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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Year Ended December 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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COMMISSION FILE NO.: 0-25244
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TRANS WORLD GAMING CORP.
(Exact name of registrant as specified in its charter)
Nevada 13-3738518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
545 FIFTH AVENUE, SUITE 940 10017
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 983-3355
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES / / NO /X/
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
/ /
The issuer's revenues for the year ended December 31, 1999 were
approximately $12,294,000
As of December 31, 1999, 5,365,449 shares of Common Stock of the
Registrant were deemed outstanding, and the aggregate market value of the Common
Stock of the Registrant as of that date (based upon the closing price of the
Common Stock at that date as reported by the OTC Bulletin Board, excluding
outstanding shares beneficially owned by directors and executive officers, was
approximately $0.51.
Transitional Small Business Disclosure Format (check one;
YES / / NO /X/)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Trans World Gaming Corp. (the "Company" or "TWG") was organized as a Nevada
corporation in October 1993 to acquire, develop and manage, to the extent
permitted by applicable local laws, gaming establishments featuring live and
mechanized gaming, including video gaming devices such as video poker machines.
TWG proceeded to enter into this business through its 1994 acquisition of
several Louisiana based entities. In 1998, in response to changes in the laws
governing the legality of operating video gaming devices in the state of
Louisiana and faced with a closing date of June 30, 1999 for its Louisiana
operations as a result of this change in law, TWG amended its operating strategy
by shifting its focus to the casino market overseas and acquired five casinos,
one of which includes a hotel, and a parcel of land in Europe. The Company has
since closed two of the casinos due, as in Louisiana, to local gaming law
changes, but has recently opened an additional casino on the parcel of land that
was purchased in 1998, which leaves the Company with a total of four casinos
currently in operation.
CZECH REPUBLIC
On March 31, 1998, the Company consummated a Stock Purchase Agreement ("Stock
Purchase Agreement") with 21st Century Resorts a.s., an owner-operator of two
casinos, and the owner of property to build a third casino, in the Czech
Republic ("Resorts"), Gameway Leasing Limited ("Gameway") and Monarch Leasing
Limited ("Monarch Leasing"), two off-shore affiliates of Resorts which leased
equipment to Resorts and the stockholders of Resorts (the "Selling
Stockholders") pursuant to which the Company acquired 100% of the equity
interests of Resorts and its two operating subsidiaries and all of the assets of
Gameway and Monarch Leasing. On March 31, 1998, the Company, with the assistance
of Libra Investments, Inc., Los Angeles, California ("Libra") acting as
placement agent, borrowed $17.0 million from fourteen sophisticated, accredited
investors (the "Investors") in a private placement (the "Private Placement").
The loan is represented by 12% Senior Secured Notes (the "Senior Notes") issued
pursuant to indentures (the "Indentures") by and among TWG, TWG International
U.S. Corporation ("TWGI"), TWG Finance Corp. ("TFC") (TWGI and TFC) are
wholly-owned subsidiaries of TWG) and U.S. Trust Company of Texas, N.A., Dallas,
Texas ("USTCT") acting as indenture trustee. The Senior Notes require mandatory
prepayments based upon excess cash flow generated by TWGI from the operation of
Resorts and bear interest at the rate of 12% per annum. (See - Periodic Reports
Form 8-K and the Amended Periodic Report on Form 8-K/A filed with the Securities
and Exchange Commission ("SEC") on April 14, 1998 and June 15, 1998,
respectively.) The proceeds of the Senior Notes were used to pay the net
acquisition costs of, and improvements to, Resorts totaling approximately $12.6
million, to repay the First Amended Loan Agreement in the amount of $1.3
million, to cover costs and expenses of $1.4 million relating to the Private
Placement and to provide working capital of $1.7 million.
As a result of a change in Czech gaming law which effectively banned foreign
ownership of casinos, the Company restructured the ownership of Resorts through
the use of a new Czech limited liability company and amended the indentures (the
"Amended Indentures"), both of which Amended Indentures relate to, but do not
alter, the Senior Notes.
On October 15, 1999, the Company borrowed $3.0 million ($2.7 million from Value
Partners) in a private placement ("October 1999 Private Placement"). The loan is
represented by 12% Senior Secured Notes ("October 1999 Senior Notes") issued
pursuant to indentures by and among the Company and an independent indenture
trustee. The October 1999 Senior Notes, which are due March 2005, require
mandatory prepayments based on excess cash flow generated from Resorts. The
October 1999 Senior Notes are collateralized primarily by all of Resort's gaming
equipment and a majority interest in the capital stock of all of the Company's
subsidiaries (except Casino de Zaragoza, S.A. ("CDZ"), a company
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incorporated in Zaragoza, Spain). In addition to the October 1999 Senior Notes,
each investor received a proportionate share of warrants to purchase 1,250,728
shares of the Company's common stock.
The proceeds of the October 1999 Senior Notes were used to retire a $1 million
short-term debt obligation, related to the acquisition of the casino in
Zaragoza, Spain, to make an interest payment of approximately $250,000 on said
debt, and to finance the equipping, working capital, and pre-opening costs
associated with the opening of a third casino in the Czech Republic on the land
that had been previously purchased in conjunction with the issuance of the
Senior Notes on March 31, 1998. That casino, located near Snojmo, on the border
with Austria, opened on December 22, 1999.
SPAIN
On April 17, 1998, the Company acquired 90% of CDZ, which holds the exclusive
casino license in the region of Aragon. Following approval of its
recapitalization plan by the Council of Ministers in Spain and the subsequent
forfeiture of the shares of the holder of the remaining 10% ownership in the
Company, who declined to participate in the recapitalization the Company. TWG
presently owns 99.92% of CDZ (See: Item 6. "Management's Discussion and Analysis
or Plan of Operation - Liquidity and Capital Resources"). The Company acquired
90% of the outstanding stock of CDZ for approximately $780,000 (excluding
related acquisition costs of approximately $678,000) and assumed its outstanding
debt obligations of approximately $4.9 million.
The Company intends to move the casino, which is currently located approximately
fifteen miles outside of the city of Zaragoza, to a downtown location. An
understanding had been reached with an agency of the provincial government, the
Diputacion General de Aragon ("DGA"), to allow the casino to execute this move,
subject to the issuance of a decree; however, instead of a decree, in February
2000, the DGA introduced a law that would allow the casino to relocate. The law
is expected to be presented to local Spanish parliament in June 2000. Management
believes, based on its discussions with Spanish authorities, the law has little
opposition and is expected to pass.
LOUISIANA OPERATIONS
Although the Company's Louisiana video poker operations terminated as of June
30, 1999, references to Company's Louisiana activities are presented here with
respect to activities which occurred through December 31, 1999 and in the event
that the appeal being undertaken by an industry group on behalf of all similarly
situated companies to the U.S. Supreme Court (discussed below) results in the
reversal of the lower court's decision.
Trans World Gaming of Louisiana, Inc. ("TWGLa"), a wholly-owned subsidiary of
TWG, owned certain ownership interests in two gaming establishments at truck
stops in Louisiana, which included (i) an establishment located at the 76 Plaza
in Lafayette, Louisiana known as the "Gold Coin" (formerly known as the Gold
Nugget), which had 50 video lottery terminals ("VLTs" or "Devices"), and (ii)
the Toledo Palace (the "Toledo Palace"), which the Company established and
licensed at a truck stop located in DeRidder, Louisiana, known as the Woodlands
Travel Plaza (the "Woodlands") and at which TWGLa operated 33 VLTs. Both the
Gold Coin and the Toledo Palace establishments were licensed to operate only
VLTs. As a result of a referendum in 1996 in 35 parishes in Louisiana, including
the two parishes in which the Gold Coin and the Toledo Palace, are located, it
was determined that video poker would cease effective June 30, 1999 (the "Voter
Mandate"). In accordance with the Voter Mandate, the Louisiana gaming
authorities terminated the operations at both the Gold Coin and the Toledo
Palace on June 30, 1999. The Company has appealed the Louisiana State Court's
recent decision to uphold the Voter Mandate to the U.S. Supreme Court. The U.S.
Supreme Court will decide in 2000 whether or not to consider the case (See Item
3 "Legal Proceedings"). The Company cannot, as of the date hereof, predict the
outcome of its litigation or when a decision relating hereto will be rendered.
In accordance with the Voter Mandate and the outcome of subsequent judicial
decisions, the Company ceased all operations in Louisiana on June 30, 1999 and
its lease at the Gold Coin location in Lafayette was
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terminated on July 31, 1999. The Company sold the Woodlands truck stop in
DeRidder on October 4, 1999 for $295,000 and sold the video poker machines for
$84,000.
In accordance with the Company's strategy to further concentrate on profitable
businesses and minimize risk, the Company is in the process of disposing of its
non-voting 49% interest in Chrysolith, LLC, a Louisiana limited liability
company ("Chrysolith"). Chrysolith provided on-site management for all of the
operations of both the Gold Coin and the Toledo Palace, including the operation,
servicing and maintenance of the VLTs, pursuant to a management agreement, the
Amended and Restated Regulations and Operating Agreement of Chrysolith, dated
December 1994 and amended December 1996 (the "Chrysolith Operating Agreement").
Through June 30, 1999, the Company received the net revenue at both the Gold
Coin and the Toledo Palace, which is the revenue generated by VLTs at both
facilities after payment of franchise taxes by Chrysolith to the State of
Louisiana and after payment of all prizes to the players (the "Net Win After
Tax"). The Company, in conjunction with this arrangement, further reimbursed
Chrysolith for all direct operating costs incurred in the operation of the VLTs.
Although the Company does not foresee any further business involvement in
Louisiana, the Chrysolith Operating Agreement will continue pending the decision
of the U.S. Supreme Court regarding the Company's appeal of the termination of
the operations at the Gold Coin and Toledo Palace.
On December 22, 1994, the Company acquired from Chrysolith and Prime Properties,
Inc., a Louisiana corporation ("Prime"), which leased the 76 Plaza, a truckstop
in which the Gold Coin was located, certain rights therein including an 18 year
sub-leasehold interest (the "Sub-Lease"), subject to the terms of an Over-Lease
on the 76 Plaza between Prime, as lessee and National Auto Truckstops, Inc.
("National") as lessor. At the same time, the Company acquired from Prime the
right to a 50% interest in the profits of the Gold Coin under the terms of an
agreement (the "Prime Agreement") under which the Company agreed to pay Prime a
total of $6.0 million for such profit interests in the form of a promissory note
(the "Prime Note"). On November 10, 1997, the Company was advised that on
October 16, 1997, National had placed Prime on notice that its rights to occupy
the 76 Plaza would terminate on January 23, 1998, due to an alleged breach of
the Over-Lease by Prime. Subsequently, on December 23, 1997, the Company filed a
Petition for Concursus in the 15th Judicial District Court, Lafayette Parish,
Louisiana, Case No. 976174-D, and paid the final $292,000 then owing under the
Prime Note into the registry of the court, protesting that such sum was not
actually due and owing based on the alleged breach of the Over-Lease by Prime.
On or about December 30, 1997, the Company received notice from Prime that Prime
(which was not aware of the Company's Petition for Concursus) considered the
Company in default of the Sub-Lease demanded that the Company pay to Prime an
amount equal to approximately $299,513 on or before January 7, 1998 to cure its
alleged default. Upon receipt of this correspondence, the Company contacted
counsel for Prime and notified him of the Company's prior Petition for Concursus
filing. On or about January 19, 1998, Prime filed in United States District
Court, Western District of Louisiana, Case No. CV98-0076L-0, a Complaint for
Damages and Violation of the Petroleum Marketing Practices Act against National,
alleging breaches by National in the franchise agreement between Prime and
National and seeking to enjoin National from terminating the Over-Lease. On or
about January 21, 1998, Prime filed a Voluntary Petition in Bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the
Western District of Louisiana, Case No. 98BK-50087, listing National as the
holder of an unsecured claim for $925,000 (the "National Claim"). (See Form
10KSB/A for the year ended December 31, 1997, Item 6, "Management's Discussion
and Analysis and Results of Operations - Important Factors to Consider".) On
March 20, 1998, National filed various motions, as permitted under section
362(d) of the Bankruptcy Code, to lift the automatic stay and to permit certain
actions by Prime. On April 13, 1998, the United States Bankruptcy Court granted
National's motions and dismissed Prime's bankruptcy case. Following that
decision, on April 17, 1998, National filed a "Motion for Expedited Hearing on
Motion to Return Possession of Premises to National Auto" in the United States
District Court, Western District of Louisiana, Case No. 98-0076.
On May 22, 1998, the owners of Prime sold their interests in the 76 Plaza
truckstop property to Mr. Lee Young, who is the 51% member of Chrysolith. At the
same time, National and Prime (under its new ownership by Mr. Lee Young)
executed an Amended and Restated Lease Agreement expired on December 31, 1999
(the "Lease"). Under the terms of the Lease, National has the right to terminate
the Lease under certain circumstances, including default or non-renewal of the
fuel franchise by Prime.
