<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Trans World Gaming Corp.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
TRANS WORLD GAMING CORP.
ONE PENN PLAZA, SUITE 1503
NEW YORK, NEW YORK 10119-0002
April 20, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Trans World Gaming Corp. (the "Company"). The meeting will be held at the
Company's principal offices located at One Penn Plaza, Suite 1503, New York,
New York 10119-0002, on Tuesday, May 26, 1998, at 2:00 p.m., Eastern Time.
The matters to be considered by shareholders at the Annual Meeting are
described in detail in the accompanying materials.
The Board of Directors of Trans World Gaming Corp. has determined that
the matters to be considered at the Annual Meeting are in the best interests
of the Company and its shareholders. FOR THE REASONS SET FORTH IN THE PROXY
STATEMENT, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH MATTER
TO BE CONSIDERED.
It is very important that you be represented at the Annual Meeting
regardless of the number of shares you own or whether you are able to attend
the meeting in person. I urge you to mark, sign and date your proxy card
today and return it in the envelope provided, even if you plan to attend the
Annual Meeting. This will not prevent you from voting in person, but will
ensure that your vote is counted if you are unable to attend.
Your continued support of, and interest in, Trans World Gaming Corp. is
appreciated.
Sincerely,
Andrew Tottenham
President and Chief Executive Officer
<PAGE>
TRANS WORLD GAMING CORP.
ONE PENN PLAZA, SUITE 1503
NEW YORK, NEW YORK 10119-0002
(212) 563-3355
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 26, 1998
------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of Trans World Gaming Corp., a Nevada corporation (the "Company"),
will be held at 2:00 p.m., New York City time, on Tuesday, May 26, 1998, at
the Company's principal offices located at One Penn Plaza, Suite 1503, New
York, New York, for the following purposes as described in more detail in the
accompanying Proxy Statement:
1. To elect six (6) directors to hold office for a one year term until
the next Annual Meeting of Shareholders or until their successors are
duly elected and qualified;
2. To consider and approve the adoption of the Company's 1998 Stock
Option Plan;
3. If necessary, to adjourn the Annual Meeting to solicit additional
proxies; and,
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof. Except with respect to procedural
matters incident to the conduct of the Annual Meeting, management is
not aware of any other matters which could come before the Annual
Meeting.
The Board of Directors has fixed April 9, 1998 as the voting record date
for the determination of shareholders entitled to notice of and to vote at
the Annual Meeting. Only shareholders of record at the close of business on
that date are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Dominick J. Valenzano
Dominick J. Valenzano
Chief Financial Officer & Treasurer
Dated: April 20, 1998
New York, New York
- -------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE
REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
- -------------------------------------------------------------------------------
TRANS WORLD GAMING CORP.
ONE PENN PLAZA, SUITE 1503
<PAGE>
NEW YORK, NEW YORK 10119-0002
------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 1998
------------------
INTRODUCTION
This Proxy Statement is being furnished to holders of the common stock,
$.001 par value per share (the "Common Stock"), of Trans World Gaming Corp.
(the "Company"), a Nevada corporation, in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Company's
Annual Meeting of Shareholders to be held at 2:00 p.m., New York City time,
on Tuesday, May 26, 1998, and at any adjournment thereof (the "Annual
Meeting"). The Annual Meeting will be held at the Company's principal
offices located at One Penn Plaza, Suite 1503, New York, New York, for the
purposes set forth in the Notice of Annual Meeting of Shareholders and as
described in detail herein. The Company expects that this Proxy Statement,
the proxy card and the Notice of Annual Meeting of Shareholders will first be
mailed to shareholders on or about April 20, 1998.
A proxy card is enclosed for your use. You are solicited on behalf of
the Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE. The cost of soliciting proxies, including the
preparation, assembly and mailing of the proxies and soliciting material, as
well as the cost of forwarding such material to the beneficial owners of the
Company's Common Stock, will be borne by the Company. Directors, officers
and regular employees of the Company may, without compensation other than
their regular compensation, solicit proxies by telephone, telegram or
personal conversation. The Company may reimburse brokerage firms and other
fiduciaries, custodians and nominees for expenses in forwarding proxy
material to the beneficial owners of Common Stock.
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with
the instructions contained on the proxy card. IF NO CONTRARY INSTRUCTIONS
ARE GIVEN, EACH PROXY RECEIVED WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR
DESCRIBED HEREIN, FOR APPROVAL OF THE 1998 STOCK OPTION PLAN, FOR
ADJOURNMENT, IF NECESSARY, AND IN THE DISCRETION OF THE PROXY HOLDER AS TO
THE TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING. ANY SHAREHOLDER WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE
INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH SHARES ARE TO BE VOTED WILL BE
DEEMED TO HAVE VOTED IN FAVOR OF THE MATTERS SET FORTH IN THE PRECEDING
SENTENCE.
ANY SHAREHOLDER GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME
PRIOR TO ITS USE AT THE ANNUAL MEETING BY: (i) FILING WITH THE SECRETARY OF
THE COMPANY WRITTEN NOTICE THEREOF
4
<PAGE>
(TRANS WORLD GAMING CORP., ONE PENN PLAZA, SUITE 1503, NEW YORK, NEW YORK
10119-0002); (ii) SUBMITTING A DULY EXECUTED PROXY BEARING A LATER DATE; OR
(iii) APPEARING AT THE ANNUAL MEETING AND GIVING THE SECRETARY NOTICE OF HIS
OR HER INTENTION TO VOTE IN PERSON. Proxies solicited hereby may be
exercised only at the Annual Meeting and any adjournment thereof and will not
be used for any other meeting.
VOTING OF SHARES
Only holders of record of the Common Stock at the close of business on
April 9, 1998 (the "Voting Record Date") will be entitled to vote at the
Annual Meeting. On the Voting Record Date, the Company had 3,044,286
outstanding shares of Common Stock, each such share entitling the holder
thereof to one vote on each matter to be voted on at the Annual Meeting, and
had no other class of equity securities outstanding. Holders of shares of
Common Stock are not permitted to cumulate their votes for the election of
directors.
The holders of a majority of the shares issued and outstanding on the
records of the Company on the Voting Record Date and entitled to vote and
represented in person or by proxy at the Annual Meeting will constitute a
quorum for the transaction of business at the Annual Meeting. The withdrawal
of any shareholder after the Annual Meeting has commenced shall have no
effect on the existence of a quorum, after a quorum already has been
established. In general, shares of Common Stock represented by a properly
signed and returned proxy card will be counted as shares present and entitled
to vote at the meeting for purposes of determining a quorum, without regard
to whether the proxy card reflects abstentions (or is left blank) or reflects
a "broker non-vote" on a matter (i.e., a proxy card returned not marked by a
broker because voting instructions have not been received and the broker has
no discretionary authority to vote).
The election of a nominee for director requires approval of such nominee
by a plurality of the votes cast which are present and entitled to vote in
person or by proxy, and the affirmative vote of the holders of a majority of
the total votes represented at the Annual Meeting, in person or by proxy, is
required for the approval of the proposal to approve the 1998 Stock Option
Plan. A majority of the votes cast which are represented at the Annual
Meeting, in person or by proxy, is required for the approval of the proposal
to adjourn the Annual Meeting, if such action is required to be voted on.
Shares represented by a proxy card voted as abstaining on any of the
proposals, other than the election of directors, will be treated as shares
present and entitled to vote that were not cast in favor of a particular
matter, and thus will be counted as votes against the matter. Under the
rules of the New York Stock Exchange, the proposals for the election of
directors and to adjourn the Annual Meeting if required, are considered to be
a "discretionary" items upon which brokerage firms may vote in their
discretion on behalf of their clients if such clients have not furnished
voting instructions and for which there will not be "broker non-votes." The
proposal to approve the 1998 Stock Option Plan is considered
"non-discretionary." Accordingly, a brokerage firm may not vote upon this
matter without instructions from beneficial owners and for which there may be
broker non-votes. A broker non-vote will have the same effect as a vote
against the proposal to approve the 1998 Stock Option Plan.
5
<PAGE>
PROPOSAL FOR ELECTION OF DIRECTORS
NOMINATION
The Bylaws of the Company provide that the Board of Directors of the
Company (the "Board") shall consist of not less than three nor more than nine
members. At the present time, the Board consists of four members and one
vacancy. Based on the agreement described below, the Board has created a new
vacancy to be filled as discussed herein. The Board has nominated the six
individuals named below to serve as directors of the Company until the next
annual meeting of shareholders or until their respective successors have been
elected and qualified. All of the nominees, including Julio E. Heurtematte,
Jr. and Malcolm M. B. Sterrett, are members of the current Board of
Directors. Messrs. Heurtematte and Sterrett were elected to the Board as of
April 10, 1998, in accordance with the Bylaws of the Company and pursuant to
the agreement described in the paragraph below. Except as noted below, there
are no arrangements or understandings between the persons named as nominees
for director at the Annual Meeting and any other person pursuant to which
such nominee was selected as a nominee for election as a director at the
Annual Meeting, and except with respect to the relationship of Mr. Kohlenberg
and Mr. Tottenham, described below, no director or nominee for director is
related to any other director or executive officer of the Company by blood,
marriage or adoption, except as set forth below.
