIT B. The Closing Payment shall be paid at the
Closing to Barnett Sampson Solicitors, London, England ("Barnett Sampson"),
who shall apportion the Closing Payment among the Sellers and the Asset
Sellers pursuant to their respective instructions.
(d) After the Closing Date and during the term of the
Deposit Escrow, pursuant to the terms of the Escrow Agreement, the Escrow
Agent promptly shall disburse an amount of funds held in the Deposit Escrow
to the Buyer at any time prior to the Escrow Termination Date (defined below)
as may be requested by the Buyer in writing from time to time (with a copy to
the Sellers' Representative), which request (if it relates to a claim for
Taxes) shall enclose a copy of the correspondence, demand or order of the
Ministry of Finance of the Czech Republic, or any other
<PAGE>
Stock Purchase Agreement
Page 4
applicable taxing authority, received by the Buyer requesting or demanding
that the Buyer pay any Tax that was incurred by any Stock Company Entity
prior to the Closing Date. If the Buyer has not requested disbursement from
the Deposit Escrow for payment of a Damage Claim (other than for Taxes)
within 365 days of the Closing Date, then the Escrow Agent shall disburse
U.S.$250,000.00, together with the interest accrued thereon, to the Sellers'
Representative within 5 Business Days thereafter by wire transfer. If,
however, a request for a disbursement by the Buyer has been made and is
pending, or if the Buyer notifies the Escrow Agent and the Sellers'
Representative that a Damage Claim is imminent and that such Damage Claim
exceeds or is likely to exceed U.S.$100,000.00 either on its own or when
taken together with other such Damage Claims, then the Escrow Agent shall not
disburse any funds to the Sellers' Representative until such Damage Claim is
resolved. The remainder of the Deposit Escrow, if any, shall be disbursed to
the Selling Stockholders or to the appropriate taxing authority in amounts as
specified by the Sellers' Representative to the Escrow Agent, in writing,
upon the earlier of the following four events to occur: (i) the receipt by
the Escrow Agent and the Buyer of written documentation from the Ministry of
Finance of the Czech Republic or any other applicable taxing authority, that
it has determined the total Tax liability of the Stock Compan Entities for
the period ending on the Closing Date and the Sellers' Representative
produces documentary evidence, satisfactory to the Buyer, that such liability
has been paid in full or may be paid in full from the proceeds of the Deposit
Escrow; or (ii) the receipt by each of the Escrow Agent, the Buyer and the
Selling Stockholders of an unqualified written opinion of counsel appointed
jointly by both the Buyer and the Selling Stockholders, upon which the Escrow
Agent, the Selling Stockholders and the Buyer may rely, that the applicable
statute of limitations for the assessment of Taxes by the Ministry of Finance
of the Czech Republic, or any other applicable taxing authority, against all
of the Stock Company Entities has expired and that no Tax may be requested,
levied, claimed, demanded, or executed upon by the Ministry of Finance of the
Czech Republic, or any other applicable taxing authority, against any of the
Stock Company Entities or the Buyer with respect to a Tax liability of any
Stock Company Entity; or (iii) the date that is the fifth anniversary of the
Closing Date of this Agreement; or (iv) the failure of the Buyer to fulfill
the requirements of Section 1.2(e) below (any of subsections (i), (ii), (iii)
or (iv) is the "Escrow Termination Date"). For purposes of this Agreement, a
"Business Day" shall be any day (except a Saturday or a Sunday) on which
banks are permitted by English law to be open for business in England.
(e) The Buyer shall, within 275 days after the Closing Date,
apply to the Ministry of Finance of the Czech Republic for a tax audit of the
Stock Company Entities with respect to the period prior to the Closing Date.
(f) TWG shall pay for one-half of the fees and expenses of
the Escrow Agent and such jointly appointed counsel and the Selling
Stockholders shall pay for one-half of the fees and expenses of the Escrow
Agent (which amount may be deducted by the Escrow Agent from the principal
balance of the Deposit Escrow) and such jointly appointed counsel. If TWG
and the Selling Stockholders cannot agree upon counsel to perform the tasks
set forth in Section 1.2(d), above, within 10 Business Days after written
notice is given by the Sellers' Representative of its
<PAGE>
Stock Purchase Agreement
Page 5
nominee, then such counsel shall be Clifford Chance, London, England, unless
such counsel notifies the parties of a conflict of interest after internal
review, in which case such counsel shall be Arthur Andersen, London, England.
1.3 CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur after the satisfaction or waiver,
if permissible, of all of the conditions set forth herein. The Parties
hereto shall use their best endeavors to have the Closing occur at 11:00
a.m., Prague, Czech Republic Time, on a date that is on or before a date that
is the 10th day after the delivery of the certificate required by Section
8.6, or on such other date as the Buyer and the Sellers' Representative may
agree upon in writing (the "Closing Date"), at the offices of Becker &
Poliakoff, P.A., Apolinarska 6, Prague, Czech Republic. The Closing of this
Agreement and the transactions contemplated hereby shall be deemed effective
for all purposes as of close of business on the Closing Date (the "Effective
Date").
1.4 DELIVERIES BY THE SELLERS AND THE COMPANY ENTITIES. At the
Closing, the Sellers will deliver, and will cause each applicable Company
Entity to deliver (unless previously delivered), to the Buyer the following:
(a) stock certificates representing all of the Shares,
accompanied by stock powers duly executed or endorsed in blank, with
signatures guaranteed, and/or otherwise in form reasonably acceptable to the
Buyer for transfer on the books of the Company Entities, respectively;
(b) the stock books, stock ledgers, minute books and the
corporate seals of each of the Stock Company Entities;
(c) copies of the Articles of Association or other
comparable organizational or governing documents of each of the Stock Company
Entities;
(d) the Escrow Agreement duly executed by all of the Selling
Stockholders and the Escrow Agent;
(e) the certified resolutions referred to in Section 2.12;
(f) the bank account records referred to in Section 2.30;
(g) executed counterparts of any consents referred to in
Section 4.4;
(h) the executive officer certificate referred to in Section
7.3;
(i) the opinion of counsel referred to in Section 7.4;
(j) resignations effective as of the Closing Date from such
officers, supervisory board
<PAGE>
Stock Purchase Agreement
Page 6
members and directors of the Company Entities as the Buyer shall have
requested in writing not less than 7 days prior to the Closing Date pursuant
to Section 4.6 (other than the one member of the Supervisory Board of LMJCR
appointed by LMJCR's employees);
(k) a Bill of Sale and Assignment of Assets, as set forth in
EXHIBIT G, executed by authorized executive officers of Monarch and Gameway,
selling, transferring, delivering and conveying the Assets to the Buyer;
(l) the Non-Competition and Non-Interference Agreements duly
executed by all of the Selling Stockholders pursuant to Sections 9.1 and 9.2;
(m) an Assignment of Trademarks, as set forth in EXHIBIT H,
executed by Mr. Souter, selling, transferring, assigning, conveying and
delivering the trademarks relating to "21st Century Resorts" and "Casino Club
Europe," and all rights to the license agreements relating thereto, to the
Buyer;
(n) the transfer, conveyance and delivery by Resorts of all
of the shares of ownership interests in or capital stock owned by it in LMJC
and CLM to the Selling Stockholders (or as they may direct) in proportions as
determined by the Selling Stockholders prior to the Closing Date;
(o) written confirmation from Eagle Leisure Management,
Limited that all agreements for services between it and the Stock Company
Entities shall terminate at Closing;
(p) written certification from the Treasurer (or Chief
Financial Officer) of each of the Stock Company Entities that the bank
accounts of each Stock Company Entity to be transferred to the Buyer pursuant
hereto shall contain funds in amounts equal to all liabilities of the
respective Stock Company Entities as of the Closing Date, after making
allowance for all debtors and accruals and excluding any sum due in respect
of the New Casinos for which liability has been assumed by the Buyer
hereunder, all (the bank account balances and related deductions) as set
forth in EXHIBIT K, attached hereto and made a part hereof. If the
Schoolhouse is sold by the Stock Company Entities prior to the Closing Date,
the bank accounts shall contain the full cash purchase price thereof;
(q) a copy of the resolutions of the Board of Directors of
each of the Stock Company Entities required to be obtained pursuant to
Section 7.10 of this Agreement; and,
(r) all other previously undelivered documents, instruments
or writings required to be delivered by any of the Sellers or the Company
Entities to the Buyer at or prior to the Closing pursuant to this Agreement
or otherwise required in connection herewith as agreed by the Buyer and the
Sellers' Representative, including but not limited to, all Licenses (as
defined in Section 2.29(d)).
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1.5 DELIVERIES BY THE BUYER. At the Closing, the Buyer shall
deliver, or cause to be delivered, to the Sellers' Representative (unless
previously delivered) the following:
(a) the payments as required by Section 1.6;
(b) written confirmation that any sum required to be paid in
advance of the Closing pursuant to Section 1.2 has been paid;
(c) the Escrow Agreement duly executed by the Buyer;
(d) the deposit of a total of U.S.$400,000.00 into the
Deposit Escrow as required by Sections 1.2(b) and 1.2(c);
(e) the certified resolutions referred to in Section 3.2;
(f) the executive officer certificate referred to in Section
8.3;
(g) the opinion of counsel referred to in Section 8.4;
(h) a written covenant not to sue Linda Clifford, Mark Clive
Souter, Irena Petrzikova, Glen Bramsworth Ramsden and/or Lubomir Valenta all
of whom have acted as non-stockholder supervisory directors of the Stock
Company Entities; and,
(i) all other previously undelivered documents, instruments
or writings required to be delivered by the Buyer to the Sellers at or prior
to the Closing pursuant to this Agreement or otherwise required in connection
herewith as agreed by the Buyer and the Sellers' Representative.
1.6 PAYMENTS AT CLOSING. At the Closing, the Buyer shall deliver
(i) a written release of the funds held by Barnett Sampson which shall have
been remitted by wire transfer of immediately available funds to the account
of Barnett Sampson on behalf of the Selling Stockholders entitled thereto, in
an aggregate amount equal to the Closing Payment which funds shall have been
received by Barnett Sampson and held in trust not less than 24 hours before
the Closing, (ii) by wire transfer of immediately available funds to the
account or accounts specified by the Sellers' Representative on behalf of the
Sellers entitled thereto, an aggregate amount equal to the amount contained
in the account of LMJCR at HypoBank CZ a.s. (account no. 8100230002), which
amount is approximately DM362,688, representing a reimbursement to the
Sellers of the deposit for the casino license owned by LMJCR held by the
Ministry of Finance of the Czech Republic pursuant to the Czech Gaming Laws
(as defined hereafter); (iii) to the Escrow Agent, U.S.$15,000.00
representing the remaining portion of the Deposit Escrow; and (iv) the
payment to Mr. Souter of U.S.$10.00 by check or wire transfer to the account
specified by Mr. Souter.
1.7 ALLOCATION. The Buyer and the Sellers hereby agree that the
Purchase Price for the
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Assets (i.e., U.S.$500,000.00) and all other capitalized costs (in the case
of the Buyers) and all selling expenses (in the case of the Sellers) shall be
allocated and apportioned among the Assets acquired for all income tax
accounting purposes in proportion to the relative fair market values of the
Assets, as set forth on EXHIBIT I, which Exhibit shall be completed by the
Parties as soon as practicable after the execution of the Agreement. The
relevant Parties further agree to cooperate and be consistent with regard to
the filing of U.S. Internal Revenue Service ("IRS") Form 8594, or any similar
forms required by any Taxing authority with regard to the agreed upon
apportionment.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY ENTITIES AND THE SELLERS
The Company Entities, as applicable, represent and warrant to the
Buyer, and the Sellers, jointly and severally, to the best of their
knowledge, represent and warrant to the Buyer, that:
2.1 CAPITALIZATION.
(a)(i) The authorized capital of Resorts consists of Czech
Kc23,533,000 divided into 23,533 non-publicly traded named shares, each with
a nominal value of Czech Kc1,000, all of such shares are issued and
outstanding as of the date hereof.
(ii) The authorized capital of LMJCR consists of Czech
Kc15,000,000 divided into 200 non-publicly traded named shares, each with a
nominal value of Czech Kc75,000, all of such shares are issued and
outstanding as of the date hereof.
(iii) The authorized capital of LMJS consists of Czech
Kc100,000 owned entirely by Resorts.
(iv) The authorized capital of Atlantic consists of Czech
Kc6,000,000 of which Czech Kc100,000 is owned by Resorts and Czech
Kc5,900,000 is owned by LMJCR.
(b) The capital shares of Resorts are owned of record by
the Selling Stockholders and other Persons (as defined below) in the amounts
set forth on SCHEDULE 2.1, free and clear of all Liens.
(c) The capital shares of LMJCR, LMJS and Atlantic are
owned by Resorts as set forth in Section 2.1(a), above, free and clear of all
Liens.
(d) Except for the capital shares of LMJC, LMJCR, LMJS,
Atlantic and CLM owned by Resorts and except for the capital shares of
Atlantic owned by LMJCR, none of Resorts, Atlantic, LMJCR or LMJS, directly
or indirectly, owns any capital stock of or other equity interest
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in any Person (as defined below), and none of the Stock Company Entities is a
member of or participant in any partnership, joint venture or similar Person.
(e) All of the issued and outstanding capital shares of
each of Resorts, LMJCR and the interests in Atlantic and LMJS have been duly
authorized and are validly issued, fully paid and nonassessable, are not
subject to any preemptive rights and have not been issued in violation of any
applicable law, regulation, ordinance or policy of any governmental
authority, the respective Articles of Association or other comparable
organizational or governing document or Bylaws of each Stock Company Entity,
or the terms of any agreement to which any Seller or Stock Company Entity is
a party or is bound. There are no shares of capital stock or other equity
interest or securities of the Stock Company Entities reserved for issuance or
any outstanding subscriptions, options, warrants, rights, profit sharing
arrangements, convertible or exchangeable securities, stock appreciation
rights or other agreements or commitments (other than this Agreement)
granting to any corporation, individual, joint stock company, limited
liability company, joint venture, partnership, unincorporated association,
governmental regulatory entity, county, state, or political subdivision
thereof, trust or other entity (a "Person") any interest in or right to
acquire at any time, or upon the happening of any stated event, any shares of
the capital stock or other equity interest or securities of any Stock Company
Entity, or any interest in, exchangeable for or convertible into capital
stock or other equity interest or securities of any Stock Company Entity or
restricting any Selling Stockholder's right to transfer any of the Shares to
the Buyer.
2.2 OWNERSHIP OF SHARES. Each Selling Stockholder owns and has
an unqualified right to and shall transfer to the Buyer at the Closing, good,
valid and marketable title to the Shares set forth opposite such Selling
Stockholder's name on SCHEDULE 2.1, free and clear of all Liens. Other than
this Agreement, such Shares are not subject to any voting trust agreement or
understanding, whether written or oral, including without limitation, any
mortgage, indenture, note, guarantee, lease, license, contract, deed of
trust, purchase, sale or other agreement, together with any amendments
thereto (a "Contract"), including any Contract restricting or otherwise
relating to the voting or disposition of such Shares. SCHEDULE 2.1 sets
forth such Selling Stockholder's percentage interest of the Shares such
Selling Stockholders owns in each of the Company Entities as of the date of
this Agreement (the "Percentage Interest").
2.3 SELLERS' AUTHORITY. Each individual Seller has the requisite
individual power, capacity and authority under the laws of the jurisdiction
in which the Seller resides and of which the Seller is a citizen, to execute,
deliver and perform this Agreement and the other instruments and documents
required or contemplated hereby.
2.4 BINDING EFFECT; NO VIOLATION; CONSENTS. This Agreement
constitutes, and, when executed and delivered, the other documents and
instruments to be executed and delivered by each Selling Stockholder pursuant
hereto will constitute, valid and binding agreements of each Selling
Stockholder, enforceable in accordance with their respective terms, and
(assuming receipt of the consents, approvals and authorizations contemplated
by the next sentence) neither the execution
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and delivery of this Agreement or the other documents and instruments to be
executed and delivered by each Selling Stockholder pursuant hereto, nor the
consummation by each Selling Stockholder of the transactions contemplated
hereby or thereby will violate any statute or law or any rule, regulation,
order, writ, injunction, judgment or decree of any court or governmental
authority applicable to such Selling Stockholder. No consent, approval,
authorization or action by, notice to or filing with any governmental
authority or any other Person is required with respect to such Selling
Stockholder in connection with the execution, delivery and performance of
this Agreement, the other documents and instruments to be executed and
delivered by such Selling Stockholder pursuant hereto or the consummation by
such Selling Stockholder of the transactions contemplated hereby or thereby.