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On May 22, 1998, the Company negotiated settlements by and among TWGLa,
Chrysolith, Prime and National (the "Settlement"). The terms of the Settlement
were as follows: (i) TWGLa and the former owners of Prime agreed that TWGLa
would make a final settlement payment to said former owners of $450,000, subject
to certain deductions, noted below, (the "Settlement Payment"), (ii) the claim
of National against Prime would be satisfied by: (a) liquidating the assets of
Prime, (b) paying to National the funds previously placed in the registry of the
court (Petition for Concursus file number 976174-D), and (c) paying to National
available cash in Prime relating to the sale of Prime's truckstop inventory to
National (the "Prime Assets") and (d) delivering a promissory note from Prime
(guaranteed by TWGLa and TWG) in the principal amount of $239,597 bearing
interest at the rate of 10% per annum payable in four equal monthly installments
beginning on June 22, 1998 (the "National Promissory Note"); (iii) to the extent
that the Prime Assets proved insufficient to satisfy the National Claim, TWGLa
would reduce the Settlement Payment by the amount of such deficiency and remit
such amount to National; (iv) the remaining funds of the Settlement Payment
first were used to pay trade creditors and to reimburse TWGLa for payments made
under the National Promissory Note and any funds remaining after such payments
and reimbursements were paid to the former owners of Prime; (v) all of the
litigation among the parties was dismissed (See Item 3 "Legal Proceedings"); and
(vi) all parties agreed to mutually acceptable releases of all claims and
liabilities against the others. As of the date of this report, $450,000 has been
paid by the Company to the former owners of Prime.
OTHER TERMINATED VENTURES:
MULTIPLE APPLICATION TRACKING SYSTEMS, INC.
On April 15, 1997, the Company acquired Multiple Application Tracking Systems,
Inc. of Colorado ("MATS"), a supplier of casino software products. The purchase
price was $250,000, consisting of $15,000 in cash and a $235,000 promissory note
(the "MATS Note") which was set to mature in November, 2000. In addition, the
Company entered into a five-year employment agreement with Mr. James Hardman,
Jr. ("Hardman"), the previous owner of MATS, at an annual compensation of
$100,000. Mr. Hardman also was to receive ten percent (10%) of all MATS sales as
a license royalty. On February 15, 1999, however, the Company sold MATS back to
Hardman in return for his cancellation of the MATS Note, termination of the
employment agreement and $38,000 of severance payments to benefit Hardman and
one other employee.
THE BOXER CASINO
On March 31, 1997, Art Marketing, Ltd., d/b/a Tottenham & Co. ("Tottenham &
Co."), a wholly-owned subsidiary of the Company, executed a Joint Activity
Agreement with Mr. Mahmud Avdiyev, an individual engaged in various businesses
in Azerbaijan (the "Avdiyev Agreement"). The Avdiyev Agreement which is for a
term of twenty years, sets forth the parties' relative obligations with respect
to operation of the Boxer Casino located in Gyandja, Azerbaijan Republic. In
January 1998, the President of Azerbaijan ordered the closing of all of the
casinos in Azerbaijan including the Boxer Casino. The shutdown resulted in the
1998 write-off of the unamortized balance of the Company's investment of
$295,000. Management cannot predict when, or if, the Boxer Casino will reopen
for business.
THE BISHKEK CASINO
In June 1998, the Company opened the Bishkek Casino located in the Kyrgyz
Republic, a former member of the Soviet Union. TWG has a twenty-year management
contract with Jockey Clubs Casinos, LLC ("JCC") under which TWG was to receive
40% of the pre-tax profits of the casino. During 1998, the Kyrgyz parliament
passed a law which banned all casinos except those protected by the country's
foreign investment laws. The Bishkek casino is one of two casinos that were
allowed to remain open. However, in light of mounting losses and unrealistic
future prospects, the Company wrote-off its investment in the Bishkek Casino of
approximately $264,000 during 1998. In 1999, the Kyrgyz parliament eliminated
the foreign investment protection and the Bishkek Casino was forced to close.
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OTC BULLETIN BOARD
The Common Stock and Warrants currently are trading on the OTC Bulletin Board.
ACCOUNTING AND FINANCIAL ISSUES
In December 1998, the Company reviewed the carrying amount of long-lived assets,
identifiable intangibles and goodwill related to its Czech Republic, Spanish,
Boxer and Bishkek casino operations under FASB No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Based on a comparison of those assets against the expected future cash flows
generated by those operations, the Company recorded an asset impairment charge
of $2.5 million for the Czech operation, $1.5 million for the Spanish operation
and amortized its entire investment in Bishkek ($264,000) and Boxer casinos
($295,000) during the year ended December 31, 1998. The Company based the
write-off in the Czech Republic on increased competition in Ceska Kubice, lower
than anticipated revenue in Rozvadov and the fears that the proposed casino near
Snojmo would be a smaller operation with fewer gaming tables and machines than
originally forecasted. In Spain, delays in receiving permission to move the
casino to a more favorable location, together with a smaller operation than
originally planned, is the basis for the impairment charge.
The Company has, from time to time, been in technical default of the Amended
Indentures and has relied upon the forbearance and waivers from a majority
interest of the holders of the Senior Notes. Value Partners represents this
majority in interest of the holders of the Senior Notes. At December 31, 1999,
Value Partners owned 59% of the Company's long-term debt and owned warrants
which, upon exercise, would result in Value Partner's beneficial ownership of
Common Stock equaling 61.2% of the Company's issued and outstanding shares of
Common Stock.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has suffered
significant losses from operations, has a working capital deficit of $3.9
million, and a stockholders' deficit of $14.2 million as of December 31, 1999.
Further, the Company is highly-leveraged with debt and, from time to time has
been able to pay its obligations when they become due. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The Company has taken steps to
improve its situation including the December 1999 opening of its third Czech
Republic casino and certain cost cutting measures. Furthermore, management's
plans include the growth of its existing business through relocation of the
Ceska casino; expansion of the Rozvadov casino; the addition of five gaming
tables to the casino near Snojmo; continued marketing campaigns and promotional
events; and CDZ's move to the center of Zaragoza. Further, the Company's
strategy for the future includes development of a hotel division and expansion
of its portfolio of gaming operations in terms of geographical location.
CORPORATE INFORMATION
The Company's corporate offices are located at 545 Fifth Avenue, Suite 940, New
York, New York 10017 and its telephone number is (212) 983-3355.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company previously operated in three business areas, which, for accounting
purposes, were consolidated into two industry segments: the ownership and
management of gaming establishments overseas, which includes the operation of a
full service hotel overseas; and the operation of truckstops featuring VLTs. As
a result of the June 30, 1999 termination of its Louisiana gaming operations,
the Company has reported them as discontinued operations.
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NARRATIVE DESCRIPTION OF BUSINESS.
The Company is engaged in the acquisition, development and management of niche
casino operations worldwide which feature table games and mechanized gaming
devices, such as slot and video poker machines as well as development and
management of small to midsize hotels which include casino facilities. On March
31, 1998, the Company acquired two casinos in the Czech Republic and land upon
which a third casino was built and opened in December 1999. The Czech Republic
casinos are located close to major border crossings with Germany in Ceska Kubice
and Rozvadov and near the border crossing with Austria close to Snojmo. The
Zaragoza casino and hotel, was acquired on April 17, 1998, is located
approximately 15 miles outside of Zaragoza, Spain, and is the exclusive casino
licensee in the region of Aragon. (See "- General Development of Business,"
above, and "Future Operations," below).
INDUSTRY OVERVIEW
Prior to the amendments to the Czech gaming regulations in December 1998, local
municipalities were empowered to grant casino licenses in their regions. The
amendments to the gaming legislation removed that right from the local
governments and effectively eliminated exclusivity. Another entity has recently
opened a competing casino in Folmava, Czech Republic, near the Company's Ceska
Kubice location which, because of its location, may negatively impact Ceska
Kubice's revenue.
In Spain, the regional government, DGA, which is also the largest creditor of
CDZ, signed a protocol in April 1998 with TWG stating its intent to pass a law
allowing the casino to move to a more favorable location. There is opposition by
an Aragonian parliamentary party to the new law unless an amendment that would
allow casino-style slot machines in bingo parlors is included. Rather than agree
to this amendment, the DGA decided to issue a governmental decree which will
circumvent the parliament and allow CDZ to move from its current location.
Instead of a decree, in February 2000, the DGA introduced a law that would allow
the casino to relocate nonetheless. The law is expected to be presented to local
Spanish parliament in June 2000. Management believes, based on its discussions
with Spanish authorities, the law has little opposition and is expected to pass.
THE COMPANY'S FACILITIES
LOUISIANA GAMING
The Gold Coin and Toledo Palace gaming facilities were closed June 30, 1999, and
the Gold Coin sub-lease was terminated by the landlord effective July 31, 1999.
The VLT machines were sold in 1999 for $84,000.
WOODLANDS TRUCKSTOP
The Woodlands, where the Toledo Palace was located, was sold on October 4, 1999
for $295,000.
CZECH REPUBLIC
The Ceska Kubice casino currently has fifteen gaming tables, seventy slot
machines and parking for approximately forty cars. In Rozvadov, there are seven
tables, thirty-eight slot machines and parking for forty cars. In Snojmo, there
are eleven gaming tables, forty-two slot machines, and parking for one hundred
twenty cars.
SPAIN
The casino currently has nine gaming tables and twenty-four slot machines. The
facility also has thirty-seven sleeping rooms, approximately 7,169 square feet
of Banquet space, four shooting ranges, a swimming pool, a tennis court, and
approximately 3,557 of space that was formerly operated as a nightclub.
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FUTURE OPERATIONS
CZECH REPUBLIC
In April 1999, the Company purchased a parcel of land in Folmova, Czech Republic
in the same region as the existing Ceska casino but nearer to the German border.
The Company intends to construct a new casino on this land and to relocate the
Ceska operation to the new facility. This move would give the casino excellent
exposure because it would be located directly on the border road; would be
located nearer to the border than the access road for the casino of Ceska's main
competitor; would allow for a larger parking facility than that which exists in
Ceska; would address the issue of capacity constraints on the weekend in that it
would allow for an increase in the number of gaming tables over the existing
space; and would allow for a floor plan to be designed which, unlike the Ceska
building, would optimize the casino's equipment layout. Subsequent to relocation
of the casino operation from Ceska to Folmova, the Ceska facility will be used
as office space and as a training center supporting all of the Czech casinos.
Based on the attendance versus capacity challenges experienced at the existing
casino in Rozvadov, the Company is moving forward with its budget plan to expand
the facility by adding two gaming tables.
The casino near Snojmo opened on December 22, 1999 and has, in terms of both
attendance and Total Drop (the dollar amount of gaming chips sold), thus far
exceeded budgeted expectations. The budget calls for the addition of five table
gaming tables in October, 2000, and based on the promising results in the first
quarter of 2000, that timetable may be accelerated.
SPAIN
In anticipation of receiving permission to move CDZ to center city Zaragoza, TWG
is in the process of completing negotiations to lease available space in a
cinema adjacent to a downtown hotel location. The cinema was chosen due to its
desirable location, together with the advantages of providing common services
with the hotel (food, maintenance, parking and accommodations). CDZ, which is
expected to reopen at this new location within ten months after it receives
permission to move, pending local planning board approvals, will have
approximately 17 gaming tables and 120 slot machines. The investment required by
TWG upon receipt of the approvals is anticipated to total approximately $5.0
million (See Item 6. "Management's Discussion and Analysis or Plan of Operation
- - Liquidity and Capital Resources".).
Except as described above, the Company has no other specific arrangements or
understandings with respect to the management or acquisition of any gaming
facility. There can be no assurance that the Company will manage or acquire any
other gaming facilities in the future, although it hopes to do so.
LONG RANGE OBJECTIVE
The Company's long-range objectives are to develop the Company's casino
operations brand name, American Chance Casinos, into the premier name in the
small casino niche market overseas; to establish Trans World Gaming Corp. as the
industry leading owner/operator and management company in this market; and to
further diversify the Company's operations to include ownership and/or
management of small to midsize hotels which are complementary to the Company's
casino operations. To achieve these goals, the Company's strategy consists of:
(i) identifying business opportunities in areas where economic conditions,
cultural habits, and political climates are favorable to investment in existing,
or construction of new, gaming and hotel facilities; (ii) forming a team of
TWG's casino and hotel experts to develop and market a complete set of
operational and administrative guidelines for the purpose of securing casino and
hotel management contracts; and (iii) continuing to demonstrate its
effectiveness as an owner/operator of small casinos through improved
efficiencies in its existing operations.
Some of the specific action plan initiatives, which support this third strategy,
are as follows:
TWG management will continue to develop marketing and operational initiatives
designed to increase attendance and revenues at its existing locations in the
Czech Republic and Spain. The Company has
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acquired land close to the German border near Ceska Kubice, at Folmava, Czech
Republic and is planning to build a casino to replace the existing facility and
relocate the Ceska Kubice to this facility. Management believes that the new
location will be more accessible to its main target market in Germany and will
result in improved attendance and play. In addition, TWG transferred excess slot
machines from Ceska Kubice and Rozvadov to its new location near Snojmo.
The Company will continue to seek ways to reduce operational and overhead costs.
For example, the Company has recently reorganized the Czech Republic management
structure and is in the process of closing its London offices, measures that
will produce an annual savings of approximately $450,000.
Financial reporting, which was identified by management as an area in need of
improvement, will continue to be a focus of attention. Beginning in January
2000, a new monthly financial reporting program was successfully introduced. The
Company, also, is exploring the possibility of replacing its general ledger
systems and has included the purchase thereof in its 2000 Capital Plan.