On March 31, 1998, the Company renegotiated the terms and conditions of
the $4.8 million 12% Secured Convertible Senior Bonds due June 1999 (the
"Senior Bonds") in conjunction with the financing of the acquisition of
certain operating companies in the Czech Republic, all of which were
consummated on March 31, 1998. The revised terms and conditions of said
indebtedness are set forth in the First Amended Indenture by and among the
Company, Trans World Gaming of Louisiana, Inc., the Company's wholly owned
subsidiary, and U.S. Trust Company of Texas, N.A., acting as the indenture
trustee, dated as of March 31, 1998 (the "First Amended Indenture"). Section
11.11 of the First Amended Indenture states: "Subject to the laws of the
State of Nevada and the Articles of Incorporation and Bylaws of TWG (the
Company) (which TWG shall use its best efforts to amend to comply with this
section), the Holder or Holders of 50 percent of the Outstanding Securities
shall have the right to name, at any time, and from time to time, two of
seven members of the Board of Directors of TWG until such time as the
Securities are paid in full or fully defeased pursuant to Article 10. Such
named persons shall, upon director by the required Holder(s), be place upon
the Board of Directors and, TWG, at such time as such Board seat of such
appointee is subject to a shareholder vote, shall support and nominate such
named individuals for election to the Board. Such right to name such two
directors shall include, upon a one day written notice, the right to remove
and replace either or both such named directors. During such time period as
this right exists, TWG will not permit its Board of Directors to exceed a
total of seven (7) directors." Messrs. Heurtematte and Sterrett are nominees
of the holders of the said Senior Bonds. The service by Messrs. Heurtematte
and Sterrett on the Board of Directors is subject to the approval of their
applications by the Louisiana Gaming Control Board.
The election of each nominee requires the affirmative vote of a
plurality of the shares of the Common Stock represented in person or by proxy
at the Annual Meeting. The Board recommends a vote FOR the election of each
of the nominees listed below. In the absence of other instructions,
6
<PAGE>
the proxies will be voted FOR the election of the nominees named below. If,
prior to the Annual Meeting, the Board should learn that any nominee will be
unable to serve by reason of death, incapacity or other unexpected
occurrence, the proxies that otherwise would have been voted for such nominee
will be voted for such substitute nominee as selected by the Board.
Alternatively, the proxies, at the Board's discretion, may be voted for such
fewer number of nominees as results from such death, incapacity or other
unexpected occurrence. The Board has no reason to believe that any of the
nominees will be unable to serve.
INFORMATION ABOUT NOMINEES
The following table presents information concerning each nominee for
director and reflects his name, age, position with the Company and his tenure
as a director of the Company.
NOMINEES FOR A ONE YEAR TERM EXPIRING 1999
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE TITLE SINCE
- --------------------- --- ----------------------------------------------- --------
<S> <C> <C> <C>
Stanley Kohlenberg 65 Chairman, Director, Consultant 1994
Andrew Tottenham 40 Chief Executive Officer, President and Director 1996
Dominick J. Valenzano 49 Chief Financial Officer, Treasurer and Director 1994
Richard R. Taft 41 Director 1996
Julio Heurtematte, Jr. 52 Director 1998
Malcolm M. B. Sterrett 55 Director 1998
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE FOR THE ELECTION OF THE ABOVE NOMINEES FOR DIRECTOR.
7
<PAGE>
BIOGRAPHICAL INFORMATION ABOUT NOMINEES
STANLEY KOHLENBERG is a consultant to the Company and has acted in such
capacity since January 1, 1997. Mr. Kohlenberg is also the Chairman of the
Company's Board of Directors and has served in such position since March 6,
1996. Mr. Kohlenberg was the Chief Executive Officer and President of the
Company from March 6, 1996 through December 31, 1996. He has been a director
of the Company since September 1994. He has been a Managing Director of
Tottenham & Co., an international gaming industry consulting company, since
January 1991. Mr. Kohlenberg was the acting Chief Financial Officer for the
start-up and opening of the Teller House Casino 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). Mr. Kohlenberg is the father-in-law of Mr.
Tottenham, the President and Chief Executive Officer of the Company.
ANDREW TOTTENHAM has served as consultant to the Company from July 1996
through December 31, 1996, as President and Chief Executive Officer of the
Company since January 1, 1997, and as a director of the Company since May 8,
1996. Mr. Tottenham has been president of Tottenham & Co., an international
gaming consulting company headquartered in London, England, since 1988. In
October 1994, a company owned by Mr. Tottenham, Tottenham Associates (UK)
Limited ("Associates") was forced to file a voluntary petition in bankruptcy
in the United Kingdom when a large client refused to pay for equipment
purchased by Associates. Tottenham & Co. was acquired by the Company on
January 1, 1997. Mr. Tottenham is the son-in-law of Mr. Kohlenberg, the
Chairman of the Company's Board of Directors.
DOMINICK J. VALENZANO has served as a consultant to the Company since
May 1994 and as the Treasurer, Chief Financial Officer and a director of the
Company since September 1994. From September 1992 until May 1994, Mr.
Valenzano was a mortgage banking representative for Jennings Mortgage Co., a
mortgage banker, Bayonne, New Jersey. From 1974 to August 1992, Mr.
Valenzano was employed by Control Data Corporation, holding various
positions, including that of Vice President of Finance in the lottery,
racetrack and ticket reservation division.
RICHARD R. TAFT has served as a director of the Company since July 10,
1996. Mr. Taft is President of Perry/AHDC, Inc., a housing development
company, located in Colorado. Prior to his position at Perry, Mr. Taft was a
self employed architect and real estate developer from October 1994 to June
1997 and President of DeDecon, Inc., a real estate development company from
June 1986 to September 1994. Mr. Taft filed a voluntary petition under
Chapter 7 of the U.S. Bankruptcy Code on December 4, 1997 with respect to his
personal affairs.
JULIO HEURTEMATTE, JR. Mr. Heurtematte currently is a private
consultant, specializing in international projects, trade and investments and
has acted in such capacity since 1989. From 1963 to 1989, Mr. Heurtematte
served with the Inter-American Development Bank in several capacities,
8
<PAGE>
most recently as its Deputy Manager for Project Analysis.
MALCOLM M. B. STERRETT. Mr. Sterrett is a private investor. From 1989
to 1993, he was a partner at the law firm of Pepper Hamilton & Scheetz,
Washington, D.C. From 1988 to 1989, he served as General Counsel to the U.S.
Department of Health and Human Services and from 1982 to 1988 he was a
Commissioner on the U.S. Interstate Commercial Commission. Prior thereto, he
was Vice President and General Counsel to the United States Railway
Association and served as Staff Director and Counsel to the U.S. Senate
Committee on Commerce, Science and Transportation.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The business and affairs of the Company are managed by the Company's
Board of Directors. Meetings of the Board are held quarterly and on an
as-needed basis. A majority of the Board's activity in 1997 was accomplished
by unanimous written consent. The Board has established a number of
Committees, described below, which meet on an as-required basis during the
year. The Board held eight meetings during the Company's fiscal year ended
December 31, 1997. All of the directors of the Company attended 75% or more
of the aggregate number of meetings of the Board and the aggregate number of
meetings of committees of the Board during the year ended December 31, 1997.
The Board of Directors has established the following committees:
AUDIT COMMITTEE. The Audit Committee reviews and approves internal
accounting controls, internal audit operations and activities, the Company's
annual report and audited financial statements, the selection of the
Company's independent auditors, the activities and recommendations of the
Company's independent auditors, material changes in the Company's accounting
procedures, the Company's policies regarding conflicts of interest and such
other matters as may be delegated by the Board. The Audit Committee,
composed of Messrs. Kohlenberg and Taft, both non-employee directors, met
twice in 1997.
EXECUTIVE COMMITTEE. The Executive Committee recommends a list of
potential director nominees to the Board of the Company, develops guidelines
for corporate structuring and Board-related issues and acts as an oversight
committee. Although the Executive Committee will consider nominees
recommended by the Company's shareholders, it has neither actively solicited
nominations nor established any procedures for this purpose. The Executive
Committee, composed of Messrs. Valenzano and Tottenham, met six times during
1997.
COMPENSATION COMMITTEE. The Compensation Committee sets the
compensation for executive officers of the Company and sets the terms of
grants of awards under the Company's 1993 Incentive Stock Option Plan (the
"1993 Plan") and any other equity-based compensation plans adopted by the
Company. The Compensation Committee, composed of Messrs. Taft and
Kohlenberg, met twice during 1997.
9
<PAGE>
DIRECTORS' COMPENSATION
Directors receive no cash fees for their service, but all members of the
Board are reimbursed for out-of-pocket expenses in connection with attending
Board meetings. In 1997, the Board of Directors, with shareholder approval,
amended the 1993 Plan to provide each non-employee director with an automatic
grant of a non-qualified option to purchase 1,000 shares of Common Stock on
the date following each fiscal quarter in which the director serves. Each
such option (i) has a ten-year term, (ii) has an exercise price per share
equal to 100% of the fair market value of one share of Common Stock on the
date of grant, and (iii) becomes fully exercisable on the date of grant.
PRINCIPAL SHAREHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of April 1, 1998, unless otherwise noted,
(a) by each shareholder who is known by the Company to own beneficially more
than 5.0% of the outstanding Common Stock, (b) by each director, (c) by each
director nominee, (d) by each executive officer named in the Summary
Compensation Table below, and (e) by all executive officers and directors as
a group. Unless otherwise noted, each of the shareholders listed in the
table or included within a group listed in the table possesses sole voting
and investment power with respect to the shares indicated subject to
community property laws where applicable. The business address for each
director and officer of the Company is One Penn Plaza, Suite 1503, New York,
New York 10119.
10
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OF COMMON STOCK PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OWNERSHIP (1)
- ---------------------------- ---------------------- -------------
<S> <C> <C>
Value Partners, Ltd. 6,260,257(2) 67.28%
Anasazi Partners Limited
Partnership 866,667(3) 22.16
New Generation Limited
Partnership 433,333(4) 12.46
Banco Santander Trust &
Banking Corporation
(Bahamas) Ltd. 416,909(5) 12.05
Credit Suisse First Boston
Management Corporation 2,084,545(6) 40.64
Fort Pitt Fund III, L.P. 312,682(7) 9.31
Morgan Stanley & Co.
Incorporated 416,909(8) 12.05
Fundamental Investors, L.P. 173,333(9) 5.39
C.P. Baker & Co., Ltd. 2,051,912(10) 40.26
Libra Investments, Inc. 354,374(11) 10.43
Stanley Kohlenberg 239,000(12) 7.59
Andrew Tottenham 852,000(13) 25.09
Dominick J. Valenzano 170,000(14) 5.37
Richard R. Taft 6,000(15) *
Julio Heurtematte - -
Malcolm M.B. Sterrett - -
All directors and executive
officers as a group (6 persons) 1,267,000(16) 34.94
</TABLE>
- ---------------------------
*Less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the Voting Record Date upon the
exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and that are
exercisable within 60 days from the date of the Voting Record Date have
been exercised. Included are shares of Common Stock issuable upon the
exercise of options or warrants to purchase the Company's Common Stock.