2.5 LITIGATION.
(a) There are no claims, actions, suits, proceedings or
investigations pending or threatened by or against any Selling Stockholder
with respect to the Company Entities, the Shares or the transactions
contemplated hereby, at law or in equity, before any federal, state,
municipal or other governmental department, commission, board, agency,
instrumentality or authority or court, tribunal, arbitrator or similar panel
of any jurisdiction.
(b) There are no claims, actions, suits, proceedings or
investigations pending or threatened by or against any Company Entity, at law
or in equity, before any federal, state, municipal or other governmental
department, commission, board, agency, instrumentality or authority or court,
tribunal, arbitrator or similar panel of any jurisdiction where the amount in
controversy is or could exceed U.S.$50,000.
2.6 COMMISSIONS. There are no claims for brokerage commissions
or finder's fees incurred by reason of any action taken by or on behalf of
any Seller.
2.7 TRANSACTIONS WITH AFFILIATES. Other than this Agreement, or
as set forth in SCHEDULE 2.7, none of the Company Entities is party to or
bound by any Contract with, does business with or has any obligations or
liabilities to any Seller or any Affiliate or Associate of any Seller.
SCHEDULE 2.7 also shall set forth a description of each Contract by and
between any Company Entity and Eagle Leisure Management Limited, a company
limited by shares incorporated under the laws of Cyprus, and shall enumerate
payments due pursuant to the terms of such Contract, payments actually made
and evidence of services provided to support the invoices from Eagle Leisure
Management Limited and a copy of the Contract shall be attached to such
Schedule. As used in this Agreement, an "Affiliate" of, or a Person
"Affiliated" with, a specified person, is a Person who directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, the Person specified. Moreover, as used in
this Agreement, the term "Associate" used to indicate a relationship with any
Person, means: (a) any corporation or organization (other than the Company
Entities) of which such Person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of equity
securities,
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(b) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a
similar fiduciary capacity, and (c) any relative or spouse of such Person, or
any relative of such spouse, who has the same home as such Person or who is a
director or officer of the corporation or organization or any of its parents
or subsidiaries.
2.8 COMPLIANCE WITH LAWS AND TERMS OF LICENSE. No Seller is
aware of any facts or circumstances relating to the conduct of such Seller or
any other Seller or any Stock Company Entity that could reasonably be
expected to cause the Ministry of Finance of the Czech Republic or any other
governmental authority in the Czech Republic to revoke, suspend or fail to
renew the License (as defined in Section 2.29(d)) or take disciplinary or
enforcement action against any of the Stock Company Entities or any
shareholder or equityholder or director, supervisory board member or officer
thereof.
2.9 DISCLOSURE. No representation or warranty to the Buyer
contained herein contains any untrue statement of material fact or omits to
state a material fact that is necessary in order to make such representation
or warranty not misleading.
2.10 DUE ORGANIZATION; QUALIFICATION.
(a) Each of the Stock Company Entities is a corporation,
joint stock company or limited liability company, as the case may be, validly
existing, and in good standing under the laws of the jurisdiction of its
respective incorporation or organization and has all requisite corporate or
organizational power and authority to carry on its business as now conducted
and as proposed to be conducted through the Closing and to execute, deliver
and perform this Agreement and the other instruments and documents to be
executed and delivered in connection herewith and to carry out the
transactions contemplated hereby and thereby. Complete and correct copies of
the Articles of Association or other comparable organizational or governing
documents and Bylaws of each of the Stock Company Entities, and all
amendments or supplements thereto, heretofore have been delivered to Buyer,
are and will be, as of the Closing Date, complete, accurate and current and
are attached hereto as SCHEDULE 2.10A. The stock transfer books and the
minute books or similar records of each Stock Company Entity, which
heretofore have been delivered or made available to Buyer, are accurate,
complete and current.
(b) Each of the Stock Company Entities is duly qualified or
registered for the transaction of business and is in good standing in the
jurisdictions listed on SCHEDULE 2.10B, which are the only jurisdictions
other than its respective jurisdiction of organization, wherein the character
of the properties so owned or leased by or the nature of the business of each
such entity, makes such licensing or qualification to do business necessary,
except for such failure to so qualify or be licensed, which, when taken
together with all other such failures, has not had and is not reasonably
likely to have a material adverse effect on or change in, directly or
indirectly, the business, assets, liabilities, condition (financial or
otherwise), results of operations, operations or prospects of one or more of
the Stock Company Entities in excess of U.S.$50,000.00 (a "Material Adverse
Effect").
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(c) Prior to the Closing, each of the Company Entities will
deliver to the Buyer a complete and correct copy, certified by its Secretary
(or other appropriate executive officer), of the resolutions heretofore duly
and validly adopted by its Board of Directors, Supervisory Board or other
applicable governing body evidencing such authorization, which resolutions
will not have been rescinded prior to, and will be in full force and effect
on the date of, the Closing. No other corporate act or proceeding on the
part of any of the Company Entities is necessary to authorize this Agreement
or the other documents and instruments to be executed and delivered by the
Company Entities pursuant hereto or the transactions contemplated hereby or
thereby.
2.11 SUBSIDIARIES. Other than as noted in SCHEDULE 2.11, the
Stock Company Entities do not, directly or indirectly, have any subsidiaries
or any direct or indirect ownership interests in any Person.
2.12 DUE AUTHORIZATION The execution, delivery, and performance
of this Agreement and the execution and delivery of the other instruments and
documents required or contemplated hereby and the consummation of the
transactions contemplated hereby by each of the Company Entities have been
duly and validly authorized by the Board of Directors, Supervisory Board
Members and all shareholders, or other applicable governing authority of each
applicable Company Entity.
2.13 BINDING EFFECT; NO VIOLATION; CONSENTS. This Agreement
constitutes, and, when executed and delivered, the other documents and
instruments to be executed and delivered by each applicable Company Entity
pursuant hereto will constitute valid and binding agreements of each such
Company Entity enforceable in accordance with their respective terms, and
(assuming receipt of the consents, approvals and authorizations specifically
contemplated by the next sentence) neither the execution and delivery of this
Agreement and the other documents and instruments to be executed and
delivered by each applicable Company Entity pursuant hereto, nor the
consummation by each such Company Entity of the transactions contemplated
hereby or thereby will (i) violate or conflict with or result in any breach
of any provision of its Articles of Association or other comparable
organizational or governing documents, or Bylaws, (ii) violate or conflict
with or constitute a default (or an event that, with notice or lapse of time,
or both, would constitute a default) under or will result in the termination
of, or accelerate the performance required by, or result in the creation of
any Lien upon any of the assets under, any Contract to which any Company
Entity is a party or by which any Company Entity or its respective assets or
properties may be bound or affected, or (iii) violate any statute or law or
any rule, regulation, order, writ, injunction, judgment or decree of any
court or governmental authority, excluding from the foregoing clauses (ii)
and (iii) such defaults, rights and violations which, in the aggregate, could
not reasonably be expected to have a Material Adverse Effect. Except for
consents, approvals or authorizations set forth on SCHEDULE 2.13, no consent,
approval, authorization or action by, notice to, or filing with, any
governmental authority or any other Person is required in connection with the
execution, delivery and performance of this Agreement, the other documents
and instruments to be executed and delivered by the Company Entities pursuant
hereto or the consummation by the Company
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Entities of the transactions contemplated hereby or thereby, except (in the
case of consents, approvals and notices required under Contracts) where the
failure to obtain such consents and approvals and give such notices could not
reasonably be expected to have a Material Adverse Effect.
2.14 FINANCIAL STATEMENTS. The following financial statements
(the "Financial Statements") of Resorts, Atlantic, LMJCR and LMJS have been
delivered to the Buyer by the Sellers and said Stock Company Entities:
(a) audited consolidated and unconsolidated balance sheets,
statements of income, statements of cash flows and changes in stockholders'
equity and the respective notes thereto of said Company Entities as at and
for the years ended December 31, 1996 and 1995 all certified by Lubbock Fine
as to Resorts, LMJCR and LMJS, whose respective reports thereon are included
therein. Prior to the Closing Date, the Stock Company Entities will deliver
to the Buyer a true, correct, complete and accurate copy of their respective
balance sheets and related statements of income, retained earnings and cash
flows for the eight fiscal months ended August 31, 1997. All of such balance
sheets and notes thereto are true, complete and accurate and fairly present
the assets, liabilities and financial condition of such Company Entities as
of the respective dates thereof, and such statements of income, cash flows
and changes in stockholders' equity and the notes thereto are true, complete
and accurate and fairly present the results of operations of the respective
Stock Company Entities for the periods therein referred to, all in accordance
with the relevant Czech accounting laws, including Act No. 563/1991 Coll., as
amended by Act No. 117/1994 Coll., consistently applied throughout the
periods involved.
(b) The statements of income included in the Financial
Statements do not contain any items of special or non-recurring income or
expense or any other income not earned or expense not incurred in the
ordinary course of business except as expressly specified therein, and such
Financial Statements include all adjustments (including all normal recurring
accruals for unusual or non-recurring items) considered necessary for a fair
presentation, and no adjustments or restatements are or will be necessary in
respect of any items of an unusual or non-recurring nature, except as
expressly specified herein. Except as described on such Financial Statements
and/or in SCHEDULE 2.14 attached hereto, there has been no change by the
Stock Company Entities in any method of accounting or keeping of its books of
account or accounting practices for the three-year period ended on December
31, 1996.
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2.15 ABSENCE OF CHANGES OR EVENTS; NO UNDISCLOSED LIABILITIES.
(a) Since December 31, 1996 (i) the Stock Company Entities
have conducted their respective businesses only in the ordinary course and,
except as described in SCHEDULE 2.15A, consistent with the requirements of
Section 4.1 below, (ii) the Stock Company Entities have not suffered any
change, event or condition that has had or may have a Material Adverse Effect
and (iii) the Stock Company Entities have not acquired or disposed of any
material assets or engaged in any material transaction other than in the
ordinary course of business or as expressly contemplated by the terms of this
Agreement.
(b) Except as set forth on SCHEDULE 2.15B, the Stock Company
Entities as of the date hereof do not have any material liability or
obligation of any nature, whether fixed or contingent or otherwise, whether
due or to become due, including, without limitation, any unfunded obligation
under any pension plan, any liability for Taxes, as defined below, or any
environmental liabilities, that is not reflected or reserved against in the
Financial Statements or otherwise disclosed in the notes thereto, other than
liabilities and obligations incurred subsequent to the date of the Financial
Statements in the ordinary course of business consistent with past practice
and not in violation of this Agreement. Furthermore, except as set forth in
SCHEDULE 2.15B, as of the date hereof, the Stock Company Entities do not know
and have no reason to know of any basis for the assertion against the Stock
Company Entities of any such liability or obligation not fully reflected in
the Financial Statements or otherwise disclosed in the notes thereto. There
are no agreements or arrangements pursuant to which any Stock Company Entity
has incurred Indebtedness, as defined below, or is liable for payments to the
Sellers or former shareholders of the Stock Company Entities or their
respective Affiliates or Associates other than those set forth in SCHEDULE
2.15B.
(c)(i) For purposes of this Agreement, "Indebtedness" shall
mean any indebtedness of any Stock Company Entity (as the context so
requires) for borrowed money as of the Closing Date.
(ii) For purposes of this Agreement, "Taxes" shall mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, income, value added, gross receipts, excise, assets, net worth,
gaming, liquor, property, sales, withholding, transfer pricing, social
security, occupation, use, service, service use, license, payroll, franchise,
transfer and recording taxes, fees and charges, including estimated taxes,
imposed by the Czech Republic or any taxing authority (domestic or foreign),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to any
such taxes, charges, fees, levies or other assessments and shall be adjusted
for any rebate or refund received by TWG or its subsidiaries (which were
formerly Stock Company Entities) after Closing for any period before Closing.
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2.16 REAL PROPERTY.
(a) SCHEDULE 2.16A sets forth the location and a description
of the Owned Property (as defined below) and the general nature of the
facilities located on the Owned Property. For purposes of this Agreement,
"Owned Property" shall mean all freehold real property owned with full title
guarantee by any Stock Company Entity and each lesser interest (other than a
leasehold interest) owned by any Stock Company Entity in any real property.
(b) SCHEDULE 2.16B sets forth the location of, and a
description of the general nature of the buildings located on, each parcel of
real property and each interest in real property leased by any Stock Company
Entity (such real property, the "Leased Property," and together with the
Owned Property, the "Property"). Except as set forth in SCHEDULE 2.16B, all
of the buildings on the Property are in good condition, ordinary wear and
tear excepted, and all electrical, plumbing and mechanical aspects of the
Property are in good working order.
(c) There are now in full force and effect duly issued
certificates of occupancy, where required, permitting the Property and the
improvements located thereon to be legally used and occupied as the same are
proposed to be or now constituted. Except as set forth in SCHEDULE 2.16C,
each of the Properties is used exclusively for the business of the applicable
Stock Company Entity owning or leasing such Property. The Property does not
violate any material provisions of any applicable Environmental Laws or any
trade, gambling, liquor, criminal, building code, fire, health or safety
regulations, or other governmental ordinances, orders or regulations, and the
applicable Stock Company Entity owning or leasing each Property is in
material compliance with all applicable laws, ordinances, regulations,
statutes, rules and restrictions relating to the applicable Property or any
part thereof.
(d) For purposes of this Agreement,
(i) "Environmental Laws" means all laws and regulations
of the Czech Republic relating to pollution or protection of human health or
the environment (including, without limitation, ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata), navigable waters,
ocean waters and international waters, including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
discharge or releases of Materials of Environmental Concern or the dredging,
handling and disposal of river sediments, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern;
(ii) "Materials of Environmental Concern" means
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products, including, without limitation, oil, and any material or
substance that is designated by law, regulation, ordinance, treaty or by any
Person or court having jurisdiction over the Stock Company Entities as a
hazardous material, contaminant, pollutant or hazardous substance.
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2.17 LEASES.
(a) All leases of Property leased or subleased by or for the use or
benefit of any Stock Company Entity and all leases as to which any Stock Company
Entity is the lessee or sublessee, and all amendments and modifications thereof,
are listed on SCHEDULE 2.17A (true, correct and complete copies of which have
been delivered to the Buyer). All such leases are valid, binding and in full
force and effect and are enforceable by the applicable Stock Company Entity in
accordance with their terms and have not been modified or amended, except as set
forth in SCHEDULE 2.17A; each applicable Stock Company Entity has performed all
material obligations required to be performed by it to date under each such
lease, and there has been no material breach or default under any such leases by
any Stock Company Entity, or, any other party thereto, nor any such breach or
default by any Stock Company Entity, or any other party thereto which with
notice or lapse of time or both would constitute an event of default thereunder.
(b) All leases of Property leased or subleased by or for the use or
benefit of third parties to which any Stock Company Entity is a party, and any
and all amendments thereto and modifications thereof, are listed on SCHEDULE
2.17B (true, correct and complete copies of which have been delivered to the
Buyer) all such leases are valid, binding and in full force and effect and are
enforceable by the applicable Stock Company Entity in accordance with their
terms and have not been modified or amended, except as set forth in SCHEDULE
2.17B; no such lease, nor any other agreement relating to the Property, contains
any option or right (conditional or otherwise) to extend the term thereof or to
purchase all or any part of the Property or any rights therein; each applicable
Stock Company Entity has performed all material obligations required to be
performed by it to date under each such lease; and there has been no material
breach or default (or event which with notice or lapse of time or both would
constitute an event of default) under any such lease by any Stock Company
Entity, or any other party thereto.
2.18 TITLE TO ASSETS. Except as disclosed in SCHEDULE 2.18, the
Company Entities have good and marketable title (full title guarantee, in the
case of freehold Owned Property) to, and are the legal, beneficial and
registered owners of all of their respective assets and the Assets, including
the Owned Property, and such ownership is free and clear of any and all
Liens, easements and rights of way, other than Permitted Liens, defined
below. After the Closing, the Buyer will own and be the legal, beneficial
and registered owner, or have the right to use under a valid lease, all of
the assets of the Stock Company Entities and the Assets, free and clear of
any Liens (other than Permitted Liens). "Permitted Liens" means (i) liens
shown on the balance sheet in the Financial Statements as securing specified
liabilities (with respect to which no default exists), (ii) liens for current
taxes not yet due, and (iii) minor imperfections of title and encumbrances,
if any, which are not substantial in amount, do not detract from the value of
the property subject thereto or impair the operations of the Company
Entities, have arisen only in the ordinary course of business and consistent
with past practice and do not preclude or materially adversely affect the
continued use of the property to which they relate as used in the operation
of the business of the Company Entities as currently
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conducted.