MARKETING
CZECH REPUBLIC
In 1999, the Management implemented a marketing strategy designed to increase
the number of visitors to its casinos in Ceska and Rozvadov. The target area was
the sixty-mile radius surrounding each of these casinos. These areas were
addressed through the use of direct mailings, flyers, radio, newspaper,
billboard advertising and improved directional signage in English, German and
Czech, as appropriate. Customer loyalty programs, special events and promotions
and a busing program were also developed and implemented. The Company's new
casino near Snojmo was introduced to the residents of Vienna and its northern
suburbs through a campaign of radio spots using the Rhett Butler and Scarlet
O'Hara characters; free standing and bus mounted billboard advertising; and
"Gone With The Wind" theme newspaper advertisements. The casino was then
launched with opening parties on three successive nights. These parties, which
targeted local politicians and business leaders as well as foreign investors and
other foreign VIPs, included ribbon cutting ceremonies, fireworks, fire dancers,
a live band, and a professionally catered dinner. The introductory marketing
strategy proved to be highly successful with the casino receiving positive press
coverage in well-reputed publications in the Vienna area. Moreover, as
previously noted, the casino's attendance has, for the first three months of
operations, surpassed the Company's projections.
SPAIN
TWG is currently marketing the new CDZ casino through direct mailings, radio,
newspapers and billboard advertising in English and Spanish, as appropriate. By
Spanish law, casinos are not permitted to do any direct advertising. Promotions
of the casino, therefore, must be piggybacked on advertisements of other
services that the property offers. In 1999, the Company suspended its food and
beverage banquet ("Catering") operations in response to profitability and
personnel issues. Pursuant to the reorganization of this department and the
introduction of pro-forma profit and loss reports for all event inquiries, the
Company has relaunched the Catering business. The advertising associated with
the Catering business will provide a vehicle for greater advertising exposure
for the casino as well.
ACQUISITION AGREEMENT
TOTTENHAM & CO. On January 1, 1997, the Company completed the acquisition of
Tottenham & Co., which was founded in 1988 by Andrew Tottenham, the Company's
President and Chief Operating Officer ("COO"). Tottenham & Co. is engaged in
providing consulting services to gaming companies worldwide. The consideration
paid for Tottenham & Co. by the Company included 500,000 shares of the Company's
Common Stock, and warrants to purchase 250,000 shares at an exercise price of
$.5938, the bid price of the Company's Common Stock on the date of the
acquisition as reported by the Nasdaq SmallCap Market System. In addition, the
Company issued two promissory notes in the aggregate principal amount of
$200,000 bearing interest at the rate of 10% per annum and payable on January 1,
2002 (the "Tottenham Notes"). On December 31, 1998, the Company and Mr.
Tottenham converted the Tottenham Notes and
9
<PAGE>
accrued interest totaling $240,000 into 320,000 shares of the Company's Common
Stock. All of the Common Stock, as well as the Common Stock underlying the
warrants, carries certain "piggyback" registration rights.
REGULATIONS AND LICENSING
SPAIN. The new law that would allow CDZ to move to the center of Zaragoza has
been passed from a parliamentary committee to the floor of the regional
parliament. However, a certain amendment to the law is of concern to TWG. The
proposed amendment would allow bingo operators in Aragon to install casino-style
slot machines. The DGA, which is controlled by the largest party in parliament,
opposed the amendment and decided to issue a governmental decree to circumvent
the parliament and allow the casino to move to the center city. However, instead
of a decree, in February 2000, the DGA introduced a law that would allow the
casino to relocate. The law is expected to be presented to local Spanish
parliament in June 2000. Based on discussions with Spanish authorities, the law
has little opposition and is expected to pass.
CZECH REPUBLIC. During the quarter ended June 30, 1998, the Czech Republic House
of Deputies passed an amendment to the gaming law which restricted foreign
ownership of casino licenses. In response thereto, the Company restructured its
subsidiaries and Czech legal entities to comply with the amendment and was
subsequently granted a ten-year license. It is currently anticipated that the
foreign ownership restriction will be lifted in 2000. There may be increased
competition, however, at that time, in the areas where the Company operates
because local municipalities no longer have control over the issuance of casino
licenses, thereby effectively eliminating exclusivity. There can be no assurance
that the authorities in the Czech Republic will not amend the gaming law as it
pertains to foreign ownership of casino licenses. In the event the gaming laws
are amended in the future, it may have a material adverse effect on the
Company's future profitability and operations.
APPLICATION OF FUTURE OR ADDITIONAL REGULATORY REQUIREMENTS. In the future, the
Company intends to seek the necessary licenses, approvals and findings of
suitability for the Company and its personnel in other jurisdictions; however,
there can be no assurance that such licenses, approvals or findings of
suitability will be obtained or will not be revoked, suspended or conditioned or
that the Company will be able to obtain the necessary approvals for its future
activities. If a license, approval or finding of suitability is required by a
regulatory authority and the Company fails to seek or does not receive the
necessary license or finding of suitability, the Company may be prohibited from
owning or operating gaming establishments in that jurisdiction.
GAMING TAXES. Gaming taxes in the various locations where the Company operates
range from 10% to 55% of net gaming revenues. There can be no assurance that tax
rates, fees or other payments applicable to the Company's gaming operations will
not be increased in the future.
FEDERAL REGULATION
The Federal Gambling Devices Act of 1962 (the "Federal Act") generally makes it
unlawful for a person to manufacture, deliver, or receive gaming machines,
gaming machine type devices, and related components across state lines or to
operate gaming machines unless that person has first registered with the
Attorney General of the United States. In order to manufacture, sell, deliver,
or operate certain of its current and proposed products, the Company must
register and renew its registration annually. In addition, various record
keeping and equipment identification requirements are imposed by the Federal
Act. Violation of the Federal Act may result in seizure and forfeiture of
equipment, as well as other penalties. The Company is currently registered and
maintains the reports required under the Federal Act.
COMPETITION
The Gold Coin and the Toledo Palace competed with other forms of legal and
illegal gambling, including bingo and pull-tab games, card clubs, pari-mutual
betting on horse racing and dog racing and state-sponsored lotteries, as well as
other forms of wagering entertainment. Neither of these entities is operational
at this time, due to the Voter Mandate. The Company's Czech casinos compete with
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<PAGE>
approximately twelve other casinos in the area with two new casinos under
construction across the German border. Due to the exclusivity of the Spanish
casino license, the bingo operations in Zaragoza are CDZ's only competition.
(See Item 1. "Description of Business - Industry Overview").
EMPLOYEES
As of March 31, 2000, the Company had 464 full-time employees (including three
executive officers): 372 in the Czech Republic, 84 in Spain, 4 in London, and 4
in New York, respectively. The Company believes that its employee relations are
excellent.
11
<PAGE>
There can be no assurance that the Company will achieve profitability as a
result of these operations or otherwise. The Company's independent public
accountants' have issued their report dated February 17, 2000 with an
explanatory paragraph relating to the Company's ability to continue as a going
concern.
TERMINATION OF LOUISIANA OPERATIONS IN 1999; NEED TO DIVERSIFY
In November 1996, residents in 35 parishes in Louisiana, including the two
parishes in which the Gold Coin and the Toledo Palace are located, voted to
discontinue video poker effective June 30, 1999. The Company is currently
involved in litigation to overturn the voter referendum. See Item 3 - "Legal
Proceedings." No assurances can be given that such litigation will be
successful. At this time, the Company has operations in the Czech Republic and
Spain, but no U.S. gaming operations. The Company is currently seeking to
develop or acquire interests in gaming operations and hotels at other locations;
however, there can be no assurance that the Company will be able to develop or
acquire such new operations in the future.
TAXATION OF GAMING OPERATIONS
Gaming operators are typically subject to significant taxes and fees in addition
to federal and state corporate income taxes, and such taxes and fees are subject
to increase at any time. Any material increase in these taxes or fees would
adversely affect the results of operations of the Company. The Czech Republic
currently has a number of laws related to various taxes imposed by governmental
authorities. Applicable taxes, include value added tax, corporate tax, and
payroll (social) taxes, together with others. In addition, laws related to these
taxes have not been in force for significant periods, in contrast to more
developed market economies; therefore, implementing regulations are often
unclear or nonexistent. Accordingly, few precedents with regard to issues have
been established. Often, differing opinions regarding legal interpretations
exist both among and within government ministries and organizations, creating
uncertainties and areas of conflict. Tax declarations, together with other legal
compliance areas (for example, customs and currency control matters) are subject
to review and investigation by a number of authorities, who are enabled by law
to impose extremely severe fines, penalties and interest charges. These facts
create tax risks in the Czech Republic substantially more significant than
typically found in countries with more developed tax systems. Management
believes that it has adequately provided for tax liabilities; however, the risk
remains that relevant authority in the Czech Republic, and to a lesser extent as
of the date of this report in Spain could take differing positions with regard
to interpretive issues and the effect could be significant.
DEPENDENCE UPON KEY PERSONNEL
The Company's ability to successfully implement its strategy, manage the Czech
and Spanish casinos and maintain a competitive position will depend in a large
part on the ability of Rami S. Ramadan, the Company's newly-hired Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Mr. Ramadan has
served as Executive Vice President of Finance for the Ian Schrager Hotels and
also held financial positions with Hyatt Hotels, Euro-Disney and Meridien
Hotels. The Company may also be highly dependent upon other key employees,
casino managers and consultants whom the Company may retain from time to time.
Although Mr. Ramadan has an employment agreement with the Company that continues
for an additional two years, there can be no assurances that the Company will be
able to continue to retain Mr. Ramadan or any of such other personnel.
NEED FOR ADDITIONAL FINANCING
The Company believes, although there can be no assurance, that existing cash,
together with anticipated cash flows from operations, will be sufficient to
satisfy its current obligations for the next twelve months. However, the Company
will require additional capital for the relocation of the Ceska, Rozvadov, and
Zaragoza casinos as well as the expansion of the casino near Snojmo and for
growth opportunities. If such additional financing is not available, this would
have a materially adverse effect on the financial condition and operations of
the Company. The Company may require additional debt and/or equity financing for
the acquisition of other businesses when and if an opportunity to acquire such
businesses arises. The Company's ability to obtain additional financing may be
limited for a number of reasons, including the fact that because the Company is
highly-leveraged, a substantial portion of the Company's assets are subject to
23
<PAGE>
liens. There can be no assurance that such financing will be available on terms
favorable to the Company or at all.
Because the Company is highly leveraged with debt, it is more vulnerable to
extended economic downturns and reduces the Company's ability to respond to
changing economic and industry conditions. This high leverage may adversely
impact the holders of the Company's equity securities by impairing the Company's
ability to obtain additional financing needed for working capital, capital
expenditures, acquisitions or general corporate purposes.
INTERNATIONAL ACTIVITIES
Since July 1, 1999, the Company's operations were totally outside of the United
States. Operating internationally involves additional risks relating to such
things as currency exchange rates, different legal or regulatory environments,
political and economic risks relating to the stability or predictability of
foreign governments, differences in the manner in which different cultures do
business, difficulties in staffing and managing foreign operations, differences
in financial reporting, operating difficulties, different types of criminal
threats and other factors. The occurrence of any of these risks, if severe
enough, could have a material adverse effect on the financial condition or
results of operations of the Company.
LICENSING AND REGULATION
The Company's operations are subject to regulation by each local jurisdiction in
which it operates or plans to operate business, as well as federal laws and the
laws of any foreign country. Each of the Company's officers, and directors, and
in certain instances, persons who have more than a 5% income or profit interest
in, or who exercise significant influence over the activities of, the Company
may be subject to strict scrutiny and approval from the gaming commission or
other regulatory body of each jurisdiction in which the Company may conduct
gaming operations.
The failure to obtain any license for properties upon which the Company plans to
operate or manage a gaming establishment in the future would have a materially
adverse effect on the Company's business. Obtaining required licenses can be
time consuming and costly with no assurance of success. In addition, the Company
is subject to changes in the laws of the jurisdictions in which it operates,
which could materially limit the Company's ability to conduct business
profitably. In the event that a required license is not granted for any
particular location, the Company's options would include effecting a transfer of
substantially all of its related gaming assets to a different location or
selling its interest in the gaming operations at that location to a third party.
There can be no assurance that the Company would be able to relocate gaming
assets or sell its interests on acceptable terms or at all, and the inability to
do so would have a materially adverse effect upon the business and prospects of
the Company.
LIABILITY INSURANCE
The Company currently maintains and intends to maintain general liability
insurance in each of those locations in which it operates. There can be no
assurance that liability claims will not exceed the coverage limits of such
policies or that such insurance will continue to be available on commercially
reasonable terms or at all. There can be no assurance that such insurance will
be adequate to cover unanticipated liabilities.
NO DIVIDENDS
The Company has not paid any dividends to date on its Common Stock, and does not
expect to declare or pay any dividends in the foreseeable future. The Company
intends to retain future earnings, if any are generated, for investment in its
business.
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<PAGE>
POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 2,000,000
shares of "blank check" Preferred Stock, with designations, rights and
preferences determined from time to time by its Board of Directors. Accordingly,
the Company's Board of Directors is empowered, without further stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. In the event of issuance, the
Preferred Stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. The
Company has no current plans to issue any shares of Preferred Stock. However,
there can be no assurance that Preferred Stock will not be issued at some time
in the future.
DILUTIVE EFFECT OF WARRANTS
In March 1998, in connection with the completion of the Private Placement, the
Company issued warrants to purchase approximately 9.5 million shares of the
Company's Common Stock. In addition, in connection with the restructuring of the
Senior Bonds, in March 1998 the Company issued approximately 3.2 million
warrants to purchase the Company's Common Stock. The Company also issued
approximately 1.25 million warrants to purchase the Company's Common Stock in
the connection with the October 1999 Private Placement. The issuance of such
securities will have a dilutive effect on the Company's earnings, if any are
generated, on a diluted basis. Together these warrants represented at December
31, 1999, 260% of the Company's issued and outstanding shares of Common Stock.