(2) Value Partners, Ltd. is a Texas limited partnership, whose business address
is 2200 Ross Avenue, Suite 4660 West, Dallas, Texas 75201. Includes
warrants to purchase 600,000
11
<PAGE>
shares of Common Stock at an exercise price of $1.00, expiring December
31, 2005; 2,000,000 shares of Common Stock at an exercise price of $1.50
per share, expiring December 31, 2005; 3,335,272 shares of Common Stock
at an exercise price of $.01 per share, expiring March 31, 2008; 220,760
shares of Common Stock at an exercise price of $.50 per share, expiring
December 31, 1999; and 104,225 shares of Common Stock at an exercise
price of $.01 per share expiring March 31, 2008.
(3) Anasazi Partners, Ltd. is a Massachusetts limited partnership whose
business address is 120 Boylston Street, Suite 800, Boston, Massachusetts
02116. Includes warrants to purchase 200,000 shares of Common Stock at an
exercise price of $1.00 per share, expiring December 31, 2005; and 666,667
shares of Common Stock at an exercise price of $1.50 per share, expiring
December 31, 2005.
(4) New Generation, Ltd. is a Massachusetts limited partnership whose business
address is 225 Friend Street, Suite 801, Boston, Massachusetts 02114.
Includes warrants to purchase 100,000 shares of Common Stock at an exercise
price of $1.00 per share, expiring December 31, 2005; and 333,333 shares of
Common Stock at an exercise price of $1.50 per share, expiring December 31,
2005.
(5) The business address for Banco Santander Trust & Banking Corporation
(Bahamas) Ltd. is 45 East 53rd Street, 9th Floor, New York, New York
10022. Includes warrants to purchase 416,909 shares of Common Stock
at an exercise price of $.01 per share expiring March 31, 2008.
(6) The business address for Credit Suisse First Boston Corporation is 11
Madison Avenue, 4th Floor, New York, New York 10010. Includes warrants to
purchase 2,084,545 shares of Common Stock at an exercise price of $.01 per
share expiring March 31, 2008.
(7) The business address for Fort Pitt Fund III, L.P. is P.O. Box 974,
Uniontown, Pennsylvania 15401. Includes warrants to purchase 312,682
shares of Common Stock at an exercise price of $.01 per share expiring
March 31, 2008.
(8) The business address for Morgan Stanley & Co. Incorporated is 1585
Broadway, New York, New York 10036. Includes warrants to purchase 416,909
shares of Common Stock at an exercise price of $.01 per share expiring
March 31, 2008.
(9) The business address for Fundamental Investors, L.P. is 53 Main Street,
Concord, Massachusetts 01742. Includes warrants to purchase 40,000 shares
of Common Stock at and exercise price of $1.00 per share expiring December
31, 2005 and 133,333 shares of Common Stock at an exercise price of $1.50
per share, expiring December 31, 2005.
(10) Represents warrants to purchase 2,051,912 shares of Common Stock at an
exercise price of $.01 per share, expiring June 30, 2002 and held by C.P.
Baker & Co., Ltd. and certain of its
12
<PAGE>
affiliates. The business address for C.P. Baker & Co., Ltd. is 120
Boylston Street, Suite 800, Boston, Massachusetts 02116.
(11) Represents warrants to purchase 354,374 shares of Common Stock at an
exercise price of $.01 per share, expiring March 31, 2008 and held by Libra
Investments, Inc. ("Libra"), the placement agent for the Company's $17.0
million Senior Secured Notes due March 31, 2008, and certain affiliates of
Libra. The business address for Libra is 11766 Wilshire Boulevard, Suite
870, Los Angeles, California 90025.
(12) Does not include 664,500 shares (187,500 of which are immediately
exercisable warrants and 102,000 of which are immediately exercisable
options) held by Andrew Tottenham, a son-in-law of Mr. Kohlenberg, as to
which beneficial ownership is disclaimed. Includes 1,000 shares, and
25,000 shares and 4,000 shares, subject to non-qualified options granted to
Mr. Kohlenberg under the 1993 Plan on May 22, 1995, on March 7, 1996 and
1,000 shares at the end of each calendar quarter during 1997, respectively,
and 75,000 shares of Common Stock subject to incentive options granted to
Mr. Kohlenberg on December 31, 1996, all of which fully vested on the dates
of grant.
(13) Includes 1,000 shares and 1,000 shares of Common Stock subject to
non-qualified options granted to Andrew Tottenham under the 1993 Plan on
October 2, 1996 and on December 31, 1996, respectively, and 100,000 shares
subject to incentive options granted to Mr. Tottenham on December 31, 1997,
all of which fully vested on the dates of grant. Also includes 187,500
shares subject to immediately exercisable warrants which were granted to
Mr. Tottenham on January 1, 1997. Also includes 125,000 shares of Common
Stock owned by Robin Tottenham, the wife of Andrew Tottenham and the
daughter of Mr. Kohlenberg, and 62,500 shares subject to immediately
exercisable warrants that were granted to Mrs. Tottenham on January 1,
1997. Does not include shares owned by Mr. Kohlenberg, as set forth below,
as to which beneficial ownership is disclaimed.
(14) Includes 20,000 shares, 50,000 shares and 50,000 shares of Common Stock
subject to incentive options granted to Mr. Valenzano under the 1993 Plan
on May 22, 1995, on December 31, 1996 and on December 31, 1997, all of
which fully vested on the dates of grant.
(15) Includes 1,000 shares, 1,000 shares and 4,000 shares of Common Stock
subject to non-qualified options granted to Mr. Taft under the 1993 Plan on
October 2, 1996, on December 31, 1996 and 1,000 shares at the end of each
calendar quarter during 1997, respectively, all of which fully vested on
the dates of grant.
(16) See Notes (12), (13), (14) and (15), above.
13
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash and non-cash compensation paid
or earned during the fiscal years ending December 31, 1997, 1996 and 1995 by
the Chief Executive Officer(s) and Chief Financial Officer of the Company
(the "Named Officers") during those periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
-------------------------------------
Other Annual Stock All Other
Year Salary Bonus(3) Compensation Options(4) Compensation(5)
---- -------- ------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Tottenham
President and Chief Executive
Officer(1) 1997 $150,000 $60,000 $-- 100,000 $8,600
Stanley Kohlenberg
Former President and Chief 1997 -- -- -- -- --
Executive Officer(2) 1996 125,000 37,500 -- 100,000 --
Dominick J. Valenzano 1997 90,000 30,000 -- 50,000 6,360
Chief Financial Officer 1996 90,000 18,000 -- 50,000 6,360
1995 90,000 -- -- 20,000 4,240
</TABLE>
- ----------------------
(1) Mr. Tottenham was elected President and Chief Executive Officer of the
Company as of January 1, 1997.
(2) Mr. Kohlenberg served as President and Chief Executive Officer of the
Company from March 6, 1996 to December 31, 1996.
(3) Bonus amounts shown were earned with respect to each year indicated.
(4) Amounts shown represent the number of qualified stock options granted each
year. All such options listed are exercisable; all of the options at
December 31, 1997, were in-the-money (exercise price less than $2.00 per
share), except for 20,000 options issued to Mr. Valenzano which have an
exercise price of $3.125 per share.
(5) The amounts shown represent the cost of a leased automobile provided to Mr.
Tottenham and Mr. Valenzano by the Company for each year indicated.
14
<PAGE>
OPTION GRANTS AND EXERCISES
The following table summarizes certain information concerning individual
grants of options during fiscal 1997 to the executive officers named in the
Summary Compensation Table above and the potential realizable value of the
options held by such persons at December 31, 1997.
OPTIONS GRANTED IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
% OF TOTAL OPTIONS
SHARES OF COMMON GRANTED TO
STOCK UNDERLYING EMPLOYEES EXERCISE OF BASE
OPTIONS GRANTED IN FISCAL YEAR PRICE ($/Sh) EXPIRATION DATE
---------------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Andrew Tottenham 100,000(1) 48.0% $0.30 12/31/02
Dominick J. Valenzano 50,000(1) 24.0% $0.30 12/31/02
</TABLE>
- ----------------
(1) All of these options fully vested on the date of grant and expire five
years after the date of grant.
No options were exercised by the executive officers named in the Summary
Compensation Table during fiscal 1997.
The following table summarizes the option values held by the executive
officers named in the Summary Compensation Table as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND
FISCAL 1997 YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT
OPTIONS AT DECEMBER 31, 1997 DECEMBER 31, 1997
-------------------------------------------- ---------------------------
SHARES ACQUIRED
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Tottenham 0 -- 102,000 0 $0 --
Dominick J. Valenzano 0 -- 120,000 0 $0 --
</TABLE>
15
<PAGE>
EMPLOYMENT AGREEMENTS
ANDREW TOTTENHAM. Effective as of January 1, 1997, the Company entered
into a five-year employment agreement with Mr. Tottenham pursuant to which he
serves as the Company's President and Chief Executive Officer at an annual
salary of $150,000. Mr. Tottenham will be eligible for participation in the
Company's 1993 Plan, the Executive Compensation Plan, and any present or
future employee benefit plans. He also will be reimbursed for reasonable
travel and out-of-pocket expenses necessarily incurred in the performance of
his duties. Mr. Tottenham works from the Company's offices in London,
England. The Company is entitled to terminate Mr. Tottenham's employment,
and its salary obligation to him, upon 30 days written notice in the event of
(i) disability (assuming there is disability insurance sufficient to pay Mr.
Tottenham his full salary for the remaining term of the employment
agreement), (ii) conviction of a felony, or (iii) a breach of the employment
agreement. If Mr. Tottenham dies during the term of the employment
agreement, his estate is entitled to three months' salary at his base salary
rate on the date of death. If Mr. Tottenham is terminated for any other
reason, he is entitled to three months' severance pay at his base salary rate
in effect on the date of such termination.