2.19 TANGIBLE PERSONAL PROPERTY. SCHEDULE 2.19A lists each item
of tangible personal property (other than inventory) owned by the Company
Entities having an initial purchase price in excess of U.S.$10,000. SCHEDULE
2.19B lists each item of tangible personal property leased by the Company
Entities (other than pursuant to individual leases having an annual rental of
less than U.S.$10,000 or which are terminable by the applicable Company
Entity within 90 days of the date hereof without penalty) and each item of
personal property having a value of U.S. $10,000 or more used by a Company
Entity and owned or leased by Persons providing services to a Company Entity;
and SCHEDULE 2.19C lists each live gaming device or electronic gaming device
(including all gaming tables and slot machines) owned, leased or otherwise
used by a Company Entity (collectively, the "Tangible Personal Property").
The Tangible Personal Property, together with other tangible personal
property owned by the Company Entities or used by a Company Entity and owned
by Persons providing services to the Company Entities, constitutes
substantially all of the tangible personal property used in the operation of
the business of the Company Entities and constitutes substantially all
tangible personal property necessary to conduct the business of the Company
Entities as presently conducted by them. Except as set forth in SCHEDULE
2.19D, (i) the Tangible Personal Property owned by the Company Entities and
all other personal property, whether tangible or intangible, owned by the
Company Entities is free and clear of any and all Liens, and (ii) all the
Tangible Personal Property is located at the Property and there is no
material tangible personal property located at the Property which is not
owned or leased by the Company Entities. The Tangible Personal Property is
in all material respects in good working order, ordinary wear and tear
excepted. All the material Tangible Personal Property of the Company
Entities has been maintained in all material respects in accordance with the
past practice of the Company Entities and generally accepted industry
practice. All leased Tangible Personal Property of the Company Entities is in
all material respects in the condition required of such property by the terms
of the lease applicable thereto during the term of the lease and upon the
expiration thereof.
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2.20 INTELLECTUAL PROPERTY.
(a) SCHEDULE 2.20 contains a true, correct and complete list
of the Stock Company Entities' Intellectual Property, as defined below, and
all license agreements relating thereto to which a Stock Company Entity is a
party (either as licensor or licensee) (the "License Agreements").
(b) Mr. Souter and the Stock Company Entities, as
applicable, are the sole and exclusive owners of the Intellectual Property
and their rights under the License Agreements, and the Intellectual Property
and all registrations and applications for registration therefor currently
are standing in the name of Mr. Souter and the Stock Company Entities, as
applicable, as set forth in SCHEDULE 2.20. The Intellectual Property,
License Agreements and Business Know-How, as defined below, are free and
clear of all Liens, and the Intellectual Property and Business Know-How are
free of all licenses to third parties except those set forth in SCHEDULE
2.20. None of the Stock Company Entities owns or is a party to any License
Agreement with respect to any patent or application therefor. The
Intellectual Property is valid and enforceable, all registrations were
validly obtained, and no registration has lapsed, expired or been abandoned,
or is subject to any pending or threatened opposition or cancellation
proceeding before the Czech Intellectual Property Rights Authority, the
United States Patent and Trademark Office, or any other registration
authority, except where such invalidity, unenforceability, lapse, expiration,
abandonment or proceeding could not, individually or in the aggregate,
reasonably be expected to have a material effect on the use by the Stock
Company Entities of such Intellectual Property. The Sellers do not know of a
reason why any of the Stock Company Entities' trademarks or service marks
(other than common law trademarks or service marks) would not be registrable
in the Czech Republic or transferable to the Buyer pursuant to this
Agreement. Except as set forth in SCHEDULE 2.20, there are no claims pending
or threatened and the Stock Company Entities have not received notice of any
claims alleging that the Stock Company Entities' activities infringe upon or
constitute the unauthorized use of the proprietary rights of any third party,
or challenging the Stock Company Entities' ownership or the validity or
enforceability of the Intellectual Property, the Business Know-How or the
License Agreements. Except as set forth in SCHEDULE 2.20, there are no
infringements of the Intellectual Property or the License Agreements by third
parties. Except as set forth in SCHEDULE 2.20, none of the Stock Company
Entities has entered into any consent, indemnification, forbearance to sue,
or settlement agreement with any third party relating to the Stock Company
Entities' Intellectual Property, Business Know-How or License Agreements, or
the intellectual property or business know-how of any third party.
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(c) For purposes of this Agreement:
(i) "Intellectual Property" means all registered and
unregistered: trademarks, service marks, trade names, corporate names,
company names, fictitious business names, trade styles, trade dress, logos,
and other source or business identifiers (the "Trademarks"); patents;
copyrights; proprietary formulas, recipes, technology, know-how and other
trade secrets (the "Trade Secrets") used in or necessary to conduct the Stock
Company Entities' business as currently conducted, and all registrations and
recordings thereof, all applications for registration pending therefor, all
extensions and renewals thereof, all goodwill associated therewith, and all
proprietary rights therein, in any jurisdiction in which any of the Stock
Company Entities operates or does business.
(ii) "Business Know-How" means all books, records,
technology, formulas, know-how recorded on paper or other media in the books
and records of the Stock Company Entities, quality control records, finished
product specifications, packaging supplies specifications, product
registrations, records relating to the adoption and use of the Intellectual
Property (as defined above), marketing plans, sales records and histories,
market research data, promotional advertising and marketing materials, radio,
television and Internet commercials, print advertisements, customer lists,
label and shipping carton dies, designs, films, earthwork, photography,
mechanical art, color separations, prints, plates, and graphic materials,
permits and licenses, and inventory records, used in or necessary to conduct
the Stock Company Entities' businesses as currently conducted.
2.21 LITIGATION.
(a) Except as set forth in SCHEDULE 2.21A, there are no
claims, actions, suits, proceedings or investigations pending or threatened
by any Stock Company Entity at law or in equity or before or by any federal,
state, municipal or other governmental court, department, commission, board,
agency, instrumentality or authority or before any arbitration body.
(b) Except as set forth in SCHEDULE 2.21B, there are no
claims, actions, suits, proceedings or investigations pending or threatened
against or adversely affecting any Company Entity or Seller at law or in
equity or before or by any federal, state, municipal or other governmental
court, department, commission, board, agency, instrumentality or authority or
arbitration body that, as of the date of this Agreement, (i) involve a claim
against any Seller or Company Entity of more than U.S.$50,000, (ii) seek any
injunctive relief or punitive damages not covered by insurance against any
Company Entity, or (iii) individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect, and the Sellers as of the date
hereof do not know or have any reason to know of any basis for any such
claim, action, suit, proceeding or investigation. As of the Closing Date,
there will be no pending or threatened claims, actions, suits, proceedings or
investigations of the kind described in clause (iii) above, or that challenge
the legality or validity of the transactions contemplated hereby or seek
damages in excess of
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U.S.$50,000 in connection with the consummation of the transactions
contemplated hereby. Except as set forth in SCHEDULE 2.21B, none of the
Company Entities is a party to or subject to or in default under any material
judgment, order, injunction or decree of any court, governmental entity or
arbitration tribunal applicable to it or any of its respective properties,
assets, operations or business.
2.22 INSURANCE.
(a) SCHEDULE 2.22A sets forth a complete and accurate list
and description, including but not limited to annual premiums thereon,
expiration dates thereof and the deductibles thereunder, of all policies of
fire, liability, business interruption, protection and indemnity, pollution,
product liability, workers' compensation, health and other forms of insurance
presently in effect with respect to the Stock Company Entities, true copies
of which have heretofore been delivered to the Buyer.
(b) Except as set forth in SCHEDULE 2.22B, all such policies
are valid, outstanding and enforceable policies and provide insurance
coverage for the properties, assets and operations of the Stock Company
Entities and of the kinds, in the amounts reasonably sufficient to protect
against the risks insured. None of the Stock Company Entities has been
refused any insurance with respect to any aspect of the operations of the
Stock Company Entities, nor has the coverage been limited by any insurance
carrier to which it has applied for insurance or with which it has insurance
during the last three years. All premia respecting each such policy of
insurance have been paid through the end of each respective policy year. No
insurance or proceeds thereof have been assigned by any applicable Stock
Company Entity to any Person.
2.23 LABOR MATTERS. Except to the extent set forth in SCHEDULE
2.23, (i) each Stock Company Entity is, and has at all times been, in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of
work and occupational safety and health, and is not engaged in any unfair
labor practices under any applicable law, ordinance or regulation in the
Czech Republic; (ii) there is no labor strike, dispute, slowdown, stoppage or
lockout actually pending, or threatened against or affecting any of the Stock
Company Entities, and during the past three years there has not been any such
action; (iii) no union claims to represent the employees of any of the Stock
Company Entities; (iv) none of the Stock Company Entities is a party to or
bound by any collective bargaining or similar agreement with any labor
organization, or work rules or practices agreed to with any labor
organization or employee association applicable to employees of the Company
Entities; (v) none of the employees of the Stock Company Entities is
represented by any labor organization and there is no current union
organizing activities among the employees of the Company Entities, nor does
any question concerning representation exist concerning such employees; (vi)
there are no written personnel policies, rules or procedures applicable to
employees of the Stock Company Entities; (vii) the Stock Company Entities
have not received notice of any unfair labor practice charge or complaint
against any of the Company Entities pending or threatened before the Courts
of the Czech Republic or any similar state or foreign agency; (viii) the
Stock Company Entities have not received notice of any
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grievance arising out of any collective bargaining agreement or other
grievance procedure against the Stock Company Entities; (ix) the Stock
Company Entities have not received notice of any charges with respect to or
relating to any of the Stock Company Entities pending before the Courts of
the Czech Republic or any other agency responsible for the prevention of
unlawful mployment practices; (x) the Stock Company Entities have not
received notice of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws to conduct an
investigation; (xi) the Stock Company Entities have not received notice of
any complaints, lawsuits or other proceedings pending or threatened in any
forum by or on behalf of any present or former employee of the Stock Company
Entities, any applicant for employment or classes of the foregoing alleging
breach of any express or implied contract of employment, any law or
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the
employment relationship; and (xii) there are no employment contracts or
severance agreements with any employees of any of the Stock Company Entities
that, by their terms, could result in any liability to the Stock Company
Entities.
2.24 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 2.24 contains a true and complete list of each
bonus, deferred compensation, incentive compensation, profit sharing
arrangement, stock purchase, stock option, severance or termination pay,
food, housing, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement
plan, program, agreement or arrangement, and each other employee benefit plan
program, agreement or management, whether formal or informal, written or
oral, that is maintained or contributed to or was maintained or contributed
to at any time by any Stock Company Entity within the last three years, for
the benefit of any employee, former employee, consultant, officer, director
or Affiliate of any Stock Company Entity (a "Plan").
(b) With respect to each Plan, the Company Entities heretofore
have delivered to the Buyer true and complete copies of each of the following
documents to the extent applicable:
(i) a copy of the Plan (including all amendments
thereto);
(ii) a copy of the most recent annual report with respect
to each such Plan for the last two most recently completed Plan years;
(iii) a copy of the most recent "Summary Plan
Description," together with each "Summary of Material Modifications;"
(iv) if the Plan is funded through a trust or any
third-party funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements
thereto; and
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(v) all Contracts relating to any Plan with respect to
which any Stock Company Entity may have any liability, including, without
limitation, insurance contracts, investment management agreements,
subscription or participation agreements and record keeping or other
servicing or administration agreements.
All reports, returns and similar documents with respect to the
Plans required to be filed with any governmental agency or distributed to any
Plan participant or beneficiary have been duly and timely filed or
distributed and, to the knowledge of the Sellers and Resorts, all reports,
returns and similar documents actually filed or distributed were true,
complete and correct in all material respects.
(c) All contributions to, and payments from, the Plans
required to be made by any Stock Company Entity in accordance with the terms
of the Plans have been timely made as of the last day of the most recent Plan
year thereof ended prior to the date of this Agreement. All required
contributions to, and payments from, the Plans for any period on or before
December 31, 1996 that were not required to be made as of such date were
properly accrued and reflected on the balance sheet for the year ended
December 31, 1996 in the Financial Statements.
(d) No Plan provides benefits, including, without limitation,
death or medical benefits (whether or not insured), with respect to current
or former employees of any Stock Company Entity for periods extending beyond
their retirement or other termination of service (other than (i) coverage
mandated by applicable law or (ii) benefits the full cost of which is borne
by the current or former employee (or his beneficiary)).
(e) There are no pending, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against any of
the Plans, or any trusts related thereto or any trustee or administrator
thereof, and no litigation or administrative or other proceeding has occurred
or is threatened involving any Plan or any trusts related thereto or any
trustee or administrator thereof.
(f) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of
any Stock Company Entity to severance pay, unemployment compensation or any
other similar payment, or (ii) accelerate the time of payment or vesting or
increase the amount of compensation due any such employee or officer.
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2.25 ENVIRONMENTAL MATTERS.
(a) Except as set forth in SCHEDULE 2.25A, each of the Stock
Company Entities is in compliance in all material respects with all
applicable Environmental Laws, which compliance includes, but is not limited
to, the possession by the Stock Company Entities of, and their compliance in
all material respects with terms and conditions of, all permits, certificates
of financial responsibility and other governmental authorizations required
under applicable Environmental Laws ("Environmental Permits"). Except as set
forth in SCHEDULE 2.25A, no Stock Company Entity has received any formal
communication (written or oral) that alleges that any Stock Company Entity is
not in such material compliance, and except as identified elsewhere in this
Section 2.25A, there are no circumstances or conditions that under existing
Environmental Law could reasonably be expected to prevent or interfere with
such material compliance in the future. All permits, certificates of
financial responsibility and other governmental authorizations currently held
by any Stock Company Entity pursuant to Environmental Laws are identified in
SCHEDULE 2.25A.
(b) Except as set forth in SCHEDULE 2.25B there is no
Environmental Claim, as defined herein, pending or threatened against any
Stock Company Entity or against any person or entity whose liability for any
Environmental Claim any Stock Company Entity has contractually retained or
assumed. For purposes of this Agreement, an "Environmental Claim" means any
claim, action, cause of action, investigation or notice (written or oral) by
any person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup and removal
costs, governmental enforcement and response costs, natural resources
damages, property damages, economic loss, personal injuries, or penalties)
arising out of, based on or resulting from (i) the presence, discharge or
release or threatened discharge or release into the environment, of any
Material of Environmental Concern at any location, whether or not owned or
operated by any Company Entity or (ii) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
(c) Except as set forth in SCHEDULE 2.25B, there are no past
or present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the presence, release, emission,
discharge or disposal by any Person of any Material of Environmental Concern
at or under any facility currently or formerly owned or operated by any Stock
Company Entity, that could reasonably be expected to form the basis of any
Environmental Claim against any Stock Company Entity or against any Person or
entity whose liability for any Environmental Claim any Stock Company Entity
has contractually retained or assumed.
(d) Without in any way limiting the generality of the
foregoing, (i) all on-site and off-site locations where any Stock Company
Entity has stored, disposed or arranged for the disposal of Materials of
Environmental Concern are identified in SCHEDULE 2.25C; (ii) all underground
storage tanks, and the capacity and contents of such tanks, located on
property owned or leased by any Stock Company Entity are identified in
SCHEDULE 2.25C; (iii) except as set forth in SCHEDULE 2.25C, there is no
asbestos contained in or forming part of any building, building component,
vessel,
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structure or office space owned or leased by any Stock Company Entity; and
(iv) except as set forth in SCHEDULE 2.25C, no polychlorinated biphenyls
(PCBs) are used or stored at any property owned or leased by any Stock
Company Entity in violation of any Environmental Law.
2.26 NO CONDEMNATION OR EXPROPRIATION. Neither the whole nor any
portion of the Property or any other assets of any Company Entity is subject
to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority, with or without
payment of compensation therefor, nor has any such condemnation,
expropriation or taking been proposed or threatened (orally or in writing).
2.27 SUPPLIERS. SCHEDULE 2.27 contains a true and complete list
of the names and addresses of the twenty-five largest suppliers (indicating
U.S. dollar volume for each) of products and services to the Stock Company
Entities during the ten months ended October 31, 1997, indicating the
existing contractual arrangements for continued supply from each such firm.
The Stock Company Entities have not received any notice of, and know of no
reasonable basis for, any development that threatens to affect adversely its
arrangements with their respective suppliers that could reasonably be
expected to have a Material Adverse Effect. Except as set forth in SCHEDULE
2.27, there are no supply arrangements between any applicable Company Entity
and the Sellers or Affiliates of the Sellers that are on terms more or less
favorable to such Company Entity than could be obtained by such Company
Entity in transactions with unaffiliated third parties.