ITEM 7. FINANCIAL STATEMENTS.
The following items are included in this Report:
Consolidated Financial Statements
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated Balance Sheet
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statements of Other Auditors
Audit Report for Casino de Zaragoza
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Pannell Kerr Forster PC ("PKF") completed the Company's audit for the year ended
December 31, 1997. In August, 1998, PKF informally indicated that it did not
wish to act as the Company's independent auditor for the year ended December 31,
1998 and that it would decline to stand for reelection to audit the Company's
financial statements for the year ended December 31, 1998 for which PKF tendered
its formal resignation on February 25, 1999 to the Company without having
performed an audit for the Company's year ended December 31, 1998.
Upon receipt of notice from PKF that it would resign and not stand for
reelection as the Company's independent accountant, the Company began its search
for a new independent accountant in September 1998. On February 19, 1999, the
Company and Rothstein Kass & Company, P.C. ("RKC") signed a letter of engagement
whereby RKC agreed to perform an audit of the Company for the year ended
December 31, 1998.
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Prior to the date of engagement of RKC, the Company had not consulted with RKC
regarding the application of accounting principles to a specified transaction or
the type of audit opinion that might be rendered on the Company's financial
statements.
The decision to accept the engagement of RKC as the Company's independent
accountant was recommended by the Audit Committee and approved by the Board of
Directors of the Company. At the October 29, 1999 Annual Meeting of the Company,
the appointment of RKC was ratified by the Company's shareholders.
26
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table provides information as of March 31, 2000 with respect to
each of the Company's directors and each Executive Officer:
<TABLE>
<CAPTION>
- -------------------------------------- ------- -------------------------------- -------------------------------
Name(1) Age Position in the Company Director or Executive Since
- -------------------------------------- ------- -------------------------------- -------------------------------
<S> <C> <C>
Rami S. Ramadan (2).............. 50 CEO, CFO and Director 1999
Andrew Tottenham(2).............. 42 President, Chief Operating 1996
Officer and Director
Julio E. Heurtematte, Jr.(3)..... 64 Director 1998
Malcolm M.B. Sterrett(3)......... 57 Director 1998
Geoffrey Baker(3)................... 51 Director 1999
- -------------------------------------- ------- -------------------------------- -------------------------------
</TABLE>
(1) Mr. Geoffrey Baker, who was appointed to a fill a vacancy on the Board
of Directors on December 22, 1998, resigned from his position on May
13, 1999 and rejoined the Board on August 4, 1999.
(2) Member of the Executive Committee.
(3) Member of Audit Committee and Compensation Committee.
Dominick J. Valenzano, resigned on July 12, 1999 from his position as
CFO of the Company, to pursue other business interests.
Stanley Kohlenberg, resigned on June 30, 1999 from has position as CEO,
but remained as Chairman, until February 8, 2000.
RAMI S. RAMADAN has served as CEO/CFO since July 12, 1999. His most
recent prior position had been Executive Vice President of Finance for the Ian
Schrager Hotels from November 1997 to July 1999. Prior to that, Mr. Ramadan held
senior financial positions with Hyatt Hotels from January 1994 to November 1997,
Euro Disney from October 1990 to December 1993 and Meridien Hotels from
September 1975 to September 1990.
ANDREW TOTTENHAM was appointed as President and CEO of the Company on
January 1, 1997 and served in such capacities until September 1998 when he was
appointed to the offices of President and COO. Mr. Tottenham was a consultant to
the Company from July 1996 to December 31, 1996 and has been a director of the
Company since May 1996. He has been the President of Tottenham & Co., since
1988. Mr. Tottenham commenced his career in the gaming industry in 1975 and has
worked for the Silhouette Club, Bally's Park Place, Connoisseur Club, and
Victoria Casino. Mr. Tottenham is the son-in-law of Mr. Kohlenberg.
JULIO E. HEURTEMATTE, JR. Mr. Heurtematte currently is a private
consultant, specializing in international projects, trade and investments and
has acted in such capacity since 1989. From 1963 to 1989, Mr. Heurtematte served
with the Inter-American Development Bank in several capacities, most recently as
its Deputy Manager for Project Analysis.
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<PAGE>
MALCOLM M. B. STERRETT. Mr. Sterrett is a private investor. From 1989
to 1993, he was a partner at the law firm of Pepper Hamilton & Scheetz,
Washington, D.C. From 1988 to 1989, he served as General Counsel to the U.S.
Department of Health and Human Services and from 1982 to 1988 he was a
Commissioner on the U.S. Interstate Commerce Commission. Prior thereto, he was
Vice President and General Counsel to the United States Railway Association and
served as Staff Director and Counsel to the U.S. Senate Committee on Commerce,
Science and Transportation.
GEOFFREY B. BAKER. Mr. Baker is a private investor. From 1983 to the
present, Mr. Baker has been a member of the private investment firm, Baker &
Donaldson. From 1977 to 1982, he was Legislative Director to U. S. Senator
Lowell P. Weicker, Jr. and from 1975 to 1977, he served on the Senate Committee
on Commerce as a minority staff member for surface transportation.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The business and affairs of the Company are managed by the Company's Board of
Directors. Meetings of the Board are held quarterly and on an as-needed basis.
The Board has established several committees, described below, which also meet
on an as-required basis during the year. The Board held six meetings during the
Company's fiscal year ended December 31, 1999. No director of the Company
attended fewer than 75% of the total number of meetings of the Board or meetings
of committees of the Board during the year ended December 31, 1999.
The Board of Directors has established the following committees:
AUDIT COMMITTEE. The Audit Committee reviews and approves internal accounting
controls, internal audit operations and activities, the Company's annual report
and audited financial statements, the selection of the Company's independent
auditors, the activities and recommendations of the Company's independent
auditors, material changes in the Company's accounting procedures, the Company's
policies regarding conflicts of interest and such other matters as may be
delegated by the Board. The Audit Committee, composed of Messrs. Heurtematte and
Sterrett, both non-employee directors, met once in 1999.
EXECUTIVE COMMITTEE. The Executive Committee recommends a list of potential
director nominees to the Board of the Company, develops guidelines for corporate
structuring and Board-related issues and acts as an oversight committee.
Although the Executive Committee will consider nominees recommended by the
Company's shareholders, it has neither actively solicited nominations nor
established any procedures for this purpose. The Executive Committee, composed
of Messrs. Ramadan and Tottenham, met once during 1999.
COMPENSATION COMMITTEE. The Compensation Committee sets the compensation for
executive officers of the Company and sets the terms of grants of awards under
the Company's 1993 Incentive Stock Option Plan (the "1993 Plan"), the Company's
1998 Stock Option Plan (the "1998 Plan"), the 1999 Non-Employee Director Stock
Option Plan and any other equity-based compensation plans adopted by the
Company. The Compensation Committee, composed of Messrs. Heurtematte and
Sterrett, met three times during 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers, directors and
persons who own more than 10% of the Company's Common Stock to file reports of
ownership and changes in ownership with SEC and the National Association of
Securities Dealers, Inc. by certain dates. The Company believes that in the
fiscal year ended December 31, 1999, these filing requirements were not
satisfied by its directors and executive officers. For the year ended December
31, 1999, Geoffrey Baker, Julio Heurtematte, Malcolm Sterrett, Maureen Weppler,
Stanley Kohlenberg, Dominick Valenzano and Andrew Tottenham each were late once
in reporting one transaction; each of which were subsequently filed. In making
the foregoing statements, the Company has relied on representations of its
directors and executive officers and copies of the reports that they have filed
with the SEC. The Company knows of no person who owns 10% or more of the
Company's Common Stock.
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ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash and non-cash compensation paid or earned
during the fiscal years ending December 31, 1999, 1998, and 1997 by the Chief
Executive Officer(s) and Chief Financial Officer of the Company (the "Named
Officers") during those periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------- ------ ---------- ---------- ---------------------------------- ---------------------
Long-Term
Compensation
- --------------------------------- ------ ---------- ---------- -------------------- -------------- --------------------
OTHER STOCK ALL OTHER
YEAR SALARY BONUS(4) ANNUAL OPTIONS(5) COMPENSATION(6)
COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Rami Ramadan
Chief Executive Officer 1999 $150,000 100,000 2,200
Chief Financial Officer(1)
Andrew Tottenham
President and Chief 1999 $195,000
Executive Officer(2) 1998 $180,000 25,000 9,000
1997 150,000 60,000 100,000 8,600
Stanley Kohlenberg
Former President and Chief 1999 180,000
Executive Officer(3) 1998 43,750 25,000 42,500
1997
Dominick J. Valenzano
Former Chief Financial 1999 120,000
Officer(7) 1998 120,000 25,000 4,300
1997 90,000 30,000 50,000 6,360
- --------------------------------- ------ ---------- ---------- -------------------- -------------- --------------------
</TABLE>
(1) Mr. Ramadan joined the Company as its CEO and CFO, July 12, 1999.
(2) Mr. Tottenham was elected President and CEO of the Company as of
January 1, 1997 and became President and COO on September 16, 1998.
(3) Mr. Kohlenberg served as President and CEO of the Company from March 6,
1996 to December 31, 1996 and again from September 16, 1998 to June 30,
1999, the date of his resignation. Under the terms of a severance
agreement dated May 23, 1999, Mr. Kohlenberg received six months salary
and will participate in the Company's health plan for that period.
(4) Bonus amounts shown were earned with respect to each year indicated.
(5) Amounts shown represent the number of qualified stock options granted
each year. With the exception of Mr. Valenzano's options which have
expired, options listed are exercisable; all of the options, at
December 31, 1999, were issued at the fair market value of one share of
the Company's Common Stock on the date of grant.
(6) The amounts shown represent the cost of a leased automobile provided to
Messrs. Tottenham, Valenzano and Ramadan (received Mr. Valenzano's car
on September 1, 1999) by the Company for each year indicated and
represent a consulting fee paid to Mr. Kohlenberg under the terms of a
Consulting Agreement which terminated on September 15, 1998.
(7) Mr. Valenzano resigned from the Company on August 5, 1999. Under the
terms of a severance agreement, executed on August 5, 1999, Mr.
Valenzano received six months salary and participated in the Company's
health plan for six months following such termination.
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<PAGE>
OPTION GRANTS AND EXERCISES
The following table summarizes certain information concerning individual grants
of options during fiscal 1999 to the executive officers named in the Summary
Compensation Table above and the potential realizable value of the options held
by such persons at December 31, 1999.
OPTIONS GRANTED IN FISCAL 1999
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
- ---------------------------------- --------------------- --------------------- ----------------------- ----------------
SHARES OF COMMON % OF TOTAL OPTIONS
STOCK UNDERLYING GRANTED TO EXERCISE OF BASE EXPIRATION DATE
OPTIONS GRANTED EMPLOYEES IN FISCAL PRICE ($/SH)
YEAR
- ---------------------------------- --------------------- --------------------- ----------------------- ----------------
<S> <C> <C> <C> <C> <C>
RAMI RAMADAN................. 100,000 100% 0.50 07/30/08
- ---------------------------------- --------------------- --------------------- ----------------------- ----------------
</TABLE>
No options were exercised by the executive officers named in the Summary
Compensation Table during fiscal 1999.
The following table summarizes the option values held by the executive
officers named in the Summary Compensation Table as of December 31, 1999.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND
FISCAL 1999 YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
- -------------------------- ---------- ------------------------------------ -------------------------------------
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT DECEMBER 31, 1999
AT DECEMBER 31, 1999
- -------------------------- ---------- ------------------------------------ -------------------------------------
SHARES
NAME ACQUIRED EXERCISABLE UNEXERCISABLE EXERCISABLE
ON EXERCISE UNEXERCISABLE
<S> <C>
RAMI RAMADAN 100,000
STANLEY KOHLENBERG 137,000
ANDREW TOTTENHAM 127,000
DOMINICK J VALENZANO 145,000
- -------------------------- ------------- -------------- --------------------- --------------------------------
</TABLE>
DIRECTORS' COMPENSATION
Directors receive a cash fee of $2,000 for each meeting attended and all members
of the Board are reimbursed for out-of-pocket expenses in connection with
attending Board meetings. Pursuant to the 1999 Non-Employee Director Stock
Option adopted at the October 29, 1999 Annual Meeting, each non-employee
director is provided with an automatic grant of a non-qualified option to
purchase 2,000 shares of Common Stock on the date following each fiscal quarter
in which the director serves. Each such option (i) has a ten-year term, (ii) has
an exercise price per share equal to 100% of the fair market value of one share
of Common Stock on the date of grant, and (iii) becomes fully exercisable on the
date of grant.
EMPLOYMENT/SEVERANCE AGREEMENTS
RAMI S. RAMADAN. Effective July 12, 1999, the Company entered into a three year
employment agreement with Mr. Ramadan pursuant to which he will serve as the
Company's Chief Executive Officer and Chief Financial Officer at an annual
salary of $300,000. Mr. Ramadan is eligible to participate in the 1998 Plan,
Executive Compensation Plan and any present or future employee benefit plans. He
also will be reimbursed
30
<PAGE>
for reasonable travel and out-of-pocket expenses necessarily incurred in the
performance of his duties. Mr. Ramadan will also receive three separate equal
annual installments of options to acquire the Company's Common Stock, each of
which shall have a five-year term commencing upon the date on which each
installment is granted. Upon commencement of the employment agreement, Mr.