JAMES HARDMAN. Effective April, 15, 1997, the Company entered into a
five-year employment agreement with Mr. Hardman pursuant to which he serves
as President of Multiple Application Tracking Systems, Inc. ("MATS") of
Colorado, a division of the Company, at an annual salary of $100,000. Mr.
Hardman will be eligible for participation in the Company's 1993 Plan, the
Executive Compensation Plan and any present or future employee benefit plans.
He also will be reimbursed for reasonable travel and out-of-pocket expenses
necessarily incurred in the performance of his duties. The Company is
entitled to terminate Mr. Hardman's employment prior to the expiration of his
employment agreement in the event of (i) his willful or negligent failure to
substantially perform his duties, (ii) and willful or negligent act or
omission by him constituting dishonesty, fraud, malfeasance or immoral
conduct injurious to the financial condition or business reputation of the
Company or its affiliates, (iii) indictment for a felony, (iv) death or
disability or his resignation or (v) termination of the License Agreement
between Mr. Hardman and the Company dated April 15, 1997, as a result of a
breach of such agreement by Mr. Hardman. In case of termination under such
circumstances, Mr. Hardman is entitled to receive his base salary through the
date of termination and to prompt payment of any unreimbursed business
expenses; all other benefits shall cease upon such termination. The Company
also may terminate Mr. Hardman's employment without cause, provided that Mr.
Hardman shall be paid in a lump sum his base salary for the lesser of one
year or the remainder of the term of the employment agreement, including
payment for all accrued benefits and otherwise unreimbursed business
expenses. Neither the Company nor Mr. Hardman may terminate the employment
agreement or the License Agreement for the twenty-four (24) months following
the commencement of such agreements due to reasons related to Company sales
or funding and marketing levels for Company products and services. Mr.
Hardman has agreed not to compete with the Company for a period of one-year
following the termination of his employment agreement. Mr. Hardman works in
the MATS office in Golden, Colorado.
16
<PAGE>
CHRISTOPHER MOORE. Effective February 1, 1997, the Company entered into
a three-year employment agreement with Mr. Moore pursuant to which he serves
as Director of Operations for the Company at any annual salary of $90,000 and
a recoverable draw against incentive compensation of $20,000. Mr. Moore also
received options to acquire 25,000 shares of the Company's Common Stock at
the exercise price of $1.3125 per share and options to purchase 25,000 shares
of Common Stock at and exercise price of $2.00 per share, all of which are
exercisable on or after February 1, 1998. Mr. Moore will be eligible for
participation in the Company's 1993 Plan, the Executive Compensation Plan,
and any present or future employee benefit plans. He also will be reimbursed
for reasonable travel and out-of-pocket expenses necessarily incurred in the
performance of his duties. Mr. Moore works from the Company's offices in
London, England. The Company is entitled to terminate Mr. Moore's
employment, and its salary obligation to him, upon 30 days written notice in
the event of (i) disability (assuming there is disability insurance
sufficient to pay Mr. Moore his full salary for the remaining term of the
employment agreement), (ii) conviction of a felony, or (iii) a breach of the
employment agreement or a violation of Company policy. If Mr. Moore dies
during the term of the employment agreement, his estate is entitled to three
months' salary at his base salary rate on the date of death. If Mr. Moore is
terminated for any other reason, he is entitled to three months' severance
pay at his base salary rate in effect on the date of such termination.
CONSULTING AGREEMENT
STANLEY KOHLENBERG. Effective as of January 1, 1997, the Company
entered into a twenty-seven (27) month consulting agreement with Mr.
Kohlenberg, pursuant to which he will advise the Company on financing its
worldwide gaming operations and will identify and evaluate various business
opportunities. Mr. Kohlenberg's compensation is $5,000 per month and he shall
be required to work no more than eight (8) days in a calendar month. Mr.
Kohlenberg also is reimbursed for travel, entertainment and out-of-pocket
expenses incurred in performing consulting services. When Mr. Kohlenberg
served as President and Chief Executive Officer of the Company, he was issued
100,000 options, which should have expired along with his employment by the
Company; however, the Company determined to extend the options concurrent
with Mr. Kohlenberg's Consulting Agreement. The Consulting Agreement also
provides for certain medical and transportation benefits for Mr. Kohlenberg.
EXECUTIVE COMPENSATION PLAN
The Executive Compensation Plan (also known as the "Management Incentive
Plan") was adopted by the Board of Directors in December 1996. The Executive
Compensation Plan is administered by the Company's Chief Executive Officer
and Chief Financial Officer and subject to Board approval. It is designed to
assist the Board in determining the appropriate annual incentive payment to
eligible officers, managers and key employees for the achievement of
specific, preestablished corporate, individual and discretionary objective.
To participants who meet or exceed these targets, the incentive award is
designed to provide a sufficient level of competitive
17
<PAGE>
compensation in order to reward and motivate current and future exceptional
performance and to retain such performing officers, managers and other key
employees and to attract new "high talent" individuals. Eligible
participants in the Executive Compensation Plan include all employees who are
in a position to make a clear, definitive impact on the performance of the
Company and/or to improve its underlying infrastructure. Awards under the
Executive Compensation Plan are granted from a pool of funds set aside from
incremental profits of the Company to the extent of payment for the corporate
or individual portions of any such award does not come from any specific
source. At December 31, 1997, the funds set aside for the payment of the
corporate and individual performance incentives totaled $129,000. Payments
under the Executive Compensation Plan are based upon the employee's position
within the organization, weighting of the corporate, individual and
discretionary performance, the setting of objective and the determination by
the Board as to whether the employee has met such objectives. In 1997,
awards totaling $129,000 were made under the Executive Compensation Plan.
1993 INCENTIVE STOCK OPTION PLAN
The purpose of the 1993 Incentive Stock Option Plan (the "1993 Plan") is
to provide incentive to employees, to encourage employee proprietary interest
in the Company, to encourage employees to remain in the employ of the Company
and to attract to the Company individuals of experience and ability. The
1993 Plan provides for the grant of incentive stock options intended to
comply with the requirements of Section 422 of the Internal Revenue Code, as
amended (the "Code"), and non-qualified or compensatory options. The Company
reserved 500,000 shares of Common Stock for issuance pursuant to the exercise
of Options granted under the 1993 Plan, subject to adjustment. The 1993 Plan
provides that, in the event of any reorganization, merger, recapitalization,
stock dividend, stock split or similar change in the corporate structure or
shares of the Company, appropriate adjustments will be made to the number and
kind of shares reserved under the 1993 Plan and to the exercise price of
outstanding options. In the event of a dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the
surviving corporation, participants who have held options for at least one
year shall have the right, immediately prior to such dissolution,
liquidation, merger or consolidation, to exercise any such options in whole
or in part.
The 1993 Plan is administered and interpreted by a committee of the
Board of Directors (the "Option Committee") composed of non-employee
directors. Unless sooner terminated, the 1993 Plan will be in effect until
November 1, 2003, ten years from the date of the adoption of the 1993 Plan by
the Board of Directors.
Under the 1993 Plan, the Option Committee will determine, among other
things, which employees will be granted options, the number of shares subject
to each option, the exercise price of the option, and whether such options
are to be incentive or non-qualified. The per share exercise price of all
incentive stock options is required by the Code to be at least equal to the
fair market value of a share of Common Stock on the date the option is
granted. The exercise price of non-qualified options may not be less than
the par value of the Common Stock. The Code also requires
18
<PAGE>
that the aggregate fair market value of the Common Stock with respect to
which the options are exercisable for the first time by the optionee during
any calendar year cannot exceed $100,000. Moreover, any person who owns 10.0%
or more of the voting power of the Common Stock may not receive options whose
exercise price is less than 110.0% of the fair market value of a share of
Common Stock of the Company on the date of grant.
Options will become vested and exercisable in the manner specified by
the Option Committee. Each option or portio thereof will be exercisable at
any time on or after it vests and is exercisable until ten years after its
date of grant or three months after the date on which the optionee's
employment terminates, unless the termination is dues to disability, death or
in the case of non-qualified options, in which case the options are
exercisable twelve months after the termination of employment. However,
failure to exercise options within three months after the date on which the
optionee's employment terminates may result in adverse tax consequences to
the optionee. Options are non-transferable except by will or the laws of
descent and distribution.
Under current provisions of the Code, the federal income tax treatment
of incentive stock options is as follows. An optionee who meets certain
holding requirements will not recognize income at the time the option is
granted or at the time the option is exercised, and a federal income tax
deduction generally will not be available to the Company at any time as a
result of such grant or exercise.
As of April 1, 1998, options to purchase 461,000 shares of Common Stock
had been granted under the 1993 Plan and options to purchase 39,000 remained
available to be granted thereunder.
CERTAIN RELATED TRANSACTIONS
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 J. Young, a
former director of the Company, is the original manager of Chrysolith and
holds a 33% interest in Chrysolith assets as they existed prior to the
Company becoming a member of Chrysolith. 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 became a
member later. Under this agreement, Chrysolith operates, services and
maintains the Video Lottery Terminals ("VLTs") at the Gold Coin casino
located in Lafayette, Louisiana, and the Company provides management,
financial and consulting services. The Company receives the net operating
revenues of the Gold Coin after payment of all gaming taxes payable to the
State of Louisiana and payout of winnings, and pays a management fee to
Chrysolith in an amount equal to its direct operating costs at the Gold Coin.
The Company currently owns a 49% interest in all of Chrysolith's operations
other than those attributable to the Original Member property described
above. The Company's interest at the Gold Coin casino is currently involved
in litigation between
19
<PAGE>
the landlord and the tenant of the property on which the Gold Coin is located
and the tenant has recently filed a voluntary petition in bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code, which litigation could result in the
loss of the Company's license to operate the Gold Coin.