2.28 CONTRACTS AND COMMITMENTS. Except as set forth on SCHEDULE
2.28 or expressly referred to in the notes to the Financial Statements:
(a) None of the Stock Company Entities is party to or bound
by any Contract that is material to its business, operations, financial
condition or prospects or that involves, or is reasonably likely to involve,
the expenditure or receipt by such Company Entity after the date of the
balance sheet for the year ended December 31, 1996 in the Financial
Statements of more than U.S.$50,000. The legal enforceability after the
Closing by the Stock Company Entities of their respective Contracts will not
be affected in any material respect by the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(b) No purchase commitment of any of the Stock Company
Entities, or by which any of the Company Entities is bound, is materially in
excess of the normal, ordinary and usual requirements of the business or, in
the opinion of the Sellers, is at an excessive price.
(c) None of the Stock Company Entities is a party to or
bound by (i) any Contract (other than this Agreement) with the Sellers or
former shareholders of any Company Entity, or any Person known to any Company
Entity to be an Affiliate or Associate of a Seller or former shareholder of
any Company Entity, (ii) any Contract with officers, employees, agents,
consultants, advisors, salesman, sales representatives, distributors or
dealers that is not cancelable by the applicable Company Entity at will
without liability, penalty or premium, (iii) any Contract
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providing for the payment of any bonus or commission based on sales or
earnings, (iv) any Contract that contains any severance or termination or
change in control pay liability or obligation, (v) any Contract for the
purchase or sale of any security (other than this Agreement), (vi) any
Contract for the borrowing of money (or guarantee of indebtedness), (vii) any
Contract for leasing personal property that requires annual payments in
excess of U.S.$50,000 or the term of any of which exceeds one year,
(viii) any Contract relating to express product or service warranties,
(ix) any Contract containing a covenant not to compete by a Company Entity,
(x) any Contract granting a Lien, security interest or other material
encumbrance on any property or assets of any Stock Company Entity or on the
Assets, (xi) any Contract providing for exclusive purchases by or from a
Company Entity or containing a requirement purchase obligation, (xii) any
Contract providing for administration, service, utilization review,
adjustment, claims management or similar functions relating to insurance,
litigation or Plans of any of the Stock Company Entities or (xiii) any
Contract for the sale of any of the assets, property or rights of a Stock
Company Entity outside of the ordinary course of business, except as
contemplated by this Agreement.
(d) No Stock Company Entity has given any power of attorney
(whether revocable or irrevocable) to any Person that is or may hereafter be
in force for any purpose whatsoever.
(e) No Stock Company Entity is paying, or has any obligation
to pay, any pension, deferred compensation or retirement allowance to any
Person.
(f) Each material Contract of a Stock Company Entity is
valid and binding upon such Company Entity and each other party thereto and
is in full force and effect and enforceable by the applicable Company Entity
in accordance with its terms. Each applicable Company Entity has performed
all obligations required to be performed by it to date under each Contract to
which such Company Entity is a party, and there has been no breach or default
or claim of default by such a Company Entity or by any other party thereto
under any provision thereof and no event has occurred that, with or without
notice, the passage of time or both, would constitute a default by any Stock
Company Entity or any other party thereto under any provision thereof or that
would permit modification, acceleration or termination of any Contract by any
other party thereto or by a Stock Company Entity, except for such defaults
which in the aggregate could not reasonably be expected to have a Material
Adverse Effect.
True, complete and correct copies of each of the Contracts set
forth in SCHEDULE 2.28 or expressly referred to in the notes to the Financial
Statements have heretofore been provided to the Buyer by the Stock Company
Entities.
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2.29 COMPLIANCE WITH APPLICABLE LAW.
(a) Except as set forth in SCHEDULE 2.29A, (i) each of the
Stock Company Entities in the past has complied and presently is complying
with all laws applicable to them and their business (whether statutory or
otherwise), rules, regulations, orders, ordinances, judgements or decrees of
all governmental authorities (collectively, "Laws"), including, but not
limited to, all Czech Gaming Laws (as defined below), all Laws relating to
the safe conduct of business and environmental protection and conservation,
and any applicable liquor, smoking, prostitution, health, sanitation, fire,
safety, labor, zoning and building laws and ordinances, as well as all
criminal laws, except for such failures to comply, that, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect, (ii) none of the Stock Company Entities has received notification of
any asserted present or past failure to so comply, and (iii) each of the
Stock Company Entities is in compliance in all material respects with all
applicable Laws governing or relating to the current or contemplated casino
and gaming activities and operations of the Stock Company Entities, including
the Act of the Czech National Council of 17 May 1990 on Lotteries and Similar
Games, No. 202/1990 Coll., as amended by the Act of the Czech National
Council No. 70/1994 Coll. of 22 March 1994 and the Decree of the Ministry of
Finance No. 223/1993 Coll. of 28 July 1993 on Gambling Machines (the "Czech
Gaming Laws").
(b) Except as set forth in SCHEDULE 2.29B, each of the Stock
Company Entities has in effect all governmental approvals, authorizations,
certifications, filings, franchises, licenses, notices, permits,
registrations, variances and rights, including all authorizations under
Environmental Laws and Czech Gaming Laws ("Permits"), necessary for it to
own, lease or operate its properties and assets and to carry on its business
as now conducted other than such Permits the absence of which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, and there has occurred no default under any such Permit other
than such defaults that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(c) Since January 1, 1994 and except as disclosed in
SCHEDULE 2.29C, none of the Company Entities nor any of their Affiliates has
(i) ever applied for a casino, racing, or other gaming license in the Czech
Republic and been denied, (ii) experienced any revocation or failure to renew
any such license, or (iii) not applied for any such license or renewal after
being informed orally or in writing by any regulatory authority in the Czech
Republic, or any representative of such regulatory authority, that the
Company Entity or such Affiliate of the Company Entity, as the case may be,
would be denied such a license or renewal if it were applied for.
(d) The Stock Company Entities have delivered or given the
Buyer access to (i) copies of all material correspondence in its possession
or under its control between any Stock Company Entity and any of the
following: the Ministry of Finance of the Czech Republic, the Czech National
Bank and any municipal authority of the Czech Republic and other applicable
governmental authorities relating to the compliance by the applicable Company
Entity with the rules and
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regulations of the Ministry of Finance, the Czech National Bank and any
municipal authority of the Czech Republic and the terms of the License, and
(ii) a true and complete copy of the original application(s) for licenses to
operate gambling casinos, slot machines, currency exchanges, public bar
(saloon) keeping, purchasing and selling of goods and/or services and/or real
estate, removal and utilization of fertile soil and other applicable licenses
(the "Licenses" or, any one of them, a "License") filed with the Ministry of
Finance of the Czech Republic, the Czech National Bank and any municipal
authority and other applicable governmental authorities and any and all
amendments and updates made thereto. Except as disclosed in such
correspondence and such applications or as set forth in SCHEDULE 2.29D, the
Sellers are not aware of any facts or circumstance relating to the conduct of
any Company Entity, or any director, officer, employee or Seller of any Stock
Company Entity that could cause the Czech Republic Ministry of Finance, the
Czech National Bank and any municipal authority and other applicable
governmental authorities to revoke, suspend or fail to renew the License or
take disciplinary action against any of the Stock Company Entities or any
director, supervisory board member, officer, employee, agent, shareholder or
equityholder thereof in respect of such conduct.
2.30 BANK ACCOUNTS. SCHEDULE 2.30 sets forth the names and
locations of all banks or other financial institutions in which any Stock
Company Entity has an account or safe deposit box and the names of all
Persons authorized to draw thereon or to have access thereto. At the
Closing, the Stock Company Entities will deliver to the Buyer copies of all
records, including all signature or authorization cards pertaining to such
bank accounts and safe deposit boxes and will assign such authorization to
the Buyer and confirm in writing to the Buyer that such assignment will be
effective as soon as practically possible subsequent to the Closing and, at
such time, no Seller or Person determined by the Buyer to be unauthorized
shall have the authority to access such accounts or safe deposit boxes or
draw on such accounts.
2.31 ASSETS NECESSARY TO BUSINESS. The Stock Company Entities and
the Asset Sellers presently have and immediately prior to the Closing will
have good, valid and marketable title to all property and assets, real,
personal and mixed, tangible and intangible, and all leases, licenses and
other agreements, necessary to permit the Stock Company Entities to carry on
the respective businesses of the Stock Company Entities as presently
conducted immediately subsequent to the Closing Date, and the Asset Sellers
to transfer the Assets to TWG, free and clear of all Liens, and there is no
reason known to the Sellers why such titles, leases and other agreements will
not transfer to the Buyer upon the Closing and upon the Closing, the Buyer
shall obtain good, valid and marketable title to such property, assets and
leases and other agreements, free and clear of any Lien.
2.32 COMMISSIONS. Except as set forth on SCHEDULE 2.32 there are
no claims for brokerage commissions or finder's fees incurred by reason of
any action taken by any of the Stock Company Entities or the Sellers.
2.33 DISCLOSURE OF ALL MATERIAL FACTS. The Sellers and Stock
Company Entities have disclosed to the Buyer in writing in or pursuant to
this Agreement all facts material to a Person
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considering a purchase of the Shares and the Assets. No representation or
warranty to the Buyer contained herein, and no statement contained in any
certificate, schedule, list or other writing furnished to the Buyer pursuant
to the provisions of this Agreement contains any untrue statement of a
material fact or omits to state a material fact that is necessary in order to
make the information given by or on behalf of the Sellers and the Stock
Company Entities to the Buyer or its representatives prior to the Closing not
misleading and that if disclosed would reasonably affect the decision of a
Person considering a purchase of the Shares and the Assets.
ARTICLE III
REPRESENTATION AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers that:
3.1 ORGANIZATION. The Buyer is a corporation duly organized
validly existing and in good standing under the laws of the State of Nevada,
United States of America.
3.2 AUTHORITY. The Buyer has the corporate power and authority
to execute, deliver and perform this Agreement and the other instruments and
documents required or contemplated hereby. The Buyer will deliver to the
Sellers prior to the Closing a complete and correct copy, certified by its
Secretary, of the resolutions heretofore duly and validly adopted by its
Board of Directors evidencing such authorization (which resolutions will not
have been rescinded prior to and will be in full force and effect on the date
of the Closing). No other corporate act or proceeding on the part of the
Buyer or its shareholders is necessary to authorize this Agreement or the
other documents and instruments to be executed and delivered by the Buyer
pursuant hereto or the transactions contemplated hereby or thereby.
3.3 BINDING EFFECT; NO VIOLATION; CONSENTS. This Agreement
constitutes, and, when executed and delivered, the other documents and
instruments to be executed and delivered by the Buyer pursuant hereto will
constitute, valid and binding agreements of the Buyer, enforceable in
accordance with their respective terms, and (assuming receipt of the
consents, approvals and authorizations specifically contemplated by the next
sentence) neither the execution and delivery of this Agreement or the other
documents and instruments to be executed and delivered by the Buyer pursuant
hereto, nor the consummation by the Buyer of the transactions contemplated
hereby or thereby will (i) violate or conflict with or result in any breach
of any provision of the Articles of Incorporation or Bylaws of the Buyer,
(ii) violate or conflict with or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under or
will result in the termination of, or accelerate the performance required by,
or (except with respect to the financing of the acquisition contemplated by
the Buyer) result in the creation of any Lien upon any of the assets under,
any Contract to which the Buyer is a party or by which its assets or
properties may be bound or affected, or (iii) violate any statute or law or
any rule, regulation, order, writ, injunction or decree
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of any court or governmental authority, excluding from the foregoing clauses,
(ii) and (iii) such defaults, rights and violations that, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on the
ability of the Buyer to perform its obligations under this Agreement or to
consummate the transactions contemplated hereby. No consent, approval,
authorization or action by, notice to or filings with, any governmental
authority or any other Person is required in connection with the execution of
this Agreement, the other documents and instruments to be executed and
delivered by the Buyer pursuant hereto or the consummation by the Buyer of
the transactions contemplated hereby o thereby, except where the failure to
obtain such consent, give such notice or make such filing could not
reasonably be expected to have a Material Adverse Effect on the ability of
the Buyer to perform its obligations under this Agreement or to consummate
the transactions contemplated hereby.
3.4 LITIGATION. There are no claims, actions, suits, proceedings
or investigations pending or threatened by or against the Buyer, at law or in
equity or before or by any federal, state, municipal or other governmental
department, commission, board, agency, instrumentality or authority, other
than claims, actions, suits proceedings or investigations pending or
threatened, which individually or in the aggregate could not reasonably be
expected to have a material adverse effect on the ability of the Buyer to
perform its obligations under this Agreement or to consummate the
transactions contemplated hereby, and the Buyer does not know or have any
reason to know of any basis for any such claim, action, suit, proceeding or
investigation.
3.5 COMMISSIONS. Except as set forth on SCHEDULE 3.5, there are
no claims for brokerage commissions or finder's fees incurred by reason of
any action taken by the Buyer.
ARTICLE IV
COVENANTS OF THE SELLERS AND THE COMPANY ENTITIES
Each of the Sellers, solely for itself (on a several, and not joint
and several basis) covenants and agrees with the Buyer that, from the date
hereof until the Closing, the Sellers will, and each of the Company Entities,
as applicable, covenants and agrees with the Buyer that, from the date hereof
until the Closing, it will do (or cause to be done) the following:
4.1 OPERATION OF THE BUSINESS. Each of the Stock Company
Entities will (i) conduct its respective business diligently, only in the
ordinary course and substantially in the same manner as heretofore conducted;
and no Stock Company Entity may declare or pay any cash dividends prior to
the Closing that would result in Sellers' failure to comply with Section
1.4(p) hereof; and that the Company Entities may take such actions outside
the ordinary course of business as required by law or as expressly
contemplated or required by this Agreement; and (ii) obtain the Buyer's
consent to any business decision reasonably likely to have a significant
financial or operational effect on the Stock Company Entities and will
consult frequently (at least weekly) with the Buyer prior to the
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Closing regarding the operation and results of the Stock Company Entities and
the progress of the construction of the casinos in Rozvadov and Chvalovice,
Czech Republic pursuant to Section 4.1(c) hereof. Without limiting the
foregoing, unless the Buyer otherwise consents in advance in writing:
(a) Provide prompt notice to the Buyer of (i) any breach or
default (or notice thereof) of any of their respective material Contracts by
any Stock Company Entity, or (ii) any other event that has resulted or may
result in a Material Adverse Effect by the Company Entities.
(b) The Stock Company Entities will not incur or guarantee
any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) material to the Stock Company
Entities or enter into any Contract that (had such Contract been in existence
on the date hereof) would have been required to be set forth on SCHEDULE 2.28
or, except with the prior written consent of the Buyer, which will not be
unreasonably withheld or delayed, amend any of their respective Articles of
Incorporation, or other comparable organizational or governing document or
Bylaws, as applicable.
(c) The Stock Company Entities will (i) have the authority
to make the capital expenditures disclosed in the capital budget set forth on
SCHEDULE 4.1 pursuant to and in accordance with their existing commitments,
(ii) use commercially reasonable efforts to pursue the diligent construction
of the casinos in Rozvadov and Chvalovice, Czech Republic pursuant to the
plans set forth in EXHIBIT B as in effect on the date hereof and shall
provide TWG or its representatives the right to inspect the properties and
interview personnel involved in the construction process exclusively in the
presence of Noel A. Souter, who shall make reasonable accommodation to
accompany TWG or its representatives on the dates and times requested, and
(iii) not make other capital expenditures except (A) capital expenditures
relating to the construction of the casinos in Rozvadov and Chvalovice, Czech
Republic only in accordance with the plans set forth in EXHIBIT B, capital
expenditures which individually (including any series of related
expenditures) do not exceed U.S.$50,000 and in the aggregate do not exceed
U.S.$100,000, or (B) as required to meet an emergency (it being understood
and agreed that the Stock Company Entities promptly shall notify the Buyer of
any such emergency and the emergency expenditures and other actions to be
taken by the particular Company Entity in response thereto).
(d) Except with the prior written consent of the Buyer, the
Stock Company Entities will not pay, discharge or satisfy any Lien or
liability (whether absolute, accrued, contingent or otherwise and whether due
or to become due), other than liabilities shown on the balance sheet as of
December 31, 1996 in the Financial Statements and liabilities incurred after
the date thereof in the ordinary course of business in normal amounts, and no
such payment, discharge or satisfaction shall be effected other than in
accordance with the ordinary payment terms relating to the liability paid,
discharged or satisfied.
(e) Except with the prior written consent of the Buyer, the
Stock Company Entities will not permit or allow any of their respective
properties or assets, real, personal or mixed, tangible
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or intangible, to be mortgaged, pledged or subjected to any Lien, except for
any Permitted Liens.