Ramadan received 100,000 options exercisable at $0.50 per share; upon
commencement of the second year of the employment agreement an additional
100,000 options exercisable at $0.55 per share will be granted; and upon
commencement of the third year of the employment agreement the final installment
of 100,000 options exercisable at $0.61 per share will be granted. Upon
commencement of the second and third year of the employment agreement, the
exercise price for all unexercised options granted in the preceding year will be
increased to the current year's exercise price up to $0.61. In the event the
employment agreement is terminated other than for cause, as defined in the
agreement, within six months of the commencement date, the Company shall pay to
Mr. Ramadan one year's salary in a lump sum within 30 days of the notice of
termination. If the agreement is terminated other than for cause at anytime
after six (6) months following commencement of the employment agreement, Mr.
Ramadan will receive two years' salary.
ANDREW TOTTENHAM. Effective as of January 1, 1997, the Company entered into a
five-year employment agreement with Mr. Tottenham pursuant to which he serves as
the Company's President and Chief Operating Officer at an annual salary of
$150,000. On June 1, 1999, Mr. Tottenham's salary was increased to $180,000.00
and on November 1, 1999, it was increased to $200,000. Mr. Tottenham will be
eligible for participation in the Company's 1993 Plan, 1998 Plan, the Executive
Compensation Plan, and any present or future employee benefit plans. He also
will be reimbursed for reasonable travel and out-of-pocket expenses necessarily
incurred in the performance of his duties. Mr. Tottenham works from the
Company's offices in London, England. The Company is entitled to terminate Mr.
Tottenham's employment, and its salary obligation to him, upon 30 days written
notice in the event of (i) disability (assuming there is disability insurance
sufficient to pay Mr. Tottenham his full salary for the remaining term of the
employment agreement), (ii) conviction of a felony, or (iii) a breach of the
employment agreement. If Mr. Tottenham dies during the term of the employment
agreement, his estate is entitled to three months' salary at his base salary
rate on the date of death. If Mr. Tottenham is terminated for any other reason,
he is entitled to three months' severance pay at his base salary rate in effect
on the date of such termination.
STANLEY KOHLENBERG. Effective July 12, 1999, the Company and Mr. Kohlenberg
entered into a severance agreement, pursuant to which Mr. Kohlenberg resigned as
Chief Executive Officer of the Company on June 30, 1999. Mr. Kohlenberg received
severance payments equal to six (6) months salary and continued to participate
in the Company's benefit plans for six (6) months.
Mr. Kohlenberg continued to serve as Chairman of the Company's Board of
Directors until his resignation in February 8, 2000.
DOMINICK J. VALENZANO. The Company and Mr. Valenzano executed a severance
agreement on August 5, 1999 pursuant to which Mr. Valenzano resigned as Chief
Financial Officer of the Company. Mr. Valenzano received severance payments
equal to six (6) months salary and continued to participate in the Company's
benefit plans for six (6) months.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of March 31, 2000, unless otherwise noted, (a)
by each shareholder who is known by the Company to own beneficially more than
5.0% of the outstanding Common Stock, (b) by each director, (c) by each
executive officer named in the Summary Compensation Table below, and by all
executive officers and directors as a group. Unless otherwise noted, each of the
shareholders listed in the table or included within a group listed in the table
possesses sole voting and investment power with respect to the shares indicated
subject to community property laws where applicable. The business address for
each director and officer of the Company is 545 Fifth Avenue, Suite 940, New
York, New York 10017.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
CORPORATE OFFICES
The Company's corporate offices are located at 545 Fifth Avenue, Suite 940, New
York, New York, occupying approximately 1,559 square feet of office space under
a lease at the rental rate of $5,456.50 per month expiring in December, 2004 .
The Company leases approximately 1,500 square feet of office space in London,
England for the Development and Human Resources teams on a five-year lease
expiring in April 2003 at approximately $4,000 per month. In light of the fact
that the London-based employees work, almost exclusively, on the road, the
Company is in the process of closing the London office as part of its cost
cutting strategy.
LOUISIANA
The Company's lease for the Gold Coin was terminated effective July 31, 1999.
TWGLa owned the 20-acre site on which the Woodlands is located in DeRidder,
Louisiana which was sold on October 4, 1999 for $295,000.
CZECH REPUBLIC
The Company leases a 5,000 square foot casino facility in Ceska Kubice under the
terms of an agreement that expires in 2010. The Company also leases a hotel from
a local bank in nearby Krasnahorska for staff accommodations at the rate of
approximately $1,400 per month. The hotel will continue to be used for staff
accommodations should the casino be relocated to Folmova.
In Rozvadov, the Company owns the casino building and an adjacent facility for
staff accommodations.
As part of the acquisition of Resorts (See Item 1. "Description of Business -
General Development of Business"), TWG acquired approximately 10 acres of land
near Snojmo, close to the border in Austria, on which the Company constructed
and operates a casino. TWG negotiated an agreement with a local building
contractor who financed and built a 5,000 square foot casino facility leased it
to the Company under the terms of a ten-year lease for approximately $27,000 per
month. (See Item 1.
"Description of Business - Future Operations").
SPAIN
The Company leases the current CDZ casino facility from the DGA on a
month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS.
In March 1996, the Company learned that as of June 30, 1995, Monarch Casinos,
("Monarch"), a Louisiana-licensed video gaming device operator in which it owned
a 49% interest, had not renewed its operator's license as required by the State
of Louisiana, and as such, was no longer a licensed video poker operator in the
State. Pursuant to the management agreements between Monarch and the Company,
such a failure to renew or other termination of the operator's license created a
default under the agreements and the agreements were terminated by the Company
on March 14, 1996. On or about November 6, 1997, the Company was sued for breach
of contract by Monarch Casinos, Inc. of Louisiana and Michael A. Edwards in the
15th Judicial District Court, Lafayette Parish, Louisiana, Case No. 97-5037B.
Mr. Edwards claimed compensation charges of approximately $2.2 million and
punitive charges of $11.1 million and alleged that the Company breached a
management contract dated September 21, 1994. The lawsuit was settled for a cash
payment of $100,000 on May 15, 1999. The final order of dismissal with full
prejudice which terminated the litigation and disposed of all claims in the
lawsuit was issued by the United States District Court of Louisiana on May 24,
1999.
12
<PAGE>
On January 25, 1997 (prior to the Company's acquisition of 90% of CDZ), the
directors of CDZ filed an application in the Court of First Instance Number 11
of Zaragoza to declare CDZ in temporary receivership. Temporary receivership was
granted on June 23, 1997 and the property continues to operate in receivership
status.
On May 22, 1998, the Company entered into the settlement relating to the Prime
Agreement. (See Item 1. "Description of Business - General Development of
Business").
The Company is currently involved as a plaintiff, through its Chrysolith
affiliate, in litigation challenging the Voter Mandate. (See Item 1.
"Description of Business - Regulations and Licensing - Louisiana Gaming
Reform").
The Company is not currently involved in any other material legal proceeding nor
was it involved in any other material litigation during the year ended December
31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this Report.
13
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock and warrants (the "$8.50 Warrants") are currently on
the OTC Bulletin Board under the symbols IBET and IBETW, respectively. The
following table sets forth the high and low prices of the Company's Common Stock
and the $8.50 Warrants for fiscal years 1998 and 1999:
<TABLE>
<CAPTION>
----------------------------------------- ---------- ----------
Common Stock High Low
----------------------------------------- ---------- ----------
<S> <C> <C>
1998
First Quarter....................... 0.78* 0.30*
Second Quarter...................... 0.75* 0.46*
Third Quarter....................... 0.46* 0.31*
Fourth Quarter...................... 0.31* 0.24*
1999
First Quarter....................... 0.44 0.24
Second Quarter...................... 0.59 0.26
Third Quarter....................... 1.50 0.31
Fourth Quarter...................... 0.85 0.50
----------------------------------------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------- ----------- ----------
$8.50 Warrants High Low
---------------------------------------- ----------- ----------
<S> <C> <C>
1998
First Quarter....................... 0.03* 0.00*
Second Quarter...................... 0.03* 0.02*
Third Quarter....................... 0.02* 0.01*
Fourth Quarter...................... 0.02* 0.00*
1999
First Quarter....................... 0.02 0.01
Second Quarter...................... 0.01 0.00
Third Quarter....................... 0.04 0.00
Fourth Quarter...................... 0.02 0.00
---------------------------------------- ----------- ----------
</TABLE>
* Quoted on OTC Bulletin Board
As of the date of this Report, there were (a) 5,365,449 shares of Common Stock
outstanding held of record by approximately 1,300 persons, (b) outstanding
options to purchase an aggregate of 35,000 shares of Common Stock not part of
the Company's 1993 Incentive Stock Option Plan (the "1993 Plan"), (c)
outstanding $8.50 Warrants to purchase an aggregate of 1,511,429 shares of
Common Stock, which have since expired, (d) outstanding $0.01 Series D Warrants
to purchase an aggregate of 2,051,912 shares of Common Stock issued in
connection with the March 1996 financing, (e) outstanding $11.55 Warrants to
purchase an aggregate of 151,143 shares of Common Stock, which have since
expired, (f) outstanding $13.50 Warrants to purchase an aggregate of 151,143
shares of Common Stock, which have since expired, (g) outstanding $1.50 Series B
Warrants to purchase an aggregate of 3,200,000 shares of Common Stock issued in
connection with the restructuring of certain long-term debt, (h) outstanding
$1.00 Series A Warrants to purchase an aggregate of 960,000 shares of Common
Stock issued in connection with the sale of certain debt instruments, (i)
outstanding $.5938 Warrants to purchase an aggregate of 250,000 shares of Common
Stock issued in connection with the acquisition of Tottenham & Co. (see Item 1.
"Description of Business - Narrative Description of Business - Acquisition
Agreements"), (j) outstanding $.50 warrants to purchase an aggregate of 220,760
shares of Common Stock issued in connection with the 1997 Promissory Note which
have since expired, (See Item 6 -"Management's Discussion and Analysis or Plan
of Operation - Liquidity and Capital Resources"), (k) outstanding $.01 warrants
to purchase an aggregate of 104,225 shares of Common Stock issued in connection
with the debt financing to fund the Bishkek Casino transaction and (l)
outstanding $0.01 Series C to purchase an aggregate of 5,440,663 shares of
Common Stock issued in connection with the March 1998 Private Placement,
1,646,789 of which have been exercised, and (m) outstanding $0.01 Series G
warrants to purchase an aggregate 1,250,728 shares of Common Stock issued in
connection with
14
<PAGE>
the October 1999 Private Placement and the October 1999 Senior Notes. (See Item
6. "Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources").
The Company has not declared or paid any cash dividends on its Common Stock
since its inception and does not intend to pay any dividends for the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS
This Form 10-KSB contains certain forward-looking statements. For this purpose,
any statements contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will", "expect," "believe," "anticipates,"
"estimates," or "intends" or comparable terminology are intended to identify
certain forward-looking statements in this and other sections of the Form 10-KSB
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors,
including those set forth in the section below entitled "Important Factors to
Consider."
RESULTS OF OPERATIONS
The following discussion and analysis relates to the financial condition and
results of operation of the Company for the year ended December 31, 1999.
This information should be read in conjunction with the Company's Consolidated
Financial Statements and notes appearing elsewhere herein. All amounts in the
following discussions have been rounded to the nearest thousand except where
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------- -----------------------------
Results of Operations For the Years Ended December 31,
- -------------------------------------------------------- -----------------------------
1999 1998
<S> <C> <C>
Revenue........................................... $12,294 $ 9,016
Pre-tax (loss).................................... (6,187) (10,500)
Loss from continuing operations................... (6,187) (10,691)
Loss from discontinued operations(1).............. (222) (38)
Net Loss ......................................... (6,409) (10,729)
Other Comprehensive Income........................ 923 112
Comprehensive Loss................................ (5,486) (10,617)
Earnings/(loss) per common share - Basic.......... $ (1.78) $ (3.52)
Earnings/(loss) per common share - Diluted........ $ (1.78) $ (3.52)
Weighted average common shares outstanding:
Basic.................................... 3,598,000 3,044,286
Diluted.................................. 3,598,000 3,044,286
- -------------------------------------------------------- ------------ ----------------
</TABLE>
(1) Discontinued operations consist of those in Louisiana (i.e. Gold Coin and
Toledo Palace).
REVENUES
The Company's net revenues in 1999 are derived from a full year of activity of
the operations in the Czech Republic and Spain and a partial year's activity in
the casino in the Kyrgyz Republic . The following table lists the revenue by
operation:
15
<PAGE>
TWG REVENUES FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in millions)
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------ -------------------------------
Increase/(Decrease)
- ------------------------------------- -------------- --------------- --------------- ---------------
1999 1998 $ %
<S> <C> <C> <C> <C>
Czech Republic(1) - Ceska........... 6.5 4.2 2.3 55 %
Rozvadov............. 1.8 1.3 .5 38%
Spain(2) ............................ 3.9 3.5 0.4 10 %
Other(3)............................. 0.1 0.0 0.1 100 %
----- --- ---- -----
$12.3 $9.0 $3.3 37 %
===== === ==== =====
- ------------------------------------- -------------- --------------- --------------- ---------------
</TABLE>
- -----------
- -----
(1) The Czech Republic casinos were acquired on March 31, 1998.
(2) The Spanish casino, CDZ, was acquired on April 17, 1998.
(3) Includes Corporate Office generated consulting revenue.
Gaming revenues, the Company's primary source of income, are comprised of Table
Game Win, Table Game Tips, Slot Machines, Reception (entrance fees), and sales
of Food and Beverage.