PRIVATE PLACEMENTS. In 1996, the Company conducted a private placement
pursuant to which is sold $4.8 million principal amount of 12% Secured
Convertible Senior Bonds due June 30, 1999 (the "Senior Bonds"), and warrants
to purchase an aggregate of 960,000 shares of Common Stock at an exercise
price of $1.00 per share (the "Warrants").
On October 29, 1997, the Company and Value Partners, Ltd. ("Value
Partners") executed a loan, which was amended on December 19, 1997 (the
"First Amended Loan Agreement") under which the Company had the ability to
borrow up to $4,125,000. This loan was 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 was entitled to
warrants to purchase share of the Company's Common Stock (the "Warrants")
equal to .1714 Warrants for each dollar advanced to the Company to a maximum
of 707,025 Warrants. The Warrants had an exercise price of $.50 per share
and were to expire on December 31, 1999. As of February 23, 1998, Value
Partners had 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 the Company'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 the Company which amount was used to repay
a prior promissory note to Value Partners in the amount of $350,000 plus
accrued interest of $23,000 with the balance of $34,000 used by the Company
for working capital purposes; (c) on December 22, 1997, Value Partners
advanced $335,000 to the Company which amount was used to pay the final
scheduled quarterly payment under the note to Prime Properties, Inc. (the
tenant of the property on which the Gold Coin is located) of approximately
$292,000 on December 23, 1997; the balance of $43,000 was used by the Company
for working capital purposes; and (d) on January 15, 1998, Value Partners
advanced $525,000 to the Company which amount was used as a deposit on the
Czech Transaction (described below). The Company issued warrants to purchase
220,760 shares of Common Stock at an exercise price of $.50, expiring on
December 31, 1999, in connection with the funds transfer as part of the First
Amended Loan Agreement through March 18, 1998.
On March 19, 1998, the Company and Value Partners executed a Lender's
Waiver and Option Agreement (the "Waiver") under which the Company borrowed
$250,000 to fund the acquisition of the Bishkek Casino (the "Bishkek Note").
The Bishkek Note, which was funded on March 24, 1998, bears interest at 12%
per annum and Value Partners was issued warrants to purchase 104,225 shares
of the Company's Common Stock at an exercise price of $.01 per share which
expire on March 31, 2008. Under the terms of the Bishkek Note, the Company
will repay
20
<PAGE>
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 March 31, 1998, the Company acquired substantially all of the voting
and non-voting ownership interests of 21st Century Resorts a.s., a Czech
Republic joint stock company ("Resorts") and Resorts' subsidiaries, 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
Atlantic Properties s.r.o., a Czech Republic limited liability company
("Atlantic") and certain assets of Gameway Leasing Limited, a Gibraltar
company limited by shares ("Gameway") and Monarch Leasing Limited, a
Gibraltar company limited by shares ("Monarch") for a net purchase price of
U.S.$10,340,685.59. The Company obtained the funds for the acquisition
through various financial arrangements, described below.
On March 31, 1998, the Company, with the assistance of Libra
Investments, Inc., Los Angeles, California, acting as placement agent
("Libra"), borrowed $17.0 million from thirteen sophisticated, accredited
investors (the "Investors") in a private placement. (See Exhibits 2(ii) and
2(iii)). The loan is represented by 12% Senior Secured Notes (the "Notes")
issued pursuant to an indenture by and among the Company, TWG International
U.S. Corporation ("TIUC"), TWG Finance Corp. ("TFC") (both wholly owned
subsidiaries of the Company) and U.S. Trust Company of Texas, N.A., acting as
indenture trustee (the "Indenture Trustee"). TIUC was recently organized by
the Company to hold the equity interests of Resorts and its subsidiaries and
TFC was recently organized to act as a financing and collateral vehicle for
the Investors in order to facilitate the collateralization of the loan under
Czech law (a separate indenture was entered into between TIUC and the
Indenture Trustee pursuant to which TFC holds a $17.0 million note which
represents the same, and not additional, debt as represented by the Notes.
The Notes are secured directly by a pledge of all of the stock of TIUC and
TFC and indirectly by a pledge of 66% of the stock of certain of TIUC's
subsidiaries, including Resorts.) The Notes accrue interest and are payable
semi-annually, mature on March 31, 2005 and rank PARI PASSU with the
Company's other outstanding unsecured and unsubordinated indebtedness. The
Notes also require mandatory prepayments based upon excess cash flow
generated by TIUC from the operation of the Czech casinos.
In addition to the Notes, each Investor received a proportionate share
of warrants to purchase approximately 7.1 million shares of the Company's
Common Stock (the "Warrants"), representing 40% of the Company's fully
diluted outstanding Common Stock. The Warrants have an exercise price of
$.01 per share and expire on March 31, 2008. The proceeds of the private
placement were used to acquire the equity interests described above and will
be used to fund improvements in the existing casinos and fund plans for the
development of a casino on the Znojmo property (together, $12.6 million),
retire the debt to Value Partners under the First Amended Loan Agreement
($1.3 million), pay the fees and expenses of the private placement ($1.4
million, including $703,088 to Libra in cash plus warrants to acquire 354,374
shares at $.01 per share to expire on March 31, 2008; and for working capital
($1.7 million). The indenture contains significant financial and other
restrictive covenants relating to the business of the Company and TIUC.
21
<PAGE>
As a condition to the private placement, the Company was required to
renegotiate the terms and conditions of the Senior Bonds. On March 25, 1998,
the Company and the holders of the Senior Bonds agreed to amend such
indebtedness to provide: (i) the principal and interest obligations will be
payable only from excess cash flow generated primarily from the Louisiana
operations and secondarily from the Bishkek operations; (ii) the maturity
date was extended to December 31, 2005; (iii) the ability to convert the
Senior Bonds into the Company's Common Stock at $2.50 per share through June
30, 1998 and at $3.125 per share from July 1, 1998 to June 30, 1999 was
terminated; and (iv) the holders of the Senior Bonds received warrants
replacing the outstanding warrants and warrants issued in consideration of
the termination of the conversion rights to purchase, in the aggregate,
4,160,000 shares of the Company's Common Stock at an exercise price of $1.00
and $1.50 per share, respectively, to expire on December 31, 2005.
On March 25, 1998, the Company also renegotiated the terms of certain
warrants to purchase 499,895 shares of the Company's Common Stock owned by
Mr. Christopher P. Baker and certain of his affiliates ("Baker"). In
consideration of the elimination of certain anti-dilution provisions in said
warrants, the Company issued to Baker amended warrants to purchase 2,051,912
shares of the Company's Common Stock at $.01 per share (such warrants
include, and are not in addition to, the original warrants to purchase
499,895 shares of the Company's Common Stock) which warrants expire on June
30, 2002.
(The descriptions of the agreements set forth above are, by necessity,
only summaries thereof and do not purport to be complete. Reference is made
to the full texts of such agreements, which have been filed with the
Securities and Exchange Commission on April 14, 1998 as Exhibits to the
Company's Current Report on Form 8-K.)
MANAGEMENT AGREEMENTS. In April 1994, the Company acquired for $49,000
a 49% ownership interest in Monarch Casinos, Inc. of Louisiana, a
Louisiana-licensed video gaming device operator founded in December 1993
("Monarch"). Prior to June 1, 1994, Monarch had very limited operations.
From June 1, 1994 to October 18, 1994, Monarch operated a truck stop at the
Woodlands, initially pursuant to an agreement with its previous owners.
Since the acquisition, in October 1994, of the Woodlands by Trans World
Gaming of Louisiana, Inc. the Company removed Monarch from the operations of
the Gold Coin and Woodlands and continued to pay a monthly management fee to
Monarch, under the terms of the management agreement dated September 21,
1994. In June 1995, Monarch offered to terminate and settle the early
termination of the management agreements between the Company and Monarch. In
March 1996, the Company learned that as of July 1, 1995, Monarch's operator's
license under Louisiana law had lapsed and was no longer in force. Pursuant
to the management agreements between Monarch and the Company, such a failure
to renew or other termination of the establishment license resulted in a
breach of the agreements and the Company terminated the agreements effective
March 14, 1996. As a result of such termination, on November 6, 1997, the
Company was sued for breach of contract by Monarch and Michael A. Edwards in
the 15th Judicial District Court, Lafayette Parish,
22
<PAGE>
Louisiana, for compensatory damages of approximately $2.2 million and
punitive charges of $11.1 million. The Company believes that these claims
are wholly without merit and intends to vigorously defend this action.
TOTTENHAM ACQUISITION. Pursuant to a Stock Purchase Agreement dated as
of January 1, 1997 between the Company and Andrew and Robin Tottenham, the
shareholders of Art Marketing, Ltd. d/b/a Tottenham & Co., a United Kingdom
corporation ("AML"), the Company acquired 100% of the outstanding shares of
capital stock of AML. In exchange for such AML shares, the Company paid to
the AML shareholders the following consideration: (i) an aggregate of
500,000 shares of the Company's Common Stock, all of which shares are
"restricted" with respect to resale, (ii) warrants to purchase, in the
aggregate, 250,000 additional shares of the Company's Common Stock, which
warrants are exercisable for five years at a price of $.5938 per share, and
which have seven-year piggyback registration rights, and (iii) two unsecured
promissory notes in the aggregate principal amount of $200,000 due January 1,
2002, plus interest, which notes, beginning January 1, 1998, are convertible
at the option of the holders into Common Stock of the Company at a price of
$1.00 per share. The business of AML is to provide international gaming
consulting services. As a result of the transaction, Andrew Tottenham is the
beneficial owner of approximately 25.1% of the Company's Common Stock and
consequently filed a Schedule 13D with the Securities and Exchange
Commission. In this transaction, Robin Tottenham, Mr. Tottenham's spouse,
became beneficial owner of approximately 6.0% of the Company's Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Company's Common Stock, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than 10% shareholders are required
by Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file. To the Company's knowledge,
based on review of the copies of such reports furnished to the Company
during, or with respect to, the period ended December 31, 1997, and based on
representations by such persons, all of the Company's executive officers,
directors and certain of the Company's greater than 10% shareholders complied
with all Section 16(a) filing requirements in a timely manner. The Company
believes that the following stockholders have failed to file required
reports: Anasazi Partners Limited Partnership, to the Company's knowledge,
has failed to file any Forms 3, 4 or 5 with respect to warrants held and New
Generation Limited Partnership, to the Company's knowledge, has failed to
file any Forms 3, 4 or 5 with respect to warrants held.