(f) The Stock Company Entities will not cancel any debts or
claims except in the ordinary course of business and consistent with past
practice, or waive any rights of material value or, except for inventory sold
in the ordinary course of business or disposal of obsolete assets, or sell,
transfer or convey any of their respective properties of assets, real,
personal or mixed, tangible or intangible.
(g) Mr. Souter and the Stock Company Entities will not
dispose of or permit to lapse any Intellectual Property.
(h) The Stock Company Entities will not adopt, amend or
terminate any Plan and will not enter into any employment contract,
consulting agreement, or compensation arrangement of any kind whatsoever, or
change (including, without limitation, any change pursuant to any bonus,
pension, profit-sharing or other plan, commitment, policy or arrangement) the
compensation payable or to become payable to any of their respective
officers, directors, employees or agents except for such changes which are in
the ordinary course of business and are not material or are required by law.
(i) The Stock Company Entities will not make any pension,
retirement, profit-sharing, bonus or other employee welfare or benefit
payment or contribution, other than in the ordinary course of business and
consistent with past practice.
(j) The Stock Company Entities will not declare, pay or
make, or set aside for payment or making, any dividend or other distribution
in respect to their capital stock or other securities except in amounts that
will not preclude the Sellers' compliance with Section 1.4(p) hereof, or
directly or indirectly redeem, purchase or otherwise acquire any of the
capital stock or other securities of any Company Entity.
(k) The Stock Company Entities will not subdivide or in any
way reclassify any shares of their respective capital stock.
(l) The Stock Company Entities will not (i) issue, grant or
sell any shares of their respective capital stock or any equity interest or
security, or (ii) issue, grant or sell any security, option, warrant, call,
subscription or other right of any kind, fixed or contingent, that directly
or indirectly calls for the issuance, sale, pledge or other disposition of
any shares of their respective capital stock or any equity interest or
security.
(m) Except as may be required by the law or regulation of
the Czech Republic, the Stock Company Entities will not make any change in
any accounting principles, practices or methods, including their principles,
practices or methods relating to calculation of reserves for receivables.
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(n) Except with respect to the sale of the Schoolhouse,
title deed number 350, registered in the Cadastral area of Horni Folmava,
Czech Republic, the Stock Company Entities will not pay, loan, or advance any
amount to or in respect of, or sell, transfer or lease any property or assets
(real, personal or mixed, tangible or intangible) to, or enter into any
transaction with or for the benefit of, any Seller or any of their respective
officers or directors or any Affiliate or Associate of any of their
respective officers or directors or any Affiliate or Associate of any of the
Sellers.
(o) Except in the ordinary course of business or with the
prior written consent of the Buyer, the Stock Company Entities will not enter
into any lease of real property or material lease of personal property.
(p) The Stock Company Entities will not terminate or amend,
or fail to perform any of their obligations or cause any breach under, any
Contract set forth in SCHEDULE 2.28. The Stock Company Entities will
exercise their respective commercially reasonable efforts to renew each of
the Contracts set forth on SCHEDULE 2.28 that may be scheduled to terminate
prior to the Closing Date.
(q) Each of the Stock Company Entities will use commercially
reasonable efforts to preserve intact the existing relationships with its
suppliers, customers and employees and others with which it has business
relationships. The Stock Company Entities will permit the Buyer to contact
their suppliers and employees exclusively in the presence of Noel A. Souter
who shall make reasonable accommodation to accompany TWG or its
representatives on the dates and times requested.
(r) The Stock Company Entities will maintain the insurance
referred to in SCHEDULE 2.22A.
(s) Each of the Company Entities will duly comply in all
material respects with all Laws applicable to it and its properties,
operations, business and employees. The Stock Company Entities will maintain
at all times reserves for working capital, capital improvements, replacements
and/or contingencies to the extent, and in the amounts, required by all
applicable Czech Gaming Laws.
(t) The Stock Company Entities will not change any of their
policies or practices relating to the extension of credit to customers or the
collection from customers of receivables arising from gaming operations.
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4.2 ACCESS. (a) The Sellers, to the extent within their
control, and the Company Entities will permit the Buyer and its authorized
representatives at all reasonable times, and upon reasonable notice, to have
access to and to examine all premises, properties, files, books, documents,
records, financial information (including working papers and data in the
possession of the independent public accountants, internal audit reports, and
"management letters" from such accountants with respect to the systems of
internal control) and other information of the Company Entities (including
the right to make extracts therefrom or copies thereof), and will cooperate
with the Buyer in its investigation of the Company Entities. Each of the
Sellers and the Company Entities will permit representatives of the Buyer to
consult with him, or its personnel, as the case may be, concerning all
financial and operational matters relating to the Company Entities and will
be available, or, in the case of the Company Entities, make available its
personnel, to consult with such representatives on prior notice and in the
presence of Noel A. Souter, who shall make reasonable accommodation to
accompany TWG or its representatives on the dates and times requested. The
Company Entities will promptly furnish to the Buyer all existing surveys and
title and lien searches, examinations, insurance binders and commitments as
are available. The Sellers and the Company Entities will promptly furnish to
the Buyer such other documents relevant to the transaction contemplated
hereby as may reasonably be requested from time to time.
(b) Notwithstanding the Buyer's ability to continue to
perform due diligence during the term of this Agreement pursuant to Section
4.2(a), above, the Buyer will confirm to the Sellers in writing within
forty-five (45) days after the date of the last party to execute this
Agreement as to whether or not additional substantial documentation will be
required, and, if so, specifying the nature of the documentation required
(the "Buyer's Notice"). The Sellers' Representative shall, within ten (10)
days after the receipt of the Buyer's Notice by its own notice in writing
(the "Sellers' Notice") either (i) provide such documentation, but such
provision shall not abrogate the Sellers' responsibility to inform the Buyer
under Section 7.8 as to any material adverse change, or (ii) confirm that no
such documentation can be provided, or (iii) notify the Buyer that the
Sellers will not provide any further documentation. The Buyer shall, within
five (5) days after receipt of the Sellers' Notice inform the Sellers'
Representative in writing whether it accepts the Sellers' Notice. If the
Buyer fails to respond to the Sellers' Notice within such time period or
confirms acceptance within such time period, this Agreement shall continue in
full force and effect. If the Buyer informs the Sellers' Representative that
it does not accept the Sellers' Notice, this Agreement shall terminate
forthwith and shall be deemed to have terminated in accordance with Section
10.1(a) hereof.
4.3 EXISTENCE. The Sellers, to the extent within their control,
and the Company Entities will take such action as may be necessary to
maintain, preserve, renew and keep in full force and effect each such
entity's existence (corporate or otherwise), rights and franchises and will
not amend any such entity's Articles of Association or other comparable
organizational or governing documents, or Bylaws.
4.4 CONSENTS. The Sellers and the Company Entities shall, at
their own expense, obtain prior
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to the Closing all consents necessary to the consummation of the transactions
contemplated hereby, as set forth in SCHEDULE 2.13 and such other
non-governmental consents as the Buyer or its counsel shall reasonably
determine to be necessary and shall have specified in writing to the Sellers'
Representative no later than 30 days after the execution of this Agreement.
All such consents shall be in writing and executed counterparts thereof shall
be delivered to the Buyer promptly after receipt thereof by the Company
Entities or the Sellers but in no event later than immediately prior to the
Closing.
4.5 GOVERNMENTAL FILINGS. Each of the Company Entities and each
of the Sellers will, at the expense (subject to Section 11.2) of the Company
Entities or such Sellers, as promptly as practicable, make any required or
appropriate governmental filings, including filings pursuant to the Czech
Gaming Laws and comply with any applicable governmental waiting periods,
notification or other procedures required to be complied with by it in
connection with the transactions contemplated by this Agreement. The Sellers
will cooperate with the Company Entities in connection with such filings and
the Sellers and the Company Entities will cooperate with the Buyer in the
making of any filings required of the Buyer.
4.6 PERFORMANCE; RESIGNATIONS. The Company Entities and the
Sellers will perform all acts to be performed by them pursuant to this
Agreement and will refrain from taking or omitting to take any action that
would violate the Sellers' or the Company Entities' representations and
warranties hereunder or render them inaccurate as of the date hereof or the
Closing Date or that in any way would prevent or adversely affect the
consummation of the Sellers' transactions contemplated hereby. Except for
supervisory board members of LMJCR who are appointed or elected by LMJCR's
employees, the Stock Company Entities and the Sellers shall cause the
directors, the supervisory board members and executive officers of the Stock
Company Entities identified by the Buyer prior to the Closing Date to execute
and deliver to the Buyer at Closing their resignations from their director,
supervisory board and executive officer positions at such Company Entities,
effective as of the Closing Date. The Company Entities and the Sellers will
use their respective best endeavors efforts to satisfy or cause to be
satisfied all the conditions to the obligations of the Buyer set forth in
Article VII.
4.7 UPDATING OF INFORMATION. The Company Entities and the
Sellers shall have the continuing obligation to supplement or amend, within a
reasonable period of time prior to the Closing Date, the Schedules being
delivered concurrently with the execution of this Agreement and annexed
hereto with respect to any matter hereafter arising or discovered, which, if
existing or known at the date of this Agreement, would have been required to
be set forth or described in the Schedules.
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4.8 MONTHLY FINANCIAL STATEMENTS; WEEKLY GAMING REVENUE REPORTS;
EMPLOYMENT INFORMATION UPDATES.
(a) The Stock Company Entities will deliver to the Buyer,
promptly after they become available and in any case within 15 days after the
end of each calendar month, unaudited balance sheets of each of the Stock
Company Entities as of the end of such month and unaudited statements of
income of each of the Stock Company Entities for the one-month period then
ending and the period since March 31, 1997. Such balance sheets and
statements of income of the Stock Company Entities shall be in the form
currently prepared by them, if currently prepared and if not so prepared in a
form reasonably satisfactory to the Buyer. All such balance sheets and
statements of income shall be prepared in good faith and derived from the
books and records of the Stock Company Entities.
(b) The Stock Company Entities will deliver to the Buyer,
promptly after they become available and in any case within 5 days after the
end of each week, reports setting forth the gross gaming win of the
applicable Company Entities during such week. Such reports shall be prepared
in good faith and derived from the books and records of the Stock Company
Entities.
(c) The Stock Company Entities will deliver to the Buyer
monthly reports setting forth all terminations of and resignations by
employees of the Stock Company Entities, which reports shall specify (i) the
age and gender of each employee, (ii) the date of termination or resignation,
and (iii) the stated reason or cause (if known to the Company Entity) for
such termination or resignation.
4.9 OTHER TRANSACTIONS. Except as expressly contemplated by this
Agreement, from the date of this Agreement to the Closing, none of the
Sellers, the Company Entities or any of their Affiliates shall, nor shall
they permit any of their respective officers, directors, stockholders,
equityholders or other representatives to, directly or indirectly, encourage,
solicit, initiate or participate in discussions or negotiations with, or
provide any information or assistance to, any Person or group (other than the
Buyer and its representatives) concerning any merger, sale of securities,
sale of substantial assets or similar transaction involving any of the
Company Entities. In the event that any of the Sellers, the Company Entities
or any of such Affiliates receives a proposal relating to any such
transaction, the Sellers or the Company Entities shall promptly notify the
Buyer of such proposal.
4.10 INTEREST PERIODS. Except as set out in SCHEDULE 4.10, the
Company Entities will ensure that any Indebtedness of the Stock Company
Entities outstanding at Closing, to the extent such Indebtedness bears
interest at a rate based on the London interbank offered rate, does not have
an interest period in excess of the one month.
4.11 CONFIDENTIALITY OF INFORMATION. Each of the Sellers and the
Company Entities acknowledge that the terms and provisions of the
confidentiality provisions of the
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Confidentiality and Non-Disclosure Agreement ("Confidentiality Agreement")
dated February 24, 1997 are in full force and effect and apply to any and all
information furnished by the Buyer pursuant to this Agreement. In the event
that this Agreement is terminated and the transactions contemplated hereby
are not consummated, the Confidentiality Agreement shall continue to be in
full force and effect in accordance with its terms for a period of 5 years
from the date of such termination.
ARTICLE V
COVENANTS OF THE BUYER
The Buyer covenants and agrees with the Sellers that from the date
hereof until the Closing:
5.1 PERFORMANCE. The Buyer will perform all acts to be performed
by it pursuant to this Agreement and will refrain from taking or omitting to
take any action that would violate its representations and warranties
hereunder or render them inaccurate as of the date hereof or the Closing Date
or that in any way would prevent or adversely affect the consummation of the
transactions contemplated hereby. The Buyer will use all commercially
reasonable efforts to satisfy or cause to be satisfied all the conditions to
the obligations of the Sellers set forth in Article VIII.
5.2 GOVERNMENTAL FILINGS. The Buyer will, as promptly as
practicable, make any required governmental filings required of the Buyer,
including filings pursuant to the Czech Gaming Laws, and comply with any
applicable governmental waiting periods or notification or other procedures
required to be complied with by it in connection with the transactions
contemplated by this Agreement. The Buyer's filings with the Ministry of
Finance of the Czech Republic in connection with the transactions
contemplated hereby shall be true, complete and correct in all material
respects. The Buyer will cooperate with the Sellers and the Company Entities
in the making of any filings required of the Sellers and the Company Entities.
5.3 CONFIDENTIALITY OF INFORMATION. The Buyer acknowledges that
the terms and provisions of the Confidentiality Agreement are in full force
and effect and apply to any and all information furnished to the Buyer
pursuant to this Agreement. In the event that this Agreement is terminated
and the transactions contemplated hereby are not consummated, the
Confidentiality Agreement shall continue to be in full force and effect in
accordance with its terms for a period of 5 years from the date of such
termination.
ARTICLE VI
OTHER MATTERS
6.1 SITE ACCESS. Commencing no later than the date of this
Agreement, the Company
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Entities will make the Properties located in Ceska Kubice, Rozvadov and
Chvalovice, all in the Czech Republic (the "Casino Properties") reasonably
available to the Buyer and/or the Buyer's consultants for purposes of
conducting an investigation of the Casino Properties, reasonably tailored in
scope, including, but not limited to, trenching areas or drilling core
samples where, in the Buyer's reasonable judgment, Materials of Environmental
Concern could reasonably be expected to exist, all at the Buyer's cost and
expense, to determine whether and to what extent Materials of Environmental
Concern are present at, on or under the Casino Properties ("Buyer's
Environmental Investigation"). The Company Entities will cooperate with the
Buyer and/or the Buyer's consultants, at the Buyer's expense, during the
Buyer's Environmental Investigation. Buyer will repair or otherwise make
good, as the case may be, any Damage to the Property resulting from such
investigation if this Agreement is not consummated.
6.2 INDEMNIFICATION.
(a) The Sellers, jointly and severally, agree to indemnify
and hold the Buyer, and its respective officers, directors, employees and
agents and their respective heirs, successors and assigns (collectively, the
"Buyer Group"), harmless against, and to reimburse the Buyer Group for any
Damages or Tax imposed on or incurred by any of the Buyer Group (a "Buyer
Loss") because of or arising from or related to or in connection with: (i)
any breach of any of the Sellers' representations or warranties or any
failure to perform or violation of any agreement or covenant on the part of
the Seller under this Agreement or under any other agreement referred to
herein or contemplated hereby to which the Seller is a signatory; (ii) any
claims arising out of, relating to or in connection with the businesses of
any Stock Company Entity prior to, and including, the Closing Date (including
without limitation any claims relating to Taxes due and owing by any Seller
prior to the Closing Date and any claims for the cashing of casino chips not
accounted for as of the Closing Date); (iii) any Damages or Tax caused by any
Seller resulting from any investigation, suit, action or other proceeding by
or before any governmental authority that seeks to restrain, modify, prohibit
or revoke, or seeks other relief in connection with, the consummation of this
transaction due to fault or liability of any Seller; (iv) any failure to pay
in full or provide for the payment in full of any creditors of any Stock
Company Entity whose claims have not been assumed by the Buyer other than the
Indebtedness assumed by the Buyer; (v) any liabilities or obligations of any
of the Sellers to and including the Closing Date of any nature whatsoever
whose claims have not been assumed by the Buyer; and (vi) any and all
actions, suits, proceedings, demands, assessments, judgments, out-of-pocket
costs and reasonable attorneys' fees of any nature incident to the foregoing.