Table Game Win, the largest contributor in the sales mix, is measured as a
percentage of Total Drop, the dollar amount of all gaming chips sold. The Total
Drop is the product of the attendance and the average dollar amount of chips
sold to each guest (Drop per Head). The Drop per Head statistic is used to
measure the "quality" of the guests in terms of their volume of play. Stated
simply, these key performance indicators tell us how many people attended the
casinos, the average dollar value of chips each person purchased, and what
portion of the purchased chips were lost to the House (i.e. were not cashed in).
The aforementioned statistics for the years ended December 31, 1999 and 1998 are
presented in the table below. Please note that, for comparison purposes, the
1998 statistical data represents the full year's operation, including the period
prior to acquisition of the properties by the Company.
<TABLE>
<CAPTION>
(dollars in thousands)
1999 1998
----- -----
<S> <C> <C> <C> <C> <C>
TOTAL DROP / DROP PER HEAD Ceska $ 22,197 $ 386 $ 20,493 $ 389
Rozvadov $ 6,241 $ 187 $ 4,260 $ 317
Zaragoza $ 14,774 $ 610 $ 14,579 $ 454
------------------------------------------------------------------------------------
Total $ 43,212 $ 375 $ 39,333 $ 400
------------------------------------------------------------------------------------
WIN / WIN% Ceska $ 4,598 20.7% $ 3,937 19.2%
Rozvadov $ 1,237 19.8% $ 825 19.4%
Zaragoza $ 2,438 16.5% $ 2,434 16.7%
------------------------------------------------------------------------------------
Total $ 8,273 19.1% $ 7,197 18.3%
------------------------------------------------------------------------------------
ATTENDANCE Ceska 57,566 52,690
Rozvadov 33,359 13,451
Zaragoza 24,219 32,101
------------------------------------------------------------------------------------
Total 115,144 98,242
------------------------------------------------------------------------------------
</TABLE>
The year over year growth of 10% in Total Drop is the net result of two
counterbalancing trends. While the overall attendance improved, the Drop per
Head decreased due to the higher proportion of casual players in the guest mix.
16
<PAGE>
The attendance figure comparison (1999 vs. 1998) displayed on the following
tables reflects the marketing strategy that was employed in 1999, namely, to
grow the attendance in Ceska in off-peak times and to improve attendance in all
periods in Rozvadov.
[GRAPHIC]
[GRAPHIC]
As depicted in the table below, Zaragoza's attendance in 1999 was well below
that of 1998. This negative trend was due to the fact that the 1998 attendance
figure included guests who were attracted to the casino through very
attractively priced (below cost) buffets, but the vast majority of whom did not
play the tables. With the acquisition in 1998, TWG implemented the necessary
price increases which effectively drove away the discount diners. In addition,
bad press reports and suspension of the unprofitable Catering business, which
limited the advertising exposure for the casino, served to further erode the
client base in 1999.
[GRAPHIC]
17
<PAGE>
Table Game Tip revenue consists of the gaming chip gratuities bestowed upon
gaming table Dealers by casino patrons. In the Czech Republic, one hundred
percent of this Tip revenue is retained by the House. In Spain, on the other
hand, per an employee bargaining agreement, employees enjoy thirty-five percent
participation in the Tip revenue. In 1999, total Tip revenue was $1.2 million
versus $1.4 million in 1998, a decrease of 13%. Tip revenue declined in Ceska
and Zaragoza and increased slightly in Rozvadov. As a percentage of Total Drop,
however, all three casinos experienced declines. The reason for the lower Tip
percentages in the Czech Republic casinos lies in the fact that the previous
operators and management of the company supported staff solicitation of
customers for tips. This culture, which management considers to have a negative
impact on customer relations, was terminated over time by TWG. In Zaragoza, the
Tip percentage decline was slight (.2 percentage points) and was indicative of
the fact that the number of French Roulette, a game that generally produces
higher Tip rates, tables was reduced in response to changes in the client mix.
Slot revenue, which is the cash generated net of paid wins, was $627,000 in 1999
versus $391,000 in 1998, an increase of 60%. The growth can be attributed to the
fact that the casino in Rozvadov operated without slot machines until September
1998 at which time eighty-seven machines were installed. Also in September 1998,
the number of slot machines in Ceska was increased from 22 to 100. In Zaragoza,
a 10% increase in Slot revenue was realized in 1999 despite the fact that
attendance at the casino decreased by 7,882. The increase can be attributed to
promotional efforts and the aforementioned shift in the client mix.
Gaming related Food and Beverage revenues are generated on only a portion of the
food and beverage that is served because they are, to a large extent, regarded
as a necessary amenity to the gaming patrons. Complimentary buffets and free
drinks to playing customers are the practice in the Czech Republic. In Spain,
food and beverage giveaways are at the discretion of the casino manager, who
uses them as a customer relations tool. In 1999, total gaming-related Food and
Beverage revenue was $198,000, which represents a 45% increase over 1998 revenue
of $137,000 and is indicative of the fact that the 1999 total represents a full
year of operation whereas the 1998 total reflects the post acquisition period
only.
In Zaragoza, revenues are also derived from rentals of the property's
thirty-seven sleeping rooms; telephone, laundry, and mini-bar revenues
associated with the sale of the sleeping rooms; and Food, Beverage, and Other
revenues associated with Catering operations. For the fiscal year ended December
31, 1999, revenues from these areas was $378,000 compared to 1998, where these
activities produced revenue of $553,000. The decline in revenue from 1998 to
1999 can be attributed to the halting of Catering operations in the Fall of 1999
in response to concerns about the profitability of the operations and to the
elimination of the below-cost buffets in the restaurant.
COST OF REVENUES
Cost of Revenues consists of the direct costs of operating the Czech Republic
and Spain casinos, primarily in the areas of labor, security, and general office
expenses. The Cost of Revenues is shown in the following table:
TWG COST OF REVENUES FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in millions)
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------ -------------------------------
Increase/(Decrease)
- ------------------------------------- -------------- --------------- --------------- ---------------
$ %
1999 1998
<S> <C> <C> <C> <C>
Czech Republic.................... 4.8 3.6 1.2 33%
Spain............................ 3.3 3.9 (0.6) (15%)
$8.1 $7.5 $.0.6 8%
=== === ====
- ------------------------------------- -------------- --------------- --------------- ---------------
</TABLE>
Costs of revenues in 1999 were $4.8 million (58% of total revenues) in the Czech
Republic, which represents a 7 percentage point ("ppt") improvement over 1998,
and $3.3 million (85% of total revenues) in Spain, which represents a 26 ppt
improvement over 1998. The 51% revenue growth in the Czech Republic,
18
<PAGE>
coupled with the successful implementation of several cost cutting measures, and
the Company overcoming startup issues relating to the casino near Snojmo, are
responsible for the positive trend in this area. Spain's high cost to revenue
ratio is due to a number of issues including: a lack of flexibility in labor
scheduling; the limited size of the casino (9 tables); the location of the
facility; and the limited number of guest rooms. Although considerably higher
than the cost of revenue ratio in the Czech Republic, 1999's 85% ratio in Spain
represents a significant improvement over 1998, a year in which the cost of
revenues exceeded the revenue by 11%. The total cost of revenues for the Company
was $8.1 million in 1999 versus $7.5 million in 1998, an increase of 8%.
Selling, general and administrative expenses were $4.3 million in 1999, which
represents a 75% increase over 1998. This increase is, primarily, attributable
to the fact that the costs reflected in 1998 do not represent a full year period
as well as the result of 1999 expenditures related to increased marketing
efforts; pursuit of other gaming opportunities (i.e. development);
administrative startup costs associated with the third casino located near
Snojmo, and the addition/replacement of several key Corporate positions while
continuing to pay severance to departed executives.
Depreciation and amortization increased from $2.5 million in 1998 to $2.8
million in 1999 due, primarily, to the amortization of assets acquired during
1998 and 1999. (See Item 1. "Description of Business"). Interest expense for the
year ended December 31, 1999 was $3.0 million compared to $2.5 million for the
year ended December 31, 1998. The increase is due, primarily, to twelve months
of interest on the $17 million Indenture being incurred in 1999 versus nine
months of interest having been incurred on this debt in 1998. In addition,
interest related to the supplementary $3 million Indenture was incurred in the
final two plus months of 1999.
Also of note is the fact that, unlike 1998, the Company did not incur any
impairment charges in 1999. In 1998, after reviewing the carrying amounts of
long-lived assets recorded, an asset impairment charge of $4 million was taken.
EARNINGS/(LOSS)
The Company incurred a loss of approximately $6.2 million from continuing
operations for the year ended December 31, 1999 as compared to $10.7 million in
the year ended December 31, 1998 an improvement of 42.1%. The improvement is
primarily attributable to the fact that there was no need for an impairment
charge in 1999. Other factors contributing to this improvement include, as
discussed previously, increased attendance and improved efficiency in the Czech
and Spanish gaming markets.
CESKA, CZECH REPUBLIC
Total revenue from the casino in Ceska, Czech Republic was $6.5 million for the
fiscal year ended December 31, 1999, which represents a 55% increase over the
previous year's revenue total of $4.2 million.
Comparison of the twelve month statistics between 1999 and 1998 reveals that the
revenue produced in the three additional months in which the casino operated, is
not the sole source of the 55% revenue growth. Part of the improvement can be
attributed to a 1.5 percentage point increase in the Win percentage (from 19.2%
in 1998 to 20.7% in 1999). Ceska's attendance improvement was the direct result
of a number of successful marketing campaigns including themed parties and a
midweek Tombola, which was designed to attract clients on off-peak days. A
Tombola is a prize drawing event, which is stretched out over several weeks. The
odds of winning a Tombola drawing are governed by the amount of play a customer
gives during off-peak times over the period of the event.
In 2000, the marketing emphasis in Ceska will be, in addition to building on the
success of the above initiatives, to increase the use of advertising media
(direct mail, television, radio and press) in order to further stimulate
off-peak attendance and to improve the "quality" of patrons.
19
<PAGE>
In the Fall of 1999, a competitive casino opened in Folmova, which is closer to
the German border than the Company's Ceska property. This casino, which is
called the Schoolhouse, has employed a strategy of attracting clients through
the distribution of flyers at the border crossing and the posting of signs at
the casino's access road turnoff.
Despite the increased competition in the area, during peak weekend times, the
Company's casino in Ceska is often at full capacity which slows down the games
and, as a result, often lowers the hold percentages In addition, limitations of
the casino's parking facilities (40 spaces) create another obstacle for
potential patrons, particularly now that a competing casino is in the area.
Although the overall attendance growth in Ceska was solid, the improvement was
limited by competition and capacity constraints, issues that could curtail the
growth of, or even erode, attendance in the future.
In response to these challenges, in April 1999, the Company purchased a parcel
of land in Folmova, nearer to the border than the turnoff road for the
Schoolhouse casino. The Company has installed pre-emptive signage on the land
advertising the Ceska casino and is planning to move the Ceska casino operation
to a new facility on this parcel of land. This move would give the casino
excellent exposure because it would be located directly on the border road;
would allow for a parking facility of ample size; would address the issue of
capacity constraints on the weekend in that it would allow for an increase in
the number of gaming tables over the existing space; and would allow for a floor
plan to be designed which, unlike the Ceska building, would optimize the
casino's equipment layout. There can be no assurance that the relocation of the
casino in Ceska will enhance future revenues.
ROZVADOV, CZECH REPUBLIC
The total revenue in Rozvadov was $1.8 million in the twelve months of operation
in 1999, representing a 36% increase over the nine months of operation in 1998
($1.3 million), which primarily, is attributed to an increase in attendance. The
casino in Rozvadov opened in November of 1997. Prior to its acquisition in March
1998 by TWG, there was little advertising or promotion for the casino and
attendance was stagnant. In February 1999, TWG hired a Director of Marketing and
immediately launched a strong marketing campaign which included direct mail and
radio advertising in Germany as well as themed parties and other promotional
events. The result of the advertising was a 148% increase in attendance. In
fact, with this increase in attendance, the limited space (7 tables) is unable
to accommodate the peak time demand. While this trend is positive, the potential
drawback of the casino reaching capacity in certain periods is that some regular
attendees may be displaced. In response, the Company has included plans to add
two gaming tables to the casino in its year 2000 Operating Budget.
With the improvements to client base in both Ceska and Rozvadov, the 2000
marketing programs will be directed at filling in the off-peak times and
improving the "quality" of the peak time players.
ZARAGOZA, SPAIN
Total revenue in CDZ in the year ended December 31, 1999 was $3.9 million, which
represents a 10% increase over the $3.5 million in revenue achieved in 1998.
Despite a 25% erosion of the casinos attendance in 1999, the casino managed to
match the 1998 table game Win revenue of $2.4 million. This was accomplished,
primarily, through growth of the Drop per Head of the casino's core clientele
(i.e., catering to CDZ's preferred patrons). Due to CDZ's location, laws
preventing direct advertising of the casino, its high operating and overhead
costs, its limited number of guest rooms, and the poor condition of other parts
of the facility, the casino produced a Net Loss of $1.9 million in 1999.
The aforementioned challenges will be difficult to overcome should the casino
remain in its present location. It was anticipated that a law that would be
passed which would allow the casino to move to a downtown location and, as a
result, would alter the business environment in which the casino operates. This
move would give the casino direct exposure to the residents of and visitors to
Zaragoza; would allow the casino to tailor the size of the workforce to the
operation; would reduce the operation's overhead costs; and would allow the
casino to increase the number of gaming tables and slot machines to match the
20
<PAGE>
anticipated increase in demand. Under this scenario, the disposition of the
existing CDZ facility would be decided at the time of the move.