PROPOSAL TO ADOPT THE 1998 STOCK OPTION PLAN
GENERAL
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On April 10, 1998, the Board of Directors adopted the 1998 Stock Option
Plan which is designed to attract and retain qualified officers and other
employees, provide officers and other employees with a proprietary interest
in the Company as an incentive to contribute to the success of the Company
and reward officers and other employees for outstanding performance. The
1998 Stock Option Plan provides for the grant of incentive stock options
("incentive stock options") intended to comply with the requirements of
Section 422 of the Code and non-qualified or compensatory stock options (the
incentive stock options and the non-qualified options, together, the
"options"). The Board of Directors believes that the 1998 Stock Option Plan
is necessary because only options to purchase 39,000 remain available to be
granted under the 1993 Plan and it will continue to motivate Company
employees to perform well. Accordingly, the Board of Directors believes that
the 1998 Stock Option Plan is in the best interest of the Company and its
shareholders.
DESCRIPTION OF THE 1998 STOCK OPTION PLAN
The following description of the 1998 Stock Option Plan is a summary of
its terms and is qualified in its entirety by reference to the 1998 Stock
Option Plan, a copy of which is attached hereto as Appendix A.
ADMINISTRATION
The 1998 Stock Option Plan will be administered and interpreted by the
Compensation Committee of the Board of Directors (the "Option Committee")
which is composed of non-employee directors.
STOCK OPTIONS
Under the Stock Option Plan, the Option Committee will determine, among
other things, which officers and other employees will be granted options, the
performance goals which must be met to receive options, the number of shares
subject to each option, the exercise price of the option, whether such
options may be exercised by delivering other shares of Common Stock or other
consideration and when such options become exercisable. The per share
exercise price of incentive stock options is required by the Code to be at
least equal to the fair market value of a share of Common Stock on the date
the option is granted. Compensatory or non-qualified options may have an
exercise price no less than 85% of the fair market value of a share of Common
Stock on the date of grant. The Code also requires that the aggregate fair
market value of the Common Stock with respect to which the incentive stock
options are exercisable for the first time by the optionee during any
calendar year cannot exceed $100,000. Moreover, any person who owns 10.0% or
more of the voting power of the Common Stock may not receive incentive stock
options whose exercise price is less than 110.0% of the fair market value of
a share of Common Stock of the Company on the date of grant.
Options will become vested and exercisable in the manner specified by the
Option
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Committee and all options will become fully vested and exercisable in the
event of a change in control of the Company, as defined in the 1998 Stock
Option Plan. Each option or portion thereof will be exercisable at any time
on or after it vests and is exercisable until ten years after its date of
grant or three months after the date on which the optionee's employment
terminates, unless extended by the Option Committee to a period not to exceed
five years from such termination. However, failure to exercise options
within three months after the date on which the optionee's employment
terminates may result in adverse tax consequences to the optionee. Incentive
stock options are non-transferable except by will or the laws of descent and
distribution; compensatory or non-qualified stock options may be transferred
to an optionee's spouse, lineal descendants, ascendants or to a trust
established for the benefit of one of these individuals. Options so
transferred may thereafter be transferred only to the optionee who originally
received the grant or to an individual or trust to whom the optionee could
have initially transferred the option. Options so transferred shall be
exercisable by the transferee according to the same terms and conditions as
applied to the optionee.
NUMBER OF SHARES COVERED BY THE 1998 STOCK OPTION PLAN. A total of
2,000,000 shares of Common Stock has been reserved for issuance pursuant to
the 1998 Stock Option Plan. In the event of a stock split, reverse stock
split or stock dividend, the number of shares of Common Stock under the 1998
Stock Option Plan, the number of shares to which any option relates and the
exercise price per share under any option shall be adjusted to reflect such
increase or decrease in the total number of shares of the Common Stock
outstanding.
AMENDMENT AND TERMINATION OF THE 1998 STOCK OPTION PLAN. Unless sooner
terminated, the 1998 Stock Option Plan shall continue in effect for a period
of ten years from the effective date, which is April 10, 1998, the date the
1998 Stock Option Plan was adopted by the Board and became effective by its
terms. Termination of the 1998 Stock Option Plan shall not affect any
previously granted options. The Board of Directors may at any time terminate
or amend the 1998 Stock Option Plan with respect to any shares of Common
Stock as to which options have not been granted, subject to any required
shareholder approval.
FEDERAL INCOME TAX CONSEQUENCES. Under current provisions of the Code,
the federal income tax treatment of incentive stock options and compensatory
or non-qualified stock options is different. As regards to incentive stock
options, an optionee who meets certain holding period requirements will not
recognize income at the time the option is granted or at the time the option
is exercised, and a federal income tax deduction generally will not be
available to the Company at any time as a result of such grant or exercise.
With respect to compensatory or non-qualified stock options, the difference
between the fair market value on the date of exercise and the option exercise
price generally will be treated as compensation income upon exercise, and the
Company will be entitled to a deduction in the amount of income so recognized
by the optionee.
In the event a compensatory or non-qualified stock option is issued that
has an exercise price as of the date of grant which is substantially lower
than the fair market value of the underlying Common Stock so that the
tendering of the exercise price is not considered a substantial obstacle to
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the ultimate receipt of the underlying Common Stock, the Internal Revenue
Service may deem the underlying stock to have been constructively received by
the optionee in which case the optionee will be treated as having exercised
the option and the tax consequence will be the same as discussed above.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.
ACCOUNTING TREATMENT. So long as an option is granted at fair market
value on the date of grant, neither the grant nor the exercise of an
incentive stock option or a compensatory or non-qualified stock option under
the 1998 Stock Option Plan currently requires any charge against earnings
under generally accepted accounting principles. If a non-qualified option
has an exercise price of less than fair market value, the Company would be
required to accrue a charge of compensation. In certain circumstances,
shares issuable pursuant to outstanding options under the 1998 Stock Option
Plan might be considered outstanding for purposes of calculating diluted
earnings per share.
SHAREHOLDER APPROVAL. No options will be granted under the 1998 Stock
Option Plan unless the 1998 Stock Option Plan is approved by shareholders.
Shareholder ratification of the 1998 Stock Option Plan will satisfy certain
Nasdaq market listing and tax requirements.
OPTIONS TO BE GRANTED. No options have been granted to date under the
1998 Stock Option Plan and no determination has been made at this time
regarding the amount or timing of options to be made under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ADOPTION OF
THE 1998 STOCK OPTION PLAN.
ADJOURNMENT OF ANNUAL MEETING
Each proxy solicited hereby requests authority to vote for an
adjournment of the Annual Meeting, if an adjournment is deemed to be
necessary. The Company may seek an adjournment of the Annual Meeting for not
more than 60 days in order to enable the Company to solicit additional votes
in favor of the proposal to adopt the 1998 Stock Option Plan in the event
that such proposal has not received the requisite vote of stockholders at the
Annual Meeting and such proposal has not received negative votes with respect
to a majority of the total votes represented at the Annual Meeting. If the
Company desires to adjourn the meeting with respect to the foregoing
proposal, it will request a motion that the meeting be adjourned for up to 60
days with respect to such proposal (and solely with respect to such proposal,
provided that a quorum is present at the Annual Meeting),
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and no vote will be taken on such proposal at the originally scheduled Annual
Meeting. Each proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted on any motion for
adjournment in accordance with the instructions contained therein. If no
contrary instructions are given, each proxy received will be voted in favor
of any motion to adjourn the meeting. Unless revoked prior to its use, any
proxy solicited for the Annual Meeting will continue to be valid for any
adjournment of the Annual Meeting, and will be voted in accordance with
instructions contained therein, and if no contrary instructions are given,
for the proposal in question.
Any adjournment will permit the Company to solicit additional proxies
and will permit a greater expression of the stockholders' views with respect
to such proposal. Such an adjournment would be disadvantageous to
stockholders who are against the proposal, because an adjournment will give
the Company additional time to solicit favorable votes and thus increase the
chances of passing such proposal.
If a quorum is not present at the Annual Meeting, no proposal will be
acted upon and the Board of Directors of the Company will adjourn the Annual
Meeting to a later date in order to solicit additional proxies on each of the
proposals being submitted to stockholders.
An adjournment for up to 60 days may require either the setting of a new
record date or the giving of additional notice of the adjourned meeting as in
the case of an original meeting. The Company has no reason to believe that
an adjournment of the Annual Meeting will be necessary at this time.
BECAUSE THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO ADOPT THE 1998 STOCK OPTION PLAN, AS DISCUSSED ABOVE, THE BOARD
OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE POSSIBLE ADJOURNMENT
OF THE ANNUAL MEETING.
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Pannell Kerr and Forster, P.C.
("PKF"), independent certified public accountants, as auditors of the Company
for the fiscal year ending December 31, 1998. Representatives of PKF, the
independent certified public accountants who served as the auditors of the
Company for the fiscal year ended December 31, 1997, are expected to be
present at the Annual Meeting. Such representatives will have an opportunity
to make a statement if they so desire and will be available to respond to
questions.
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PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal which a shareholder wishes to have included in the proxy
solicitation materials to be used in connection with the next Annual Meeting
of Shareholders of the Company, must be received at the principal executive
offices of the Company, One Penn Plaza, Suite 1503, New York, New York
10119-0002, Attention: Secretary, no later than Monday, December 21, 1998.
If such proposal is in compliance with all of the requirements of Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), it will be included in the Company's Proxy Statement and set
forth on the form of proxy issued for the next Annual Meeting of
Shareholders. It is suggested that any such proposals be sent by certified
mail, return receipt requested.
OTHER BUSINESS
The Company knows of no business that will be presented for
consideration at the Annual Meeting other than that described in this Proxy
Statement. As to other business, if any, that may properly come before the
Annual Meeting, it is intended that proxies solicited by the Board will be
voted in accordance with the judgment of the person or persons voting the
proxies.