(b) (i) The Buyer agrees to indemnify and hold each Seller,
and its respective officers, directors, supervisory board members, employees
and agents and their respective heirs, successors and assigns (collectively,
the "Seller Group"), harmless against, and to reimburse the Seller Group for
any Damages or Tax imposed on or incurred by any of the Seller Group (a
"Seller Loss") because of or arising from or related to or in connection
with: (i) any breach of any of the Buyer's representations or warranties or
any failure to perform or violation of any agreement or
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covenant on the part of the Buyer under this Agreement or any other agreement
referred to herein or contemplated hereby; (ii) any claims arising out of, or
relating to or in connection with the business of the Buyer subsequent to the
Closing Date (including any claims relating to Taxes due and owing by the
Buyer after the Closing Date, but not with respect to Taxes claimed by any
Taxing authority to be due and owing by the Buyer but were incurred or
originated as a result of acts or omissions by any Seller pursuant to Section
6.2(a) above); (iii) any Damages or Tax caused by the Buyer resulting from
any investigation, suit, action or other proceeding by or before any
governmental authority which seeks to restrain, modify, prohibit or revoke,
or seeks other relief in connection with, the consummation of this
transaction due to fault or liability of the Buyer; and (iv) any and all
actions, suits, proceedings, demands, assessments, judgments, out-of-pocket
costs and reasonable attorneys' fees of any nature incident to the foregoing.
(ii) No indemnification payment shall be made by the
Buyer pursuant to this Agreement: (A) unless the Seller Group shall have
given written notice of the claim to the Buyer within 365 days following the
Closing Date with respect to a Damage Claim or 5 years following the Closing
Date with respect to Taxes; nor (B) until the amounts that the Seller Group
would be entitled to receive as indemnification aggregate at least
U.S.$100,000.00 in the case of a Damage Claim made by or on behalf of all of
the Seller Group and in the case of any one or more Selling Stockholder, the
relevant Liability Percentage (as defined below) times U.S.$100,000.00, at
which time the Seller Group or any one or more Selling Stockholder shall be
entitled to receive only payment of all such amounts in excess of
U.S.$100,000.00 or the relevant percentage thereof; and (C) the maximum
amount of the indemnity provided by the Buyer hereunder shall not exceed the
Purchase Price less any amounts due to Buyer pursuant to Section 6.2(a)
hereof which the Buyer has been unable to collect for any reason.
(c) No indemnification payment shall be made by the Sellers
pursuant to this Agreement: (i) unless the Buyer Group shall have given
written notice of the claim to the Seller's Representative within 365 days
following the Closing Date (except for a Tax Claim) as set out in Section
10.3 nor (ii) until the amounts that the Buyer Group would otherwise be
entitled to receive as indemnification aggregate to at least US$100,000.00 at
which time the Buyer Group shall be entitled to receive only payment of all
such amounts in excess of US$100,000.00; (iii) the maximum amount of the
indemnity to be provided by each Selling Stockholder hereunder shall not
exceed the Selling Stockholder's proportionate share of the Purchase Price
(the "Liability Percentage") as set forth in EXHIBIT J, attached hereto; and
(iv) no Selling Stockholder shall be liable to the Buyer Group for an amount
that exceeds the product of the Liability Percentage times the gross amount
of the Damage Claim, less any amount due to the Selling Stockholders pursuant
to Section 6.2(b) which they shall have been unable to collect for any
reason. The funds deposited in the Escrow shall be utilized to cover any and
all Damage Claims, as defined below, relating to any claims made against the
Sellers and shall be paid to the Buyer in accordance with the terms of the
Escrow Agreement for the first 365 days following the Closing Date and,
thereafter, shall be utilized to cover only claims for Taxes.
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(d) (i) For purposes of this Agreement, "Damages" shall
mean all damages, and includes, without limitation, punitive damages,
liabilities, costs, losses, consequential loss, interest, diminutions in
value, fines, penalties, demands, claims, cost recovery actions, lawsuits,
administrative proceedings, orders, response action costs, compliance costs,
investigation expenses, arbitration expenses, consultant fees, attorneys' and
paralegals' fees, and litigation expenses.
(ii) In calculating the amount of any Damages, the
Sellers shall be entitled to set off against such Damage Claim the amount of
the increase in value (after adjustment, where appropriate, for Taxes with
respect to any items of revenue) of the Stock Company Entities or the Assets,
taken as a whole, from the date of the last Party hereto to execute this
Agreement until the Closing Date hereof. Any such increase in value must be
financial in nature, quantifiable, tangible and established by the Sellers by
a preponderance of the evidence.
(iii) No indemnification payment shall be made by the
Sellers pursuant to Section 6.2(a) of this Agreement to the extent that an
appropriate provision or reserve was made for any liability in the Financial
Statements of the Stock Company Entities as of August 31, 1997, as set forth
in SCHEDULE 2.14, and no indemnification payment shall be made by the Sellers
pursuant to Section 6.2(a) of this Agreement to the extent that the Damage
Claim arises solely due to the fact that the provisions or reserve in the
accounts of the Stock Company Entities as of August 31, 1997 (as set forth in
SCHEDULE 2.14) are insufficient solely by reason of any increase in the rate
of Tax made after the date of the Closing.
(iv) No indemnification payment shall be made by the
Sellers pursuant to Section 6.2(a) of this Agreement to the extent that the
Damage Claim arises solely from any fact or matter set forth in the reports
entitled "Due Diligence on 21st Century Resorts a.s. Group of Companies" and
"21st Century Group of Companies - Czech Republic - Financial and Accounting
Due Diligence - April 1997" of Arthur Andersen (the "Andersen Report") to TWG
dated April 28, 1997, copies of which are attached hereto as EXHIBIT L and
made a part hereof, except for Damage Claims for Taxes and except for other
matters to the extent that the information obtained from or on behalf of the
Sellers relating to such matters in the Andersen Report was not correct or
accurate, was not corrected or clarified by the Sellers in a writing
delivered to the Buyer prior to the Closing Date and was relied upon by the
Buyer to its detriment. If information in the Andersen Report conflicts with
any representation or warranty of the Sellers or the Company Entities herein,
the representations and warranties shall govern and such conflict shall in no
way limit the indemnification to be made by the Sellers pursuant to Section
6.2(a) of this Agreement.
(e) The indemnified party shall promptly notify the
indemnifying party of any claim that is reasonably likely to give rise to a
claim for indemnification under this Agreement (a "Damage Claim") asserted by
such party or by a third party, stating, to the extent known, with detailed
specificity the nature and basis of the Damage Claim. The failure to give
promptly any such notice shall not relieve the indemnifying party from any
liability hereunder with respect to the subject matter of any Damage Claim
except to the extent that the indemnifying party actually has
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been materially damaged by such failure. If the indemnifying party shall
have confirmed in writing its obligation to indemnify for any liability
asserted in any Damage Claim, then the indemnifying party shall have, at its
election, the right to compromise or defend such Damage Claim involving the
assertion of liability by a third party at the indemnifying party's sole
expense, through counsel chosen by it, provided that, in conducting such
defense, settlement and compromise: (i) the indemnifying party shall not
permit to exist any lien, encumbrance or other adverse charge upon any asset
or business of the indemnified party; (ii) the indemnifying party shall cause
its counsel to consult with the indemnified party and, if applicable, the
indemnified party's counsel and keep them fully advised of the progress of
the defense, settlement and compromise; and (iii) the indemnifying party
promptly shall reimburse the indemnified party for the full amount of any
Damages resulting from such Damage Claim up to the limits set out in Sections
6.2(b), (c), (d) and (g) except to the extent otherwise provided in the next
sentence. If the indemnifying party is required hereunder or elects to
conduct the defense of such Damage Claim, then the indemnified party shall
cooperate with the indemnifying party in connection therewith and shall be
entitled to participate in the defense thereof and to appoint counsel for
that purpose, except that the cost of any such participatng counsel shall be
solely for the account of the indemnified party and the indemnifying party
shall have no responsibility therefor unless: (i) the indemnifying party
shall not have notified the indemnified party that it will assume the defense
of such Damage Claim and have designated counsel reasonably acceptable to the
indemnified party within a reasonable time of the notice of such Damage
Claim; or (ii) the named parties to any proceeding with respect to such
Damage Claim (including any impleaded parties) include both the indemnified
party and the indemnifying party and representation of both parties by the
same counsel would be, in the opinion of counsel selected by the indemnifying
party, inappropriate due to actual or potential differing interests between
them. As long as the indemnifying party is contesting any such Damage Claim
in good faith in accordance with the foregoing requirements, the indemnified
party shall not pay or settle any such Damage Claim. Notwithstanding the
foregoing, the indemnified party may pay or settle any such Damage Claim at
any time, provided that the indemnified party waives any right to indemnity
therefor by the indemnifying parties.
(f) In the event that the indemnifying party fails within 30
days after the receipt of notice of such Damage Claim to notify the
indemnified party and to confirm in writing its obligation to indemnify for
any liability in such Damage Claim, the indemnified party shall have the
right to defend, settle or compromise the Damage Claim in its discretion;
provided, however, that the indemnifying party shall have the right to
participate in the defense of such Damage Claim at its own expense. The
indemnifying party promptly shall reimburse the indemnified party for the
full amount of any Damages resulting from such Damage Claim and any defense,
settlement or compromise thereof and all reasonable related costs incurred by
the indemnified party subject to the limits contained in Sections 6.2 (b),
(c), (d) and (g).
(g) The indemnification provisions in this Agreement shall
not be deemed to preclude the exercise of any other rights or the pursuit of
any other remedies for the breach of this Agreement or with respect to any
misrepresentations or breaches of representations, warranties or
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covenants by either the Sellers, on the one hand, or the Buyer on the other
hand except that no individual may be pursued in more than one capacity (e.g.
individually or as a corporate director or officer) for any Damages and the
Buyer shall not pursue a Damage Claim against any of Ms. Linda Clifford of
Rancho Cordova, California, Ms. Irena Petrzikova of Domazlice, Czech
Republic, Ms. Glen Bramsworth Ramsden of the Isle of Man, United Kingdom, Mr.
Mark Clive Souter of Domazlice, Czech Republic, or Mr. Lubomir Valenta of
Kubice, Czech Republic, all of whom are non-stockholder directors or
supervisory directors of the Stock Company Entities. Should the Buyer be
unable to obtain indemnity pursuant to Section 6.2(a), the Buyer will bring
an action against all Sellers jointly. If a Damage Claim arises through the
act or omission of a third party, then the Buyer may seek to preserve any
right it may have against the Selling Stockholders by filing a claim, notice
or request for indemnity but shall pursue its rights against such third party
before seeking to enforce a claim against the Selling Stockholders.
ARTICLE VII
CONDITIONS TO OBLIGATION OF THE BUYER
The obligation of the Buyer to purchase the Shares and the Assets
at the Closing is subject to the satisfaction or waiver by the Buyer of the
following conditions on or before the Closing Date:
7.1 REPRESENTATIONS AND WARRANTIES CORRECT. Each representation
and warranty of each of the Sellers and the Company Entities made herein, and
the statements contained in the Exhibits and Schedules hereto or in any
instrument, list, certificate or writing delivered by the Company Entities or
the Sellers pursuant to this Agreement shall be materially true and correct
as of the date made and, except to the extent such representation, warranty
or statement relates solely to the date hereof or an earlier date, at and as
of the Closing Date, with the same force and effect as though made at and as
of the Closing Date.
7.2 PERFORMANCE; NO DEFAULT. Each of the Sellers and the Company
Entities will have performed and complied in all material respects with all
the obligations, agreements and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing.
7.3 DELIVERY OF CERTIFICATE. The Sellers and the Company
Entities shall have delivered to the Buyer a certificate, dated the Closing
Date, executed by an authorized executive officer certifying to the
fulfillment of the conditions set forth in Sections 7.1 and 7.2.
7.4 OPINION OF COUNSEL TO THE STOCK COMPANY ENTITIES. The Stock
Company Entities will have delivered to the Buyer an opinion of Becker and
Poliakoff, P.A., Prague, Czech Republic, special counsel to the Stock Company
Entities, dated the Closing Date, containing the opinion set forth in EXHIBIT
D.
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7.5 GOOD STANDING CERTIFICATES. The Buyer shall have received
(a) a commercial extract from the Commercial Registry of the relevant
municipal authority that maintains such official records of its municipality
evidencing its continued existence and its good standing as a corporation,
joint stock company, limited liability company or limited partnership
organized under the laws of such country; and (b) from each applicable
municipality referred to in clause (a) above or the respective Stock Company
Entity written evidence, if available, of its current payment of income and
other Taxes.
7.6 CONSENTS. The Buyer shall have received executed
counterparts of the consents referred to in Section 4.4.
7.7 GOVERNMENTAL APPROVALS. All consents, authorizations and
approvals (including, without limitation, any approval required from the
Ministry of Finance of the Czech Republic and all applicable municipalities
and including all land use permits and licenses required to build, access and
operate the casinos at Ceska Kubice and at Rozvadov and a land-use permit for
the development of the site of a prospective casino at Chvalovice, Czech
Republic) from, and all declarations, filings and registrations with, any
governmental authority required to consummate the transactions contemplated
by this Agreement, including those set forth in SCHEDULE 2.13, shall be
pursued diligently by the Sellers in good faith and those obtained as of the
Closing Date shall be made without the imposition of any condition which
would result in a material adverse change pursuant to Section 7.8.
7.8 NO MATERIAL ADVERSE CHANGE. No change, event, development or
combination of developments shall have occurred which, individually or in the
aggregate, has resulted in or could reasonably be expected to result in a
Material Adverse Effect and in respect of which the Buyer shall have given
written notice to the Sellers' Representative within 5 Business Days of the
date on which the Buyer was given written notice of such a change or
development that the Buyer regards as having a Material Adverse Effect.
7.9 ABSENCE OF LITIGATION. There will be no suit, action or
other proceeding pending or threatened seeking to enjoin, restrain, hinder or
delay the purchase and sale of the Shares or the Assets or the other
transactions contemplated hereby, or to impose limitations on the ability of
the Buyer to acquire or hold, or exercise full rights of ownership of, the
Shares or the Assets, or to prohibit Buyer or any of its Affiliates from
effectively controlling in any material respects the business or operations
of the Stock Company Entities or the Assets, at law or in equity, before any
federal, state, municipal or other governmental court, department,
commission, board, agency, instrumentality or authority or arbitration body,
nor shall any injunction or order of any such court or other entity be in
effect as of the Closing Date that restrains or prohibits the purchase and
sale of the Shares or the Assets or the other transactions contemplated
hereby.
7.10 CORPORATE ACTION. All meetings of the Boards of Directors or
Supervisory Boards of
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Directors of each of the Stock Company Entities shall have been held on or
prior to the Closing Date pursuant to which all necessary or appropriate
resignations shall have been tendered and accepted and all nominees of the
Buyer shall have been elected as required pursuant to the terms of this
Agreement.
7.11 ESCROW AGREEMENT. The Sellers and the Escrow Agent shall
have duly executed and delivered to the Buyer the Escrow Agreement
substantially in the form of EXHIBIT A.
7.12 NON-COMPETITION AND NON-INTERFERENCE AGREEMENTS. The Sellers
shall have duly executed and delivered to the Buyer the Non-Competition and
Non-Interference Agreements as set forth in EXHIBIT F.
7.13 DELIVERY OF DOCUMENTS. At or before the Closing, the Sellers
shall have executed and delivered to the Buyer all of the documents set forth
in Section 1.4 hereof and such other documents as the Buyer or its counsel
may reasonably require by written notice given to the Sellers' Representative
within 30 days after the date of execution of this Agreement by the last
Party hereto to do so to effect the transfer, sale and conveyance of the
Shares and the Assets and to consummate all of the transactions contemplated
hereby.
ARTICLE VIII
CONDITIONS TO OBLIGATION OF THE SELLERS
The obligation of the Sellers to sell the Shares and the Assets on
the Closing Date is subject to the satisfaction or waiver by the Sellers'
Representative of the following conditions, on or before the Closing Date:
8.1 REPRESENTATIONS AND WARRANTIES CORRECT. Each representation
and warranty of the Buyer made herein, and the statements contained in the
Exhibits and Schedules hereto or in any instrument, list, certificate or
writing delivered by the Buyer pursuant to this Agreement shall be materially
true and correct as of the date made and at and as of the Closing Date, with
the same force and effect as though made at and as of the Closing Date.
8.2 PERFORMANCE; NO DEFAULT. The Buyer will have performed and
complied in all material respects with all the obligations, agreements and
conditions required by this Agreement to be performed or complied with by it
at or prior to the Closing.
8.3 DELIVERY OF CERTIFICATE. The Buyer shall have delivered to
the Sellers' Representative a certificate, dated the Closing Date, executed
by an executive officer, certifying to the fulfillment of the conditions set
forth in Sections 8.1 and 8.2.
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8.4 OPINION OF COUNSEL TO THE BUYER. The Buyer will have
delivered to the Sellers' Representative an opinion of special counsel to the
Buyer, dated the Closing Date, containing the opinions set forth in EXHIBIT E.