The status of the intended move is as follows. An understanding has been reached
with an agency of the provincial government, the DGA, to allow the casino to
execute this move, subject to the issuance of a decree. However, instead of a
decree, in February 2000, the DGA introduced a law that would allow the casino
to relocate. The law is expected to be presented to local Spanish parliament in
June 2000. The Company believes based on its discussions with Spanish
authorities, the law has little opposition and is expected to pass.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit, defined as current assets minus current
liabilities, increased $700,000 million to a deficit of $4.0 million at December
31, 1999 from a working capital deficit at December 31, 1998 of $3.3 million.
For the year ended December 31, 1999, the Company had net cash used in
continuing operations of $667,000. This was primarily a result of a $6,187,000
loss from continuing operations, $2,839,000 of depreciation and amortization,
$542,000 of non-cash interest related to the amortization of debt discount
(recorded in connection with the warrants issued with March 1998 and October
1999 private placements) and a $2,139,000 net increase in cash attributable to
changes in operating assets and liabilities. For the year ended December 31,
1999, the Company had net cash used in discontinued operations of $197,000. For
the year ended December 31, 1999, net cash used in investing activities of
$2,077,000 included the purchases or property and equipment aggregating
$2,422,000, payments for deposits of $34,000 and the proceeds from the sale of
Louisiana property aggregating $379,000. For the year ended December 31, 1999,
net cash provided by financing activities of $2,110,000 included the proceeds
from an October 1999 private placement of $3,000,000 (see below) and a
short-term obligation of $450,000, the $1,000,000 repayment of an overdue
short-term obligation to Value Partners, $360,000 of repayments of other
short-term obligations and the proceeds from the exercise of warrants
aggregating $20,000.
On March 31, 1998, the Company, with the assistance of Libra, acting as
placement agent, borrowed $17.0 million from fourteen investors in the Private
Placement. The loan is represented by the Senior Notes issued pursuant to the
Indentures by and among TWG, TWGI, TFC and USTCT, as the case may be. The
Indentures were amended on October 29, 1998 in connection with the restructuring
of the Company's ownership of Resorts as a result of the change in the Czech
gaming law which restricted foreign ownership of Czech casinos. The Amended
Indentures, however, did not alter the underlying basis of the Senior Notes. The
Senior Notes require mandatory prepayments based upon excess cash flow generated
by TWGI from the operation of the Czech casinos acquired in the Resorts
acquisition and bear interest at the rate of 12% per annum. The proceeds of the
Senior Notes were used to pay the net acquisition costs of, and improvements to,
Resorts totaling $12.6 million, to repay the First Amended Loan Agreement in the
amount of $1.3 million, to cover costs and expenses of $1.4 million relating to
the Private Placement and to provide working capital of $1.7 million. Interest
payments under the terms of the Senior Notes were paid when due on March 17, and
September 17, 1999. The March 17, 2000 interest payment has also been paid, and
the Company was and is current on its payments under the Senior Notes.
On October 15, 1999, the Company borrowed $3.0 million ($2.7 million from Value
Partners) in the October 1999 Private Placement. The loan is represented by the
October 1999 Senior Notes issued pursuant to indentures by and among the Company
and an independent indenture trustee. The October 1999 Senior Notes, which are
due March 2005, require mandatory prepayments based on excess cash flow
generated from Resorts. The October 1999 Senior Notes are collateralized by
primarily all of Resort's gaming equipment and a majority interest in the
capital stock of all of the Company's subsidiaries (except CDZ). In addition to
the October 1999 Senior Notes, each investor received a proportionate share of
warrants to purchase 1,250,728 shares of the Company's common stock.
The proceeds of the October 1999 Senior Notes were used to retire a $1 million
short-term debt obligation related to the acquisition of the CDZ casino, to make
an interest payment of approximately $250,000 on
21
<PAGE>
said debt, and to finance the equipping, working capital, and pre-opening costs
associated with the opening of a third casino in the Czech Republic on land that
had been previously purchased. That casino, located near Snojmo, opened on
December 22, 1999.
The Company has, from time to time, been in technical default of the Amended
Indentures and has relied upon the forbearance and waivers from a majority
interest of the holders of the Senior Notes. Value Partners represents a
majority in interest of the holders of the Senior Notes. The Company has
borrowed other amounts from Value Partners from time to time (some of which have
been in technical default for which forbearance or waivers have been granted)
and may seek to borrow additional funds or obtain equity investments from Value
Partners in the future. At December 31, 1999, Value Partners owned 59% of the
Company's long-term debt and owned warrants to acquire 61.2% of the Company's
issued and outstanding shares of Common Stock.
In accordance with Spanish law, in order for a casino company to remain solvent
it must have a minimum capitalization of approximately $1.8 million and such
recapitalization required the approval of both the CDZ's Board of Directors
(received in July 1998) and the Council of Ministers in Spain (received in
October 1999) . The owner of the remaining 10% of CDZ declined to participate in
the recapitalization and under Spanish law that 10% interest was diluted to zero
once the recapitalization was approved by the Council of Ministers, bringing the
total TWG ownership to 99.92%.
The Company estimates that approximately $5.0 million will be required to
execute the CDZ casino relocation, assuming permission is received from the DGA
for such move. An understanding had been reached with the DGA to allow the
casino to execute the move, subject to the issuance of a decree. However,
instead of a decree, in February 2000, the DGA introduced a law that would allow
the casino to relocate. The law is expected to be presented to local Spanish
parliament in June 2000. Management believes based on its discussions with
Spanish authorities, the law has little opposition and is expected to pass.
During the years ended December 31, 1999 and 1998, DGA granted the Company a
deferral of approximately 1.8 million in taxes on gaming winnings accruing
during 1997-1999. Furthermore, in April 1999, the Company reached an agreement
with the Spanish Social Security Authorities to defer approximately 1.2 million
related to all debts generated in 1997 and the first quarter of 1998.
If the Company does not make its payments according to the receivership
schedule and is unable to obtain further deferral from the Spanish Taxing
Authorities, the debt would become immediately payable and revert to pre
receivership levels. Management has indicated that, based on its discussions
with Spanish Taxing Authorities, further deferral of payments until April 2001
is anticipated.
PLAN OF OPERATIONS
TWG management will continue to develop marketing and operational strategies
designed to increase attendance and revenues at its existing locations in the
Czech Republic and Spain. The Company has acquired land close to the German
border near Ceska Kubice, at Folmava, Czech Republic and is planning to build a
casino to replace the existing facility. Management believes that the new
location would be more accessible to its main target market in Germany and will
result in improved attendance and play. TWG transferred excess slot machines
from Ceska Kubice and Rozvadov to its new location near Snojmo.
IMPORTANT FACTORS TO CONSIDER
ACCUMULATED DEFICIT; OPERATING LOSSES; GOING CONCERN
On December 31, 1999, the Company had an accumulated deficit of approximately
$30.3 million and a working capital deficit of approximately $4 million. For the
year ended December 31, 1999, the Company incurred a net loss of approximately
$6.4 million. The ability of the Company to achieve profitability depends upon
the successful operation of gaming establishments in the Czech Republic and
Spain, their expansion and relocation, and the diversification of its operations
to include other sources of revenue.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Number of Shares of
Common Stock
Name of Beneficial Owner Beneficially Owned(1) Percentage
of Ownership(1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Value Partners, Ltd........................... 8,478,212(2) 61.2%
Anasazi Partners Limited Partnership.......... 1,354,334(3) 21.0%
Fort Pitt Fund III, L.P....................... 312,682(4) 5.5%
Ravich Children Permanent Trust 1,250,727(5) 23.3%
C.P. Baker & Co., Ltd......................... 3,186,037(6) 39.4%
U.S. Bancorp.................................. 575,335(7) 9.7 %
Stanley Kohlenberg............................ 237,000(8) 4.3 %
Andrew Tottenham.............................. 1,205,500(9) 18.3%
Rami Ramadan.................................. 100,000(10) *
Julio Heurtematte............................. 13,000(11) *
Malcolm M.B. Sterrett......................... 13,000(12) *
Geoffrey B. Baker............................. 9,000(13) *
All directors and executive officers as a 1,340,500(14) 20.0%
group (5 persons)....................
* Less than 1%.
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The percentage of outstanding shares is based on 5,365,449 shares
outstanding as of March 31, 2000 (the "Calculation Date"). A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the Calculation Date upon the exercise of
options or warrants. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants that are held by such
person (but not those held by any other person) are exercisable within 60
days from the date of the Voting Record Date have been exercised.
Included are shares of Common Stock issuable upon the exercise of options
or warrants to purchase the Company's Common Stock.
(2) Value Partners, Ltd. is a Texas limited partnership, whose business
address is 4514 Cole Avenue, Suite 808, Dallas, Texas 75205. Includes
warrants to purchase: 600,000 shares of Common Stock at an exercise price
of $1.00, expiring December 31, 2005; 2,000,000 shares of Common Stock at
an exercise price of $1.50 per share, expiring December 31, 2005;
4,427,573 shares of Common Stock at an exercise price of $.01 per share,
expiring March 31, 2008; includes warrants to purchase 675,392 shares
from Credit Suisse First Boston Management Corporation in October 1999;
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; and 1,125,654
shares of Common Stock at an exercise price of $.01 per share, expiring
March 31,2008.
(3) Anasazi Partners, Ltd. is a Massachusetts limited partnership whose
business address is 120 Boylston Street, Suite 800, Boston, Massachusetts
02116. Includes warrants to purchase: 250,000 shares of Common Stock at
an exercise price of $1.00 per share, expiring December 31, 2005; (of
these warrants, 50,000 were acquired from New Generation, Ltd. in 1999);
and 833,334 shares of Common Stock at an exercise price of $1.50 per
share, expiring December 31, 2005 (of these warrants 166,667 were
acquired from New Generation in 1999).
(4) The business address for Fort Pitt Fund III, L.P. is P.O. Box 974,
Uniontown, Pennsylvania 15401. Includes warrants to purchase 312,682
shares of Common Stock at an exercise price of $.01 per share expiring
March 31, 2008.
(5) The business address for the Ravich Children's Permanent Trust is 8730
Wilshire Blvd., Beverly Hills, California 90021.
(6) Represents warrants to purchase 2,723,537 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 affiliates. The
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<PAGE>
business address for C.P. Baker & Co., Ltd. is 120 Boylston Street, Suite
800, Boston, Massachusetts 02116.
(7) Represents warrants to purchase 575,335 shares of Common Stock at an
exercise price of $.01 per share, expiring March 31, 2008 which were
acquired from Credit Suisse First Boston Management Corporation in
October 1999. The business address for U.S. Bancorp. is 11766 Wilshire
Boulevard, Suite 870, Los Angeles, California 90025.
(8) Does not include 929,500 shares (187,500 of which are immediately
exercisable warrants and 107,000 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 1,000 shares at the end of each calendar quarter during
the quarter ended March 31, 1997 through the quarter ended September 30,
1998, respectively, subject to non-qualified options granted to Mr.
Kohlenberg under the 1993 Plan on May 22, 1995, on March 7, 1996 and
75,000 shares and 25,000 shares of Common Stock subject to incentive
options granted to Mr. Kohlenberg on December 31, 1996 and December 31,
1998 respectively, all of which fully vested on the dates of grant.
(9) Includes 623,500 shares of Common Stock (240,000 shares were issued to
Mr. Tottenham upon conversion of the Tottenham Notes on December 31,
1998) and 1,000 shares and 1,000 shares subject to non-qualified options
granted to Andrew Tottenham under the 1993 Plan on October 2, 1996 and on
December 31, 1996, respectively, and 100,000 shares and 25,000 shares
subject to incentive options granted to Mr. Tottenham on December 31,
1997 and December 31, 1998 respectively, all of which fully vested on the
dates of grant. Also includes 187,500 shares subject to immediately
exercisable warrants which were granted to Mr. Tottenham on January 1,
1997. Also includes 205,000 shares of Common Stock owned by Robin
Tottenham, (80,000 shares were issued to Mrs. Tottenham upon conversion
of the Tottenham Notes on December 31, 1998), the wife of 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 above, as to which beneficial ownership is disclaimed.
(10) Consists of shares subject to incentive options granted to Mr. Ramadan on
July 12, 1999, all of which fully vested on the date of grant.
(11) Includes warrants to purchase 41,691 shares of Common Stock at an
exercise price of $.01 per share expiring March 31, 2008; 1,000 shares of
Common Stock subject to non-qualified options granted to Mr. Heurtematte
under the 1998 Plan at the end of each calendar quarter ended March 31,
1998 through December 31, 1998 and 2,000 shares of Common Stock subject
to non-qualified options granted at the end of each calendar quarter
ended March 31, 1999 through March 31, 2000, all of which fully vested on
the dates of grant.
(12) Includes warrants to purchase 41,691 shares of Common Stock at an
exercise price of $.01 per share expiring March 31, 2008; 1,000 shares of
Common Stock subject to non-qualified options granted to Mr. Sterrett
under the 1998 Plan at the end of each calendar quarter ended March 31,
1998 through December 31, 1998 and 2,000 shares of Common Stock, subject
to non-qualified options, granted at the end of each calendar quarter
ended since March 31, 1999 through March 31, 2000, all of which fully
vested on the dates of grant.