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ANNUAL REPORT AND FINANCIAL STATEMENTS
Shareholders of the Company as of the Voting Record Date for the Annual
Meeting are being forwarded a copy of the Company's Annual Report to
Shareholders for the twelve months ended December 31, 1997 (the "Annual
Report"). Included in the Annual Report are the consolidated statements of
financial condition of the Company as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1997, prepared in accordance with generally accepted accounting
principles, and the related report of the Company's independent public
accountants. The Annual Report is not a part of this Proxy Statement.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON
FORM 10-KSB (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED DECEMBER 31,
1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION TO EACH PERSON WHO
WAS A SHAREHOLDER OF THE COMPANY AS OF THE VOTING RECORD DATE, UPON RECEIPT
FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT. SUCH
REQUEST SHOULD BE SENT TO: TRANS WORLD GAMING CORP., ONE PENN PLAZA, NEW
YORK, NEW YORK 10119-0002; ATTN: SHAREHOLDER INFORMATION. THE ANNUAL REPORT
ON FORM 10-KSB IS NOT A PART OF THIS PROXY STATEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Dominick J. Valenzano
Dominick J. Valenzano
Chief Financial Officer & Treasurer
April 20, 1998
New York, New York
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APPENDIX A
TRANS WORLD GAMING CORP.
1998 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Trans World Gaming Corp. (the "Company") hereby establishes this 1998
Stock Option Plan (the "Plan") upon the terms and conditions hereinafter
stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Company by providing Employees with a proprietary interest in the Company
as an incentive to contribute to the success of the Company, and rewarding
those Employees for outstanding performance and the attainment of targeted
goals. All Incentive Stock Options issued under this Plan are intended to
comply with the requirements of Section 422 of the Code, and the regulations
thereunder, and all provisions hereunder shall be read, interpreted and
applied with that purpose in mind.
ARTICLE III
DEFINITIONS
3.01 "Board" means the Board of Directors of the Company.
3.02 "Code" means the Internal Revenue Code of 1986, as amended.
3.03 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof, each of whom shall be a
"non-employee director" as defined in Rule 16b-3(b)(3)(i) of the Exchange Act
or any successor thereto.
3.04 "Common Stock" means shares of the common stock, $.001 par value
per share, of the Company.
3.05 "Disability" means any physical or mental impairment which
qualifies an Employee for disability benefits under the applicable long-term
disability plan maintained by the Company or, if no such plan applies, which
would qualify such Employee for disability benefits under the Federal Social
Security System.
3.06 "Effective Date" means the date upon which the Board approves this
Plan.
3.07 "Employee" means any person who is employed by the Company.
3.08 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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3.09 "Fair Market Value" shall be equal to the fair market value per
share of the Company's Common Stock on the date an Option is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be
the mean between the high bid and low asked prices that day on the principal
market then in use, or if no such quotations are available, the fair market
value on the date in question of a share as determined by a majority of the
Board in good faith.
3.10 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.11 "Non-Qualified Stock Option" means any Option granted under this
Plan which is not an Incentive Stock Option.
3.12 "Officer" means an Employee whose position in the Company is that
of a corporate officer, as determined by the Board.
3.13 "Option" means a right granted under this Plan to purchase Common
Stock.
3.14 "Optionee" means an Employee or former Employee to whom an Option
is granted under the Plan.
3.15 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained
by the Company or as otherwise determined by the Committee.
3.16 "Stock Option Agreement" means the written agreement pursuant to
Section 8.01 hereof that sets forth the terms, conditions, restrictions and
privileges for an Incentive Stock Option.
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ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority in its
absolute discretion to adopt, amend and rescind such rules, regulations and
procedures as, in its opinion, may be advisable in the administration of the
Plan, including, without limitation, rules, regulations and procedures which
(i) deal with satisfaction of an Optionee's tax withholding obligation
pursuant to Section 12.02 hereof, (ii) include arrangements to facilitate the
Optionee's ability to borrow funds for payment of the exercise or purchase
price of an Option, if applicable, from securities brokers and dealers, and
(iii) include arrangements which provide for the payment of some or all of
such exercise or purchase price by delivery of previously owned shares of
Common Stock or other property and/or by withholding some of the shares of
Common Stock which are being acquired. The interpretation and construction
by the Committee of any provisions of the Plan, any rule, regulation or
procedure adopted by it pursuant thereto or of any Option shall be final and
binding.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the
Board. The Board from time to time may remove members from, or add members
to, the Committee, provided the Committee shall continue to consist of two or
more members of the Board, each of whom shall be a "non-employee director" as
defined in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto.
The Committee shall act by vote or written consent of a majority of its
members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules, regulations and procedures as it deems
appropriate for the conduct of its affairs. It may appoint one of its
members to be chairman and any person, whether or not a member, to be its
secretary or agent. The Committee shall report its actions and decisions to
the Board at the next regularly scheduled meeting of the Board following each
meeting of the Committee.
4.03 REVOCATION FOR MISCONDUCT. The Committee may by resolution
immediately revoke, rescind and terminate any Option, or portion thereof, to
the extent not yet vested, previously granted or awarded under this Plan to
an Employee who is discharged from the employ of the Company for cause,
which, for purposes hereof, shall mean termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
or willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses).
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4.04 LIMITATION ON LIABILITY. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan, any rule, regulation or procedure adopted by it pursuant thereto or any
Options granted under it. If a member of the Committee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Company shall indemnify him to the
extent permitted by the Company's Articles of Incorporation and Bylaws and by
the Nevada General Corporation Law.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Options granted hereunder
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as
may be required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any federal or state law or any rule or
regulation of any government body, which the Company shall, in its sole
discretion, determine to be necessary or advisable. Moreover, no Option may
be exercised if such exercise would be contrary to applicable laws and
regulations.
4.06 RESTRICTIONS ON TRANSFER. The Company may place a legend upon any
certificate representing shares acquired pursuant to an Option granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE V
ELIGIBILITY
Options may be granted to such Employees of the Company as may be
designated from time to time by the Committee, pursuant to guidelines, if
any, which may be adopted by the Committee from time to time.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of Common Stock
which may be issued pursuant to this Plan, subject to adjustment as provided
in Article IX, shall be 2,000,000 shares of Common Stock. None of such
shares shall be the subject of more than one Option at any time, but if an
Option as to any shares is surrendered before exercise, or expires or
terminates for any reason without having been exercised in full, or for any
other reason ceases to be exercisable, the number of shares covered thereby
shall again become available for grant under the Plan as if no Options had
been previously granted with respect to such shares.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan
may be
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authorized but unissued shares, treasury shares or shares purchased by the
Company on the open market or from private sources for use under the Plan.
ARTICLE VII
DETERMINATION OF
OPTIONS, NUMBER OF SHARES, ETC.
The Committee shall, in its discretion, determine from time to time
which Employees will be granted Options under the Plan, the number of shares
of Common Stock subject to each Option, whether each Option will be an
Incentive Stock Option or a Non-Qualified Stock Option and the exercise price
of an Option. In making all such determinations there shall be taken into
account the duties, responsibilities and performance of each respective
Employee, his present and potential contributions to the growth and success
of the Company, his salary and such other factors as the Committee shall deem
relevant to accomplishing the purposes of the Plan.
ARTICLE VIII
OPTIONS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers or a member of the
Committee on behalf of the Company and each Optionee shall execute a Stock
Option Agreement which shall set forth the total number of shares of Common
Stock to which it pertains, the exercise price, whether it is a Non-Qualified
Stock Option or an Incentive Stock Option and such other terms, conditions,
restrictions and privileges as the Committee in each instance shall deem
appropriate, provided they are not inconsistent with the terms, conditions
and provisions of this Plan. Each Optionee shall receive a copy of his
executed Stock Option Agreement.
8.02 OPTION EXERCISE PRICE.
(a) INCENTIVE STOCK OPTIONS. The per share price at which the
subject Common Stock may be purchased upon exercise of an Incentive Stock
Option shall be no less than one hundred percent (100%) of the Fair Market
Value of a share of Common Stock at the time such Incentive Stock Option is
granted, except as provided in Section 8.09(b).
(b) NON-QUALIFIED STOCK OPTIONS. The per share price at which the
Common Stock may be purchased upon exercise of a Non-Qualified Stock Option
shall be no less than eighty-five percent (85%) of the Fair Market Value of a
share of Common Stock at the time such Non-Qualified Option is granted.
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8.03 VESTING AND EXERCISE OF OPTIONS
(a) GENERAL RULES. Incentive Stock Options and Non-Qualified
Stock Options granted to Employees shall become vested and exercisable at the
rate, to the extent and subject to such limitations as may be specified by
the Committee. Notwithstanding the foregoing, no vesting shall occur on or
after an Employee's employment with the Company is terminated for any reason
other than his death, Disability or Retirement. In determining the number of
shares of Common Stock with respect to which Options are vested and/or
exercisable, fractional shares will be rounded up to the nearest whole number
if the fraction is 0.5 or higher, and down if it is less.
(b) VESTING UPON TERMINATION OF EMPLOYMENT, DEATH, DISABILITY OR
RETIREMENT. Unless the Committee shall specifically state otherwise at the
time an Option is granted, only those Options granted to Employees under this
Plan which are vested and exercisable on the date an Optionee terminates his
employment with the Company because of his termination of employment under
certain circumstances as set forth in the Optionee's Stock Option Agreement,
or because of his death, Disability or Retirement shall be vested and
exercisable by the Optionee thereafter as set forth in Section 8.04.
(c) ACCELERATED VESTING FOR CHANGES IN CONTROL. Notwithstanding
the general rule described in Section 8.03(a), all outstanding Options shall
become immediately vested and exercisable in the event there is a change in
control of the Company. A "change in control of the Company" for this
purpose shall mean a change in control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, or any successor thereto, whether or not
the Company in fact is required to comply with Regulation 14A thereunder.