8.5 GOOD STANDING CERTIFICATE. The Sellers' Representative shall
have received from the Buyer a certificate of good standing or of corporate
existence from the Secretary of State of the State of Nevada, United States
of America, which evidences the corporate good standing or existence, as the
case may be, of the Buyer in the jurisdiction of its incorporation.
8.6 FINANCING. On or before the 60th day after the date of the
last Party to execute this Agreement, the Buyer shall deliver to the Sellers'
Representative a certificate of its financier that states that the Buyer has
made the arrangements necessary to permit the Buyer to fulfill its financial
obligations hereunder on the Closing Date, subject to reasonable specified
conditions to funding acceptable to the Sellers, including the truth of the
representations and warranties in this Agreement of the Buyer and the Sellers
as of the Closing Date, the performance of the covenants and agreements in
this Agreement as of the Closing Date, the failure of a material adverse
change to occur with respect to the condition (financial or other) of the
Buyer or the Seller or in the earnings, business affairs or business
prospects of the Buyer or the Seller, if there has occurred any national
emergency in the Czech Republic, or a new outbreak or escalation of
hostilities or other calamity or crisis the effect of which on the financial
markets in the Czech Republic is such as to make it impracticable to fund the
Buyer's financial obligations under this Agreement, or if a banking
moratorium has been declared in the Czech Republic, the United Kingdom or the
United States.
8.7 ARTICLES OF INCORPORATION. The Buyer shall have provided to
the Sellers' Representative a duly notarized copy of its Articles of
Incorporation translated into the Czech language no later than 30 days after
the execution of this Agreement by the last Party to execute same.
8.8 ABSENCE OF LITIGATION. There will be no suit, action or
other proceeding pending or threatened against any of the Company Entities or
any of the Sellers or the Buyer seeking to enjoin, restrain, hinder or delay
the purchase and sale of the Shares or the Assets or the other transactions
contemplated hereby at law or in equity before any federal, state, municipal
or other governmental court, department, commission, board, agency,
instrumentality or authority or arbitration body, nor shall any injunction or
order of any such court or other entity be in effect as of the Closing which
restrains or prohibits the purchase and sale of the Shares or the Assets or
the other transactions contemplated hereby.
8.9 ESCROW AGREEMENT. The Buyer shall have duly executed and
delivered to the Sellers' Representative and the Escrow Agent the Escrow
Agreement substantially in the form of EXHIBIT A.
8.10 DELIVERY OF DOCUMENTS. At or before the Closing, the Buyer
shall have executed and delivered to the Sellers' Representative all of the
documents set forth in Section 1.5 hereof and such other documents as the
Sellers' Representative or Barnett Sampson, its counsel, may reasonably
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require by written notice given to the Buyer within 30 days after the date of
execution of this Agreement by the last Party to do so to effect the purchase
of the Shares and the Assets and to consummate all of the transactions
contemplated hereby.
ARTICLE IX
CERTAIN ADDITIONAL COVENANTS
Each Selling Stockholder individually covenants with the Buyer
hereby as follows:
9.1 NONCOMPETITION. Except as set forth in SCHEDULE 9.1, for a
period of 1 year following the Closing Date, without the written consent of
the Buyer, each of the Selling Stockholders and their Affiliates shall not,
directly or indirectly, through equity ownership or otherwise, own, operate
or make any direct or indirect loan, advance, lease, or other extension of
credit, or capital contribution to, or purchase or acquire any capital stock
or indebtedness or similar instrument of, or make any type of equity
investment (including investments in securities or instruments convertible
into, exchangeable for or exercisable for equity securities) in, any Person
(an "Investment") engaged in any casino-style gaming or related gaming
enterprise (a "Gaming Business") within a 100 kilometer radius of the casino
locations in Ceska Kubice, Rozvadov or Chvalovice (the "Restricted Area").
This prohibition on Investments shall not apply to passive or other
Investments made following the date hereof with the prior written consent of
the Buyer in its sole discretion. Each Selling Stockholder shall execute a
Non-Competition and Non-Interference Agreement as of the Closing Date as set
forth in EXHIBIT F hereto.
9.2 NON-INTERFERENCE AGREEMENT. For a period of 1 year following
the Closing Date, each of the Selling Stockholders hereby covenants and
agrees that neither they nor any of their Affiliates will, directly or
indirectly, for whatever reason, whether for their own account or for the
account of any other Person: (i) solicit, employ or otherwise interfere with
any of the Stock Company Entities' existing Contracts or relationships with
any customer, affiliate, employee, officer, director, supplier or any
independent contractor whether the Person is employed by or associated with
the Stock Company Entities or with the Buyer on the Closing Date or at any
time thereafter; or (ii) solicit or otherwise interfere with any existing or
proposed Contract between the Stock Company Entities and any other party
whatsoever.
9.3 COVENANT NOT TO DISCLOSE. The Sellers hereby agree that they
possess certain data and knowledge of operations of the business of the Stock
Company Entities which are proprietary in nature and confidential. Each of
the Selling Stockholders covenants and agrees that they will not, at any time
after the Closing Date, reveal, divulge or make known to any person (other
than the Buyer) or use for their own account or for the account of any
Person, any confidential or proprietary record, data, trade secret, financial
information, Intellectual Property, Business Know-How, personnel policy,
customer list of the Stock Company Entities as of the Closing Date, or any
other confidential or proprietary information whatsoever relating to the
Stock Company Entities or,
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whether or not obtained with the knowledge and permission of the Buyer
(exclusive of any information which at the time of disclosure generally is
available to and known by the public, other than as a result of any
unauthorized disclosure by the Sellers). The Sellers further covenant and
agree that they shall not divulge any such confidential or proprietary
information that they may acquire during any transition period in which they
assist or consult with the Buyer to facilitate the transfer and the continued
success of the business of the Stock Company Entities, and the Sellers will
hold such confidential and proprietary information in trust for the sole
benefit of the Buyer and its successors and assigns.
9.4 PROVISO FOR ACTIVITIES OF DR. BEZDEK AND LEGAL OBLIGATIONS.
The restrictions contained in Sections 9.1, 9.2 and 9.3 shall not prevent or
restrict the activities of Dr. Bezdek in the ordinary course of giving advice
to his clients in his professional capacity as a licensed attorney or
counsellor at law, nor, with respect to any interest he may have or acquire
in any national on-line lottery promoted in the Czech Republic, nor with
respect to all Selling Stockholders, from complying with any legal obligation
to supply information or evidence to any governmental body or court of law in
accordance with the requirements of such governmental body or court.
ARTICLE X
TERMINATION; SURVIVAL
10.1 TERMINATION OF AGREEMENT. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written consent of the Buyer and the Sellers'
Representative;
(b) by the Buyer, if there has been a material violation in
or breach by any of the Company Entities or any of the Sellers of any of the
agreements, representations or warranties contained herein that has not been
waived by the Buyer in writing;
(c) by the Sellers' Representative, if there has been a
material violation or breach by the Buyer of any of the agreements,
representations or warranties contained herein that has not been waived by
the Sellers' Representative in writing;
(d) (i) by the Buyer or the Sellers' Representative, if the
Closing shall not have occurred on or before the date that is the 70th day
after the execution of this Agreement by the last Party to execute same, or
on such other date as may be agreed to by the Buyer and the Sellers'
Representative, provided that the Buyer has provided the certificate required
by Section 8.6; or (ii) by the Buyer or the Sellers' Representative, if the
Closing shall not have occurred on or before the date which is the tenth day
after the delivery of the certificate required by Section 8.6 or on such
other date as the Buyer and the Sellers' Representative may agree upon in
writing; or (iii) by the Buyer or the Sellers' Representative, if the Buyer
shall have failed to comply with the requirements
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of Section 8.6 hereof on or before the date which is the 60th day after the
execution of this Agreement by the last Party to execute same; provided,
however, that neither Buyer nor the Sellers' Representative shall be entitled
to terminate this Agreement pursuant to this Section 10.1(d) if such Party's
(including, any Seller's) knowing or willful breach of this Agreement has
prevented the consummation of the transactions contemplated hereby; or
(e) by the Buyer if any of the conditions to the obligations
of Buyer set forth in Article VII shall have become incapable of fulfillment
and shall not have been waived by the Buyer in writing, or by the Sellers'
Representative if any of the conditions to the obligations of the Sellers set
forth in Article VIII shall have become incapable of fulfillment and shall
not have been waived by the Sellers' Representative in writing; provided,
however, that neither the Buyer nor the Sellers' Representative shall be
entitled to terminate this Agreement pursuant to this Section 10.1(e) if such
Party (including, the Sellers) is in breach in any material respect of its
representations, warranties, covenants or agreements contained in this
Agreement.
10.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either
the Buyer or the Sellers' Representative as provided in Section 10.1, this
Agreement shall forthwith become void and of no further force and effect
(other than this Section 10.2, Section 4.11, Section 5.3, Section 11.2,
Section 11.7, Section 11.9 and Section 11.16), and except as set forth below,
there shall be no liability on the part of the Buyer, the Company Entities or
the Sellers (or their respective shareholders, officers, directors,
employees, Affiliates or representatives) to one another, except for any
liability of the breaching Party for any breaches of this Agreement prior to
the time of such termination.
(b) If this Agreement is terminated by the Parties pursuant
to Section 10.1(a) or by the Buyer pursuant to Section 10.1(b), 10.1(d) or
10.1(e), then the Buyer shall send a written notice of termination to the
Sellers' Representative and the Escrow Agent and the Escrow Agent shall
return the Deposit Escrow (with accrued interest) to the Buyer by wire
transfer pursuant to the terms and conditions of the Escrow Agreement as set
forth in EXHIBIT A attached hereto.
(c) If this Agreement is terminated by the Sellers'
Representative pursuant to Section 10.1(c), 10.1(d) (except with respect to
termination due to the Buyer's failure to comply with Section 8.6) or
10.1(e), then the Sellers' Representative shall send a written notice of
termination to the Buyer and to the Escrow Agent and the Escrow Agent shall
pay to the Sellers' Representative the Deposit Escrow pursuant to the terms
and conditions of the Escrow Agreement attached hereto as EXHIBIT A. If this
Agreement is terminated by the Parties pursuant to Section 10.1(a) or by the
Sellers' Representative as set forth in the immediately preceding sentence,
the Sellers may retain the Expense Deposits.
(d) If this Agreement is terminated by the Buyer or the
Sellers' Representative by
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reason of the Buyer's failure to provide the certificate required by Section
8.6, then the terminating Party shall send a written notice of termination to
the other Party and the Escrow Agent and the Escrow Agent shall pay to the
Sellers' Representative from the Deposit Escrow a sum equal to the documented
legal and other professional fees and expenses incurred by the Sellers in
relation to this Agreement as certified by the Sellers' Representative, less
U.S.$140,000.00, and thereafter the Escrow Agent shall promptly return the
balance of the Deposit Escrow (with accrued interest) to the Buyer by wire
transfer pursuant to the terms and conditions of the Escrow Agreement as set
forth in EXHIBIT A attached hereto.
10.3 SURVIVAL OF REPRESENTATIONS. All representations and
warranties contained in this Agreement, and agreements made by any Party to
this Agreement, shall survive the Closing and any investigation at any time
made by or on behalf of any party hereto for a period ending on the date for
1 year after the Closing Date, unless a claim has been notified within the 1
year period (with information regarding the nature and estimated amount of
it), in which case the time period shall continue until such claim is
resolved (except with respect to Taxes as set forth in Section 1.2(d), which
shall be for 5 years); provided, however, that all representations and
warranties contained in Section 2.1 (Capitalization), Section 2.2 (Ownership
of Shares) and Section 2.18 (Title to Assets), shall survive the Closing.
All covenants and agreements in this Agreement relating to periods after the
Closing Date shall survive the Closing (except as provided therein);
provided, however, that the covenants contained in Sections 4.6 and 5.1 with
respect to refraining from taking or omitting to take action that would
violate or render inaccurate a Party's representations or warranties shall
survive with respect to any particular representation or warranty only for so
long as such representation or warranty survives pursuant to this Section
10.3.
10.4 STATEMENTS AS REPRESENTATIONS. All statements contained
herein or in any Schedule, Exhibit or closing certificate delivered pursuant
hereto or in connection with the transactions contemplated hereby shall be
deemed representations and warranties within the meaning of Sections 7.1, 8.1
and 10.3. No Party may rely upon any statement, representation or warranty
unless it is set out herein or in any Exhibit or Schedule hereto.
ARTICLE XI
MISCELLANEOUS
11.1 REMEDIES CUMULATIVE. Except as herein expressly provided,
the remedies provided herein shall be cumulative and shall not preclude
assertion by any Party hereto of any other rights or the seeking of any other
remedies against any other Party hereto.
11.2 EXPENSES. Except as otherwise expressly provided in this
Agreement, the Company Entities, the Sellers and the Buyer each shall pay its
own legal, accounting and other miscellaneous expenses incident to this
Agreement.
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11.3 PRESS RELEASES AND ANNOUNCEMENTS. After the date of this
Agreement and prior to the Closing, no Party to this Agreement will directly
or indirectly make or cause to be made any public announcement or disclosure,
or issue any notice with respect to this Agreement or the transactions
contemplated by this Agreement without the prior consent of the other Parties
to this Agreement; provided, however, that the Buyer may disclose upon the
prior notice to the Sellers' Representative, information relating to the
terms and conditions of this Agreement (including a copy of this Agreement)
as required by the U.S. Securities Exchange Act of 1934, as amended, and the
regulations and forms promulgated thereunder, and further provided that any
Party to this Agreement may make any public announcement or disclosure that
is required by any other law or regulation including but not limited to any
notice required to be given by the Sellers to the relevant authorities under
the Czech Gaming Laws or otherwise (in which case the disclosing Party shall,
to the extent practicable, advise the other Parties to this Agreement and
provide them with a copy of such proposed disclosure prior to making the
disclosure); provided further, that except as may be required by law or
regulation, in making such disclosure, the disclosing Party shall not
directly or indirectly disclose the name or any other details of the
non-disclosing Party.
11.4 ENTIRE AGREEMENT. This Agreement and the Exhibits and
Schedules and other writings referred to herein or delivered pursuant hereto
that form a part hereof contain the entire understanding of the parties with
respect to its subject matter. No other contract, agreement, instrument or
document, including prior drafts of this Agreement, and no understandings or
arrangements, written or oral, shall have any effect hereon and shall not be
used to determine or interpret the meaning of this Agreement.
11.5 AMENDMENT; EXTENSION AND WAIVER.
(a) This Agreement supersedes all prior agreements and
understandings between the Parties with respect to its subject matter, except
that the Confidentiality Agreement shall not be superseded hereby, except for
Sections 4, 10 and 12 thereof which shall be superseded by this Agreement.
(b) This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the Parties hereto.
(c) Any agreement on the part of a Party hereto to any
extension or waiver under this Section 11.5 shall be valid only if set forth
in an instrument in writing signed on behalf of such Party.
(d) Except as expressly provided in this Agreement, no delay
on the part of any Party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part
of any Party of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege hereunder.
<PAGE>
Stock Purchase Agreement
Page 50
11.6 HEADINGS. The Article and Section headings contained herein
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
11.7 NOTICES. All notices, requests, demands and other
communications made under or by reason of the provisions of this Agreement
will be in writing and will be given by hand delivery, certified or
registered mail, return receipt requested, telecopier (with a copy also sent
by hand delivery or air courier, which shall not alter the time at which the
telecopier notice is deemed received) or air courier to the Parties at the
addresses set forth below. Such notices shall be deemed given: at the time
personally delivered, if delivered by hand with receipt acknowledged; at the
time received, if sent by certified or registered mail; upon transmission
thereof by the sender and issuance by the transmitting machine of a
confirmation slip that the number of pages constituting the notice have been
transmitted without error, if telecopied; and the first Business Day after
timely delivery to the courier, if sent by air courier. Notices shall be
addressed as follows:
If to the Buyer:
Trans World Gaming Corporation
One Penn Plaza
Suite 1503
New York, New York 10119-0002
United States of America
Attention: Andrew Tottenham
President
Telephone: (212) 563-3355
Telecopier: (212) 563-3380
With a copy (which shall not constitute notice) given in the manner
prescribed above to:
Elias, Matz, Tiernan & Herrick LLP
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
United States of America
Attention: Jeffrey A. Koeppel, Esq.
Telephone: (202) 347-0300
Telecopier: (202) 347-2172
If to the Sellers' Representative:
<PAGE>
Stock Purchase Agreement
Page 51
Barnett Sampson Solicitors
30B Wimpole Street
London W1M 7AE
England
Attention: Richard Barnett, Esq.
Telephone: (44) 171 935 9161
Telecopier: (44) 171 935 9272
With a copy (which shall not constitute notice) given in the manner
prescribed above to:
Ms. Linda Clifford
Chief Financial Officer
CC Myers, Inc.
3286 Fitzgerald
Rancho Cordova, California 95742
United States of America
Telephone: (916) 635-9370
Telecopier: (916) 635-2734
If to the Company Entities:
21st Century Resorts, a.s.
Ceska Kubice
Folmava 66
Czech Republic
Attention: Noel A. Souter
Chairman of the Board of Directors
Telephone: (42) 01 899 3395
Telecopier: (42) 01 899 3397
With a copy (which shall not constitute notice) given in the manner
prescribed above to:
Barnett Sampson Solicitors
30B Wimpole Street
London W1M 7AE
England
Attention: Richard Barnett, Esq.
Telephone: (44) 171 935 9161
Telecopier: (44) 171 935 9272
and to:
<PAGE>
Stock Purchase Agreement
Page 52
Becker & Poliakoff, P.A.
Apolinarska 6,
128 00 Praha 2
Czech Republic
Attention: JUDr. Martin Klimpl
Telephone: (42) 2 29 80 05
Telecopier: (42) 2 29 68 07
and to:
JUDr Robert Bezdek
E Zahradky 891
272 04 Kladno
Czech Republic
Telephone: (42) 312 781 552
Telecopier: (42) 312 781 552
If to Barnett Sampson:
Barnett Sampson Solicitors
30B Wimpole Street
London W1M 7AE
England
Attention: Richard Barnett, Esq.
Telephone: (44) 171 935 9161
Telecopier: (44) 171 935 9272
If to the Escrow Agent:
The Manager
Structured Finance Services
Chase Manhattan Bank
Trinity Tower
9 Thomas More Street
London E1 9YT
Attention: Peter Maynard
Telephone: (44) 171 777 5471
Telecopier: (44) 171 777 5460
11.8 ASSIGNMENT. This Agreement will be binding upon and inure to
the benefit of the Parties hereto and their respective successors, legal
representatives and assigns, but this Agreement may not be assigned by any
Party without the written consent of the other Party; provided,
<PAGE>
Stock Purchase Agreement
Page 53
however, that the Buyer may assign all or any portion of its respective
rights hereunder without the prior written consent of the Sellers or any of
the Company Entities to an Affiliate of the Buyer, but such assignment shall
not relieve the Buyer of its obligations hereunder. Any attempted assignment
in violation of this Section 11.8 shall be void.
11.9 APPLICABLE LAW. This Agreement will be governed by and
construed and enforced in accordance with the laws of England, except with
respect to statutory requirements for the transfer of the shares or ownership
interests in the Company Entities, the duties of the members of the Board and
of the Supervisory Board of the Stock Company Entities, accounting, record
keeping, the holding of any License, Environmental Laws and/or the holding of
title to Property, which shall be governed by and construed in accordance
with the laws of the Czech Republic.
11.10 WORDS IN SINGULAR AND PLURAL FORM. Words used in the
singular form in this Agreement shall be deemed to import the plural, and
vice versa, as the sense may require.
11.11 FURTHER ASSURANCES. Each of the Sellers, the Company
Entities and the Buyer will use their respective commercially reasonable
efforts to do or cause to be done all things necessary, proper or advisable
to consummate the transactions contemplated by this Agreement. Without
limiting the foregoing, the Sellers, the Company Entities and the Buyer will
reasonably cooperate, and will cause their respective Affiliates, officers,
employees, agents, auditors and representatives reasonably to cooperate, in
providing to each other all information and customary consents pertinent to
the transactions contemplated by this Agreement, including information as to
their, if applicable, ownership structure, corporate structure, officers and
directors, shareholders and partners' identity, financing, transfers of
interest and other information, as shall be required by any regulatory
authority with jurisdiction over such Parties in connection with the
consummation of the transactions contemplated hereby or with respect to any
United States federal or state securities law requirements in any state in
which such Parties have an interest.
11.12 COUNTERPARTS. This Agreement may be executed in several
originals, all of which together will constitute one and the same instrument.
11.13 SELLERS' REPRESENTATIVE; AGENT FOR SERVICE.
(a) The Sellers hereby appoint Barnett Sampson Solicitors,
London, England, who may nominate one of their partners as the Sellers'
Representative (the "Sellers' Representative"). The Sellers' Representative
shall have full authority to exercise (or refrain from exercising) all rights
and powers of each Seller hereunder, and each Seller agrees to be bound by
any and all actions taken by the Sellers' Representative in his capacity as
such. The action of the Sellers' Representative shall be binding upon all
Sellers and the Buyer and the Escrow Agent and others dealing with the
Sellers' Representative may rely upon the actions and representations of the
Sellers' Representative, without investigation. The Sellers agree to
indemnify and hold the Sellers' Representative harmless for all actions taken
by him in such capacity.
<PAGE>
Stock Purchase Agreement
Page 54
(b) The Sellers hereby irrevocably appoint Barnett Sampson
Solicitors as their agent to accept service of process in England in any
legal action or proceeding arising out of or in connection with or related to
this Agreement, service upon whom shall be deemed completed whether or not
forwarded or received by such Party.
11.14 NO THIRD-PARTY BENEFICIARIES. This Agreement is for the sole
benefit of the Parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any person, other
than the Parties hereto and such assigns, any legal or equitable rights
hereunder.
11.15 SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any Person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not
affect any other provision hereof (or the remaining portion thereof) or the
application of such provision to any other Persons or circumstance.
11.16 CONSENT TO JURISDICTION. The Buyer, the Sellers and the
Company Entities irrevocably submit to the exclusive jurisdiction of the High
Court of Justice, London, England for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction
contemplated hereby.
11.17 DEFINITIONS. For purposes of this Agreement, the following
terms shall be defined as set forth below:
"Affiliate" or "Affiliated" shall be defined as set forth in
Section 2.7 of this Agreement.
"Agreement" shall be defined as set forth in the first paragraph of
this Agreement.
"Anderson Report" shall be defined as set forth in Section
6.2(d)(iv) of this Agreement.
"Assets" shall be defined as set forth in Section 1.1(b) of this
Agreement.
"Asset Sellers" shall be defined as set forth in the third
"Whereas" paragraph of this Agreement.
"Associate" shall be defined as set forth in Section 2.7 of this
Agreement.
"Atlantic" shall be defined as set forth in the second "Whereas"
paragraph of this Agreement.
"Barnett Sampson" shall be defined as set forth in Section 1.2(c)
of this Agreement.
<PAGE>
Stock Purchase Agreement
Page 55
"Business Day" shall be defined as set forth in Section 1.2(d) of
this Agreement.
"Business Know-How" shall be defined as set forth in Section
2.20(c)(ii) of this Agreement.
"Buyer" shall be defined as set forth in the first paragraph of
this Agreement.
"Buyer Group" shall be defined as set forth in Section 6.2(a) of
this Agreement.
"Buyer Loss" shall be defined as set forth in Section 6.2(a) of
this Agreement.
"Buyer's Environmental Investigation" shall be defined as set forth
in Section 6.1 of this Agreement.
"Buyer's Notice" shall be defined as set forth in Section 4.2(b) of
this Agreement.
"Casino Properties" shall be defined as set forth in Section 6.1 of
this Agreement.
"CLM" shall be defined as set forth in the second "Whereas"
paragraph of this Agreement.
"Closing" shall be defined as set forth in Section 1.3 of this
Agreement.
"Closing Date" shall be defined as set forth in Section 1.3 of this
Agreement.
"Closing Payment" shall be defined as set forth in Section 1.2(c)
of this Agreement.
"Company Entity" and "Company Entities" shall be defined as set
forth in the second "Whereas" paragraph of this Agreement.
"Confidentiality Agreement" shall be defined as set forth in
Section 4.11 of this Agreement.
"Contract" shall be defined as set forth in Section 2.2 of this
Agreement.
"Czech Gaming Laws" shall be defined as set forth in Section
2.29(a) of this Agreement.
"Damage Claim" shall be defined as set forth in Section 6.2(e) of
this Agreement.
"Damages" shall be defined as set forth in Section 6.2(d)(i) of
this Agreement.
"Deposit Escrow" shall be defined as set forth in Section 1.2(b) of
this Agreement.
"Deposits" shall be defined as set forth in Section 1.2(a) of this
Agreement.
<PAGE>
Stock Purchase Agreement
Page 56
"Effective Date" shall be defined as set forth in Section 1.3 of
this Agreement.
"Environmental Claim" shall be defined as set forth in Section
2.25(b) of this Agreement.
"Environmental Laws" shall be defined as set forth in Section
2.16(d)(i) of this Agreement.
"Environmental Permits" shall be defined as set forth in Section
2.25(a) of this Agreement.
"Escrow Agreement" shall be defined as set forth in Section 1.2(c)
of this Agreement.
"Escrow Agent" shall be defined as set forth in Section 1.2(b) of
this Agreement.
"Escrow Termination Date" shall be defined as set forth in Section
1.2(d) of this Agreement.
"Expense Deposits" shall be defined as set forth in Section 1.2(a)
of this Agreement.
"Financial Statements" shall be defined as set forth in Section
2.14 of this Agreement.
"Gameway" shall be defined as set forth in the first paragraph of
this Agreement.
"Gaming Business" shall be defined as set forth in Section 9.1 of
this Agreement.
"Indebtedness" shall be defined as set forth in Section 2.15(c)(i)
of this Agreement.
"Intellectual Property" shall be defined as set forth in Section
2.20(c)(i) of this Agreement.
"Investment" shall be defined as set forth in Section 9.1 of this
Agreement.
"IRS" shall be defined as set forth in Section 1.7 of this
Agreement.
"Laws" shall be defined as set forth in Section 2.29(a) of this
Agreement.
"Leased Property" shall be defined as set forth in Section 2.16(b)
of this Agreement.
"Liability Percentage" shall be defined as set forth in Section
6.2(c) of this Agreement.
"License" or "Licenses" shall be defined as set forth in Section
2.29(d) of this Agreement.
"License Agreements" shall be defined as set forth in Section
2.20(a) of this Agreement.
"Liens" shall be defined as set forth in Section 1.1(a)(i) of this
Agreement.
<PAGE>
Stock Purchase Agreement
Page 57
"LMJC" shall be defined as set forth in the second "Whereas"
paragraph of this Agreement.
"LMJCR" shall be defined as set forth in the second "Whereas"
paragraph of this Agreement.
"LMJS" shall be defined as set forth in the second "Whereas"
paragraph of this Agreement.
"Material Adverse Effect" shall be defined as set forth in Section
2.10(b) of this Agreement.
"Materials of Environmental Concern" shall be defined as set forth
in Section 2.16(d)(ii) of this Agreement.
"Monarch" shall be defined as set forth in the first paragraph of
this Agreement.
"New Casinos" shall be defined as set forth in Section 1.2(c) of
this Agreement.
"Owned Property" shall be defined as set forth in Section 2.16(a)
of this Agreement.
"Party" or "Parties" shall be defined as set forth in the first
paragraph of this Agreement.
"Percentage Interest" shall be defined as set forth in Section 2.2
of this Agreement.
"Permits" shall be defined as set forth in Section 2.29(b) of this
Agreement.
"Permitted Liens" shall be defined as set forth in Section 2.18 of
this Agreement.
"Person" shall be defined as set forth in Section 2.1(e) of this
Agreement.
"Plan" shall be defined as set forth in Section 2.24(a) of this
Agreement.
"Property" shall be defined as set forth in Section 2.16(b) of this
Agreement.
"Purchase Price" shall be defined as set forth in Section 1.2(c) of
this Agreement.
"Resorts" shall be defined as set forth in the first paragraph of
this Agreement.
"Restricted Area" shall be defined as set forth in Section 9.1 of
this Agreement.
"Seller" or "Sellers" shall be defined as set forth in the first
paragraph of this Agreement.
"Seller Group" shall be defined as set forth in Section 6.2(b) of
this Agreement.
"Seller Loss" shall be defined as set forth in Section 6.2(b) of
this Agreement.
<PAGE>
Stock Purchase Agreement
Page 58
"Sellers' Notice" shall be defined as set forth in Section 4.2(b)
of this Agreement.
"Sellers' Representative" shall be defined as set forth in Section
11.13(a) of this Agreement.
"Selling Stockholders" shall be defined as set forth in Section
1.1(a)(i) of this Agreement.
"Shares" shall be defined as set forth in the third "Whereas"
paragraph of this Agreement.
"Stock Company Entity" or "Stock Company Entities" shall be defined
as set forth in the third "Whereas" paragraph of this Agreement.
"Summary Plan Description" and "Summary Material Modifications" are
described in Section 2.24(b)(iii) of this Agreement.
"Tangible Personal Property" shall be defined as set forth in
Section 2.19 of this Agreement.
"Taxes" shall be defined as set forth in Section 2.15(c)(ii) of
this Agreement.
"Trade Secrets" shall be defined as set forth in Section 2.20(c)(i)
of this Agreement.
"Trademarks" shall be defined as set forth in Section 2.20(c)(i) of
this Agreement.
"TWG" shall be defined as set forth in the first paragraph of this
Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
to be duly executed and delivered by a duly authorized officer of the Buyer
and of the Company Entities, and by each of the Sellers, as of the day and
year first above written.
TRANS WORLD GAMING CORPORATION
By:
---------------------------------------
Name: Andrew Tottenham
Title: President
21ST CENTURY RESORTS, A.S.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
GAMEWAY LEASING LTD.
<PAGE>
Stock Purchase Agreement
Page 59
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
MONARCH LEASING LIMITED
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NOEL A. SOUTER
By:
---------------------------------------
Noel A. Souter
HAL TAINES
By:
---------------------------------------
Hal Taines
C.C. MYERS
By:
---------------------------------------
C.C. Myers
DEREK AYRES
By:
---------------------------------------
Derek Ayres
JUDR. ROBERT BEZDEK
By:
---------------------------------------
Robert Bezdek
AHMAD GHASSABEH
By:
---------------------------------------
Ahmad Ghassabeh
<PAGE>
Stock Purchase Agreement
Page 60
SHAUN MCCLUNE
By:
---------------------------------------
Shaun McClune
DR. KURT WAGNER
By:
---------------------------------------
Dr. Kurt Wagner
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
<PAGE>
EXHIBIT B
PLANS FOR CONSTRUCTION OF CASINOS IN ROZVADOV
AND CHVALOVICE, CZECH REPUBLIC
<PAGE>
EXHIBIT C
[DELETED]
<PAGE>
EXHIBIT D
OPINION OF BECKER AND POLIAKOFF, P.A.
<PAGE>
EXHIBIT E
OPINION OF LIONEL SAWYER & COLLINS
<PAGE>
EXHIBIT F
NON-COMPETITION AND NON-INTERFERENCE AGREEMENT
<PAGE>
EXHIBIT G
BILL OF SALE AND ASSIGNMENT OF ASSETS
<PAGE>
EXHIBIT H
ASSIGNMENT OF TRADEMARKS
<PAGE>
EXHIBIT I
ALLOCATION OF PURCHASE PRICE
[TO BE PROVIDED]
<PAGE>
EXHIBIT J
SELLING STOCKHOLDERS' LIABILITY PERCENTAGES
<PAGE>
EXHIBIT K
DEBTORS AND ACCRUALS OF THE STOCK COMPANY ENTITIES
[TO BE PROVIDED]
<PAGE>
EXHIBIT L
ANDERSEN REPORT
<PAGE>
SCHEDULE 3.3
CONSENTS REQUIRED TO BE OBTAINED BY BUYER
Possible vote of the stockholders of the Buyer with respect to the
issuance of equity securities in connection with the financing of the
acquisition.
<PAGE>
SCHEDULE 9.1
EXCEPTION TO "RESTRICTED AREA"
The Buyer agrees that Section 9.1 shall not apply to the casino
owned and operated by Millennium Gaming and Developments a.s., an Affiliate
of Mr. Ayres and Mr. McClune, located in Pomazi, Czech Republic.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGE F-3 AND F-4 OF THE COMPANY'S 10KSB FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 198
<SECURITIES> 0
<RECEIVABLES> 459
<ALLOWANCES> (37)
<INVENTORY> 57
<CURRENT-ASSETS> 80
<PP&E> 80
<DEPRECIATION> (54)
<TOTAL-ASSETS> 3070
<CURRENT-LIABILITIES> 1647
<BONDS> 5150
0
0
<COMMON> 3
<OTHER-SE> (3730)
<TOTAL-LIABILITY-AND-EQUITY> 3070
<SALES> 2707
<TOTAL-REVENUES> 6901
<CGS> 2333
<TOTAL-COSTS> 6065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 756
<INCOME-PRETAX> 80
<INCOME-TAX> 0
<INCOME-CONTINUING> 80
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