(13) Includes warrants to purchase 41,691 shares of Common Stock at an
exercise price of $.01 per share expiring March 31, 2008; 1,000 shares of
Common Stock subject to non-qualified options granted to Mr. Baker under
the 1993 Plan at December 31, 1998, 2,000 shares of Common Stock, subject
to non-qualified options, granted for the calendar quarter ended March
31, 1999 and 2,000 shares of Common Stock subject to non-qualified
options granted at the end of each quarter ended since September 31, 1999
through March 31, 2000, all of which fully vested on these dates.
(14) See Notes (10), (11), (12), and (13) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TOTTENHAM & CO. On January 1, 1997, the Company completed the acquisition of
Tottenham & Co. which was founded in 1988 by Andrew Tottenham, the Company's
President and COO and is engaged in providing consulting services to gaming
companies worldwide. The consideration paid for Tottenham & Co. by the Company
included 500,000 shares of the Company's Common Stock, and warrants to purchase
250,000 shares at an exercise price of $.5938, the bid price of the Company's
Common Stock on the date of
33
<PAGE>
the acquisition as reported by the Nasdaq SmallCap Market System. In addition,
the Company issued two promissory notes in the aggregate principal amount of
$200,000 bearing interest at the rate of 10% per annum and payable on January 1,
2002 (the "Tottenham Notes"). On December 31, 1998, the Company and Andrew
Tottenham converted the Tottenham Notes and accrued interest totaling $240,000
into 320,000 shares of the Company's Common Stock. All of the Common Stock, as
well as the Common Stock underlying the warrants, carries certain "piggyback"
registration rights.
CHRYSOLITH OPERATING AGREEMENT. The Company is a member under, and party to,
which sets forth the rights and obligations of the original members, all of whom
are individuals (the "Original Members"), and the Company. Under this agreement,
Chrysolith operated, serviced and maintained the VLTs at the Gold Coin and
Toledo Palace and the Company provided management, financial and consulting
services. The Chrysolith Operating Agreement will continue pending the decision
of the U.S. Supreme Court regarding the Company's appeal of the termination of
the operations at the Gold Coin and Toledo Palace.
MONARCH ACQUISITION. In April 1994, the Company acquired for $49,000 a 49%
ownership interest in Monarch Casinos ("Monarch"), a Louisiana-licensed video
gaming device operator which was founded in December 1993. In June and August
1994, the Company loaned Monarch an aggregate of $55,000 for working capital to
manage the operations of the Woodlands under an agreement between Monarch and
the previous owner of the Woodlands. All of such loans were payable on demand,
bore interest at the rate of 10% and were evidenced by promissory notes executed
by Monarch. In October 1994, the Company credited Monarch $25,000 against prior
advances, among other things, in consideration for the assignment by Monarch to
the Company of an option to purchase the Woodlands. Although it was originally
intended that Monarch would own, operate and maintain the VLTs at both the
Toledo Palace and the Gold Coin, the Company believed that Chrysolith was better
suited to operate the video poker parlors and thus entered into the Chrysolith
Agreement. In March 1996, the Company learned that as of June 30, 1995, Monarch
had not renewed its operator's license as required by the State of Louisiana,
and as such, was no longer a licensed video poker operator in the State.
Pursuant to the management agreements between Monarch and the Company, such a
failure to renew or other termination of the operator's license created a
default under the agreements and the agreements were terminated by the Company
on March 14, 1996. On or about November 6, 1997 Monarch and Michael Edwards,
President of Monarch, filed suit against the Company alleging, among other
things, breach of contract. The lawsuit was settled in May 1999 for a cash
payment by the Company of $100,000 and both parties released the other of any
and all further obligations. See Item 3 -"Legal Proceedings".
On October 29, 1997, the Company and Value Partners, executed a loan which was
amended on December 19, 1997, under which TWG had the ability to borrow up to
$2,538,000 (the "First Amended Loan Agreement"). As of December 31, 1998, the
Company had borrowed $1,538,000 under this loan, including the Bishkek Note
described below, of which $1,288,000 was repaid on March 31, 1998 from the
proceeds of the Private Placement.
On March 19, 1998, the Company and Value Partners executed a Lender's Waiver and
Option Agreement (the "Waiver") under which the Company borrowed $250,000 (the
"Bishkek Note") to fund the Bishkek Casino transaction. In February 1999, the
Company repaid the principal and accrued interest on the Bishkek Note in full,
and it was cancelled.
On March 31, 1998, the Company, with the assistance of Libra, acting as
placement agent, borrowed $17.0 million from fourteen investors in the Private
Placement. The loan is represented by the Senior Notes issued pursuant to the
Indentures by and among TWG, TWGI, TFC and USTCT, as the case may be. The
Indentures were amended on October 29, 1998 in connection with the restructuring
of the Company's ownership of Resorts as a result of the change in the Czech
gaming law which restricted foreign ownership of Czech casinos. The Amended
Indentures, however, did not alter the underlying basis of the Senior Notes. The
Senior Notes require mandatory prepayments based upon excess cash flow generated
by TWGI from the operation of the Czech casinos acquired in the Resorts
acquisition and bear interest at the rate of 12% per annum. The proceeds of the
Senior Notes were used to pay the net acquisition costs of, and improvements to,
Resorts totaling $12.6 million, to repay the First Amended Loan Agreement in the
amount of $1.3 million, to cover costs and expenses of $1.4 million relating to
the Private Placement and to
34
<PAGE>
<PAGE>
provide working capital of $1.7 million. Interest payments under the terms of
the Senior Notes were paid when due on March 17, and September 17, 1999. The
March 17, 2000 interest payment has also been paid, and the Company was and is
current on its payments under the Senior Notes.
On May 19, 1998, the Company and Value Partners executed a Loan Agreement (the
"Loan Agreement") under which the Company borrowed $1,000,000 at 12% interest
per annum to fund the purchase of the stock of the Casino de Zaragoza (see -
"Plan of Operations"), which was payable in full on September 15,1998. The
interest rate automatically increased to 17% on September 15, 1998 which has
been accrued monthly by the Company since that date.
The Company was in technical default of, and has not timely paid the Value
Partners Loan which was due on September 15, 1998. On July 30, 1999, the Company
received from Value Partners a waiver of such default and a waiver of the cross
defaults on the Amended Indentures by the majority in interest of the holders of
the Senior Notes. Value Partners also granted an extension of this loan until
January 1, 2000.
On October 15, 1999, the Company borrowed $3.0 million ($2.7 million from Value
Partners) in the October 1999 Private Placement. The loan is represented by the
October 1999 Senior Notes issued pursuant to indentures by and among the Company
and an independent indenture trustee. The October 1999 Senior Notes, which are
due March 2005, require mandatory prepayments based on excess cash flow
generated from Resorts. The October 1999 Senior Notes are collateralized by
primarily all of Resort's gaming equipment and a majority interest in the
capital stock of all of the Company's subsidiaries (except CDZ). In addition to
the October 1999 Senior Notes, each investor received a proportionate share of
warrants to purchase 1,251,000 shares of the Company's common stock.
The proceeds of the October 1999 Senior Notes were used to retire a $1 million
short-term debt obligation related to the acquisition of the CDZ casino, to make
an interest payment of approximately $250,000 on said debt, and to finance the
equipping, working capital, and pre-opening costs associated with the opening of
a third casino in the Czech Republic on land that had been previously purchased.
That casino, located near Snojmo, opened on December 22, 1999.
The Company has, from time to time, been in technical default of the Amended
Indentures and has relied upon the forbearance and waivers from a majority
interest of the holders of the Senior Notes. Value Partners represents a
majority in interest of the holders of the Senior Notes. The Company has
borrowed other amounts from Value Partners from time to time (some of which have
been in technical default for which forbearance or waivers have been granted)
and may seek to borrow additional funds or obtain equity investments from Value
Partners in the future. At December 31, 1999, Value Partners owned 59% of the
Company's long-term debt and owned warrants to acquire 61.2% of the Company's
issued and outstanding shares of Common Stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Reference is made to the Exhibit Index hereinafter contained.
A copy of any exhibits listed or referred to herein will be furnished
at a reasonable cost to any person who was a shareholder of the Company
as of August 2, 1999, upon written request from any such person.
Requests should be sent to: Rami S. Ramadan, Chief Executive Officer,
Trans World Gaming Corp., 545 Fifth Avenue, Suite 940, New York, New
York 10017.
(b) REPORTS ON FORM 8-K
During the last quarter of the year ended December 31, 1999, the Company filed a
Periodic Report on Form 8-K with the SEC on October 28, 1999. This Periodic
Report related to the $3.0 million financing.
35
<PAGE>
TRANS WORLD GAMING CORP.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
---------------------------------------- ------------------------------------------
Item No Item Method of Filing
<S> <C> <C>
2 Deed of Sale of Shares Authenticated by Incorporated by reference to Exhibit 2
Mr. Jose Maria Badia Gasco, Notary of contained in the Form 8-K/A filed on July
Zaragoza, dated April 17, 1998 2, 1998 (File No. 0-25244)
3.1 Articles of Incorporation Incorporated by reference to Exhibit 3.1
contained in the registration statement
on Form SB-2 (File No. 33-85446-A).
3.2 By-laws Incorporated by reference to Exhibit 3.2
contained in the registration statement
on Form SB-2 (File No. 33-85446-A).
4.1 Specimen Common Stock Certificate Incorporated by reference to Exhibit 4.1
contained in the registration statement
on Form SB-2 (File No. 33-85446-A).
4.2 Specimen Redeemable Common Stock Purchase Incorporated by reference to Exhibit 4.2
Warrant contained in the registration statement
on Form SB-2 (File No. 33-85446-A).
4.3 Form of Warrant Agreement Incorporated by reference to Exhibit 4.3
contained in the registration statement
on Form SB-2 (File No. 33-85446-A).
4.4 Confidential Private Placement Memorandum Incorporated by reference to Exhibit 4.4
dated June 17, 1996 contained in Form 10-KSB for the fiscal
year ended December 31, 1996. (File No.
0-25244)
4.5 Supplement No. 1 dated January 14, 1997 to Incorporated by reference to Exhibit 4.5
Confidential Private Placement Memorandum contained in Form 10-KSB for the fiscal
dated June 17, 1996 year ended December 31, 1996. (File No.
0-25244)
4.6 Indenture dated as of November 1, 1996 Incorporated by reference to Exhibit 4.6
between the Company and Trans World Gaming contained in Form 10-KSB for the fiscal
of Louisiana, Inc., as Issuer, and U.S. year ended December 31, 1996. (File No.
Trust Company of Texas, N.A., as Trustee 0-25244)
4.7 Form of 12% Secured Convertible Senior Incorporated by reference to Exhibit 4.7
Bond due June 30, 1999 contained in Form 10-KSB for the fiscal
year ended December 31, 1996. (File No.
0-25244)
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
4.8 Form of Warrant to Purchase Common Incorporated by reference to Exhibit 4.8
Stock Dated July 1, 1996 contained in Form 10-KSB for the fiscal year
ended December 31, 1996. (File No. 0-25244)
4.9 Form of Warrant for Purchase of Shares of Incorporated by reference to Exhibit 4.9
Common Stock dated January 1, 1997 contained in Form 10-KSB for the fiscal year
ended December 31, 1996. (File No. 0-25244)
4.10 Form of Non-Negotiable Promissory Note Incorporated by reference to Exhibit 4.10
dated January 1, 1997 contained in Form 10-KSB for the fiscal year
ended December 31, 1996. (File No. 0-25244)
4.11 First Amended Senior Secured Promissory Incorporated by reference to Exhibit 4.11
Note dated December 19, 1997 contained in Form 10-KSB for the fiscal year
ended December 31, 1997 filed on March 30,
1998. (File No. 0-25244)
4.12 Form of Warrant for Purchase of Shares of Incorporated by reference to Exhibit 4.12
Common Stock dated January 15, 1998 contained in Form 10-KSB for the fiscal year
ended December 31, 1997 filed on March 30,
1998. (File No. 0-25244)
4.13 Lenders Waiver and Option Agreement dated Incorporated by reference to Exhibit 4.13
March 9, 1998 contained in Form 10-KSB for the fiscal year
ended December 31, 1997 filed on March 30,
1998. (File No. 0-25244)
4.14 Indenture dated March 31, 1998 among the Incorporated by reference to Exhibit 4(I)
Company, TWG International U.S. contained in the Form 8-K filed on April 14,
Corporation, TWG Finance Corp. and U.S. 1998 (File No. 0-25244)
Trust Company of Texas, N.A.
4.15 Series C Warrant to Purchase Common Stock Incorporated by reference to Exhibit 4(II)
dated March 31, 1998 contained in the Form 8-K filed on April 14,
1998 (File No. 0-25244)
4.16 Indenture dated March 31, 1998 between Incorporated by reference to Exhibit 4(III)
TWG International U.S. Corporation Trust contained in the Form 8-K filed on April 14,
and U.S. Company of Texas, N.A. 1998 (File No. 0-25244)
4.17 Consent to Amend Indenture, Bonds and Incorporated by reference to Exhibit 4(IV)
Warrants dated March 25, 1998 by and contained in the Form 8-K filed on April 14,
between the Company, Trans World 1998 (File No. 0-25244)
Gaming of Louisiana, Inc.,U.S. Trust
Company of Texas, N.A., and certain
individuals
4.18 First Amended Indenture dated March 31, Incorporated by reference to Exhibit 4(V)
1998 among the Company, TWGLa and U.S. contained in the Form 8-K filed on April 14,
Trust Company of Texas, N.A. 1998 (File No. 0-25244)
4.19 First Amended Indenture dated March 31, Incorporated by reference to Exhibit 4(V)
1998 among the Company, TWGLa and U.S. contained in the Form 8-K filed on April 14,
Trust Company of Texas, N