8.04 DURATION OF OPTIONS.
(a) GENERAL RULE. Except as provided in Sections 8.04(b) and
8.09, each Option granted to Employees shall be exercisable at any time on or
after it vests and becomes exercisable until the earlier of (i) ten (10)
years after its date of grant or (ii) three (3) months after the date on
which the Optionee ceases to be employed by the Company, unless the Committee
in its discretion decides at the time of grant or thereafter to extend such
period of exercise upon termination of employment from three (3) months to a
period not exceeding five (5) years.
(b) EXCEPTION FOR TERMINATION DUE TO DEATH, DISABILITY OR
RETIREMENT. If an Employee dies while in the employ of the Company or
terminates employment with the Company as a result of Disability or
Retirement without having fully exercised his Options, the Optionee or his
legal representative or guardian, or the executors, administrators, legatees
or distributees of his estate shall have the right, during the twelve-month
period following the earlier of his death, Disability or Retirement, to
exercise such Options to the extent vested on the date of such death,
Disability or Retirement. In no event, however, shall any Option be
exercisable within six (6) months after the date of grant or more than ten
(10) years from the date it was granted.
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8.05 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an
Optionee's lifetime shall be exercisable only by such Optionee or the
Optionee's guardian or legal representative. Notwithstanding the foregoing,
or any other provision of this Plan, an Optionee who holds Non-Qualified
Stock Options may transfer such Options to his or her spouse, lineal
ascendants, lineal descendants, or to a duly established trust for the
benefit of one or more of these individuals. Options so transferred may
thereafter be transferred only to the Optionee who originally received the
grant or to an individual or trust to whom the Optionee would have initially
transferred the Option pursuant to this Section 8.05. Options which are
transferred pursuant to this Section 8.05 shall be exercisable by the
transferee according to the same terms and conditions as applied to the
Optionee.
8.06 MANNER OF EXERCISE. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be
set forth in the written Stock Option Agreement provided for in Section 8.01
above.
8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of any Option shall
be made to the Company upon exercise of the Option. All shares sold under
the Plan shall be fully paid and nonassessable. Payment for shares may be
made by the Optionee in cash or, at the discretion of the Committee, by
delivering shares of Common Stock (including shares acquired pursuant to the
exercise of an Option) or other property equal in Fair Market Value to the
purchase price of the shares to be acquired pursuant to the Option, by
withholding some of the shares of Common Stock which are being purchased upon
exercise of an Option, or any combination of the foregoing. Notwithstanding
the foregoing payment may also be made by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds to pay
the exercise price.
8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a shareholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded
on the Company's shareholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All
Options issued under the Plan as Incentive Stock Options will be subject, in
addition to the terms detailed in Sections 8.01 to 8.08 above, to those
contained in this Section 8.09.
(a) $100,000 LIMITATION. Notwithstanding any contrary provisions
contained elsewhere in this Plan and as long as required by Section 422 of
the Code, the aggregate Fair Market Value, determined as of the time an
Incentive Stock Option is granted, of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year, under this Plan and stock options that satisfy the
requirements of Section 422 of the Code under any other stock option plan or
plans maintained by the Company,
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shall not exceed $100,000.
(b) LIMITATION ON TEN PERCENT SHAREHOLDERS. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option
is granted, owns, directly or indirectly, more than ten percent (10%) of the
total combined voting power of all classes of stock issued to shareholders of
the Company, shall be no less than one hundred and ten percent (110%) of the
Fair Market Value of a share of the Common Stock of the Company at the time
of grant, and such Incentive Stock Option shall by its terms not be
exercisable after the earlier of the date determined under Section 8.03 or
the expiration of five (5) years from the date such Incentive Stock Option is
granted.
(c) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee shall
immediately notify the Company in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition
within the meaning of Section 421 of the Code) of any shares of Common Stock
acquired through exercise of an Incentive Stock Option, within two (2) years
after the grant of such Incentive Stock Option or within one (1) year after
the acquisition of such shares, setting forth the date and manner of
disposition, the number of shares disposed of and the price at which such
shares were disposed. The Company shall be entitled to withhold from any
compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of
federal or state law or regulation and, further, to collect from the Optionee
any additional amounts which may be required for such purpose. The Committee
may, in its discretion, require shares of Common Stock acquired by an
Optionee upon exercise of an Incentive Stock Option to be held in an escrow
arrangement for the purpose of enabling compliance with the provisions of
this Section 8.09(c).
-A8-
<PAGE>
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any Option relates and the
exercise price per share of Common Stock under any Option shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
this Plan resulting from a split, subdivision or consolidation of shares or
any other capital adjustment, the payment of a stock dividend, or other
increase or decrease in such shares effected without receipt or payment of
consideration by the Company. If, upon a merger, consolidation,
reorganization, liquidation, recapitalization or the like of the Company, the
shares of the Company's Common Stock shall be exchanged for other securities
of the Company or of another corporation, each recipient of an Option shall
be entitled, subject to the conditions herein stated, to purchase or acquire
such number of shares of Common Stock or amount of other securities of the
Company or such other corporation as were exchangeable for the number of
shares of Common Stock of the Company which such optionees would have been
entitled to purchase or acquire except for such action, and appropriate
adjustments shall be made to the per share exercise price of outstanding
Options.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Options have not been
granted, subject to any required shareholder approval or any shareholder
approval which the Board may deem to be advisable for any reason, such as for
the purpose of obtaining or retaining any statutory or regulatory benefits
under tax, securities or other laws or satisfying any applicable stock
exchange listing requirements. The Board may not, without the consent of the
holder of an Option, alter or impair any Option previously granted or awarded
under this Plan as specifically authorized herein.
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor the grant of any Options hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create
any right on the part of any Employee of the Company to continue in such
capacity.
-A9-
<PAGE>
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Company may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding
and employment taxes, and if the amount of such cash payment is insufficient,
the Company may require the Optionee to pay to the Company the amount
required to be withheld as a condition to delivering the shares acquired
pursuant to an Option. The Company also may withhold or collect amounts with
respect to a disqualifying disposition of shares of Common Stock acquired
pursuant to exercise of an Incentive Stock Option, as provided in Section
8.09(c).
12.02 METHODS OF TAX WITHHOLDING. The Committee is authorized to adopt
rules, regulations or procedures which provide for the satisfaction of an
Optionee's tax withholding obligation by the retention of shares of Common
Stock to which the Employee would otherwise be entitled pursuant to an Option
and/or by the Optionee's delivery of previously owned shares of Common Stock
or other property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective
on the Effective Date, and Options may be granted hereunder as of or after
the Effective Date and prior to the termination of the Plan, provided that no
Incentive Stock Option issued pursuant to this Plan shall qualify as such
unless this Plan is approved by the requisite vote of the holders of the
outstanding voting shares of the Company at a meeting of shareholders of the
Company held within twelve (12) months before or after the Effective Date.
13.02 TERM OF PLAN. Unless sooner terminated, this Plan shall
remain in effect for a period of ten (10) years ending on the tenth
anniversary of the Effective Date. Termination of the Plan shall not affect
any Options previously granted and such Options shall remain valid and in
effect until they have been fully exercised or earned, are surrendered or by
their terms expire or are forfeited.
ARTICLE XIV
MISCELLANEOUS
14.01 GOVERNING LAW. To the extent not governed by Federal law,
this Plan shall be construed under the laws of the State of Nevada.
14.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
-A10-
<PAGE>
REVOCABLE PROXY
TRANS WORLD GAMING CORP.
ANNUAL MEETING OF SHAREHOLDERS
MAY 26, 1998
The undersigned, being a shareholder of Trans World Gaming Corp. (the
"Company") as of April 9, 1998, hereby authorizes Stanley Kohlenberg and
Andrew Tottenham or any successors thereto as proxies with full powers of
substitution, to represent the undersigned at the Annual Meeting of
Shareholders of the Company to be held at the Company's principal offices,
located at One Penn Plaza, Suite 1503, New York, New York 10119-0002, on
Tuesday, May 26, 1998 at 2:00 p.m., Eastern Time, and at any adjournment of
said meeting, and thereat to act with respect to all votes that the
undersigned would be entitled to cast, if then personally present, as follows:
1. ELECTION OF DIRECTORS
Nominees for a one-year term: Julio Heurtematte Jr., Stanley Kohlenberg, Malcolm
M. B. Sterrett, Richard R. Taft, Andrew Tottenham
and Dominick J. Valenzano
FOR WITHHOLD
AUTHORITY
NOTE: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME. UNLESS AUTHORITY
TO VOTE FOR ALL OF THE FOREGOING NOMINEES IS WITHHELD, THIS
PROXY WILL BE DEEMED TO CONFER AUTHORITY TO VOTE FOR EACH
NOMINEE WHOSE NAME IS NOT STRUCK.
2. Proposal to Approve the 1998 Stock Option Plan.
FOR AGAINST ABSTAIN
3. Proposal to Approve adjournment of the Annual Meeting, if necessary.
FOR AGAINST ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE>
OF THE COMPANY FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
MAY 26, 1998 AND AT ANY ADJOURNMENT THEREOF AND SHALL REMAIN VALID UNTIL SUCH
TIME.
SHARES OF THE COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF
RETURNED BUT NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE BOARD OF DIRECTORS' NOMINEES TO THE BOARD OF DIRECTORS, FOR
THE 1998 STOCK OPTION PLAN, FOR ADJOURNMENT OF THE ANNUAL MEETING, IF
NECESSARY, AND OTHERWISE AT THE DISCRETION OF THE PROXIES. YOU MAY REVOKE
THIS PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED AT THE ANNUAL MEETING.
PLEASE BE SURE TO SIGN AND DATE THIS
PROXY IN THE SPACE BELOW.
Date: , 1998
---------------------------
--------------------------------------
(signature)
--------------------------------------
(signature)
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS PROXY.
WHEN SIGNING IN A REPRESENTATIVE CAPACITY, PLEASE GIVE FULL TITLE. WHEN
SHARES ARE HELD JOINTLY, ONLY ONE HOLDER NEED SIGN.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
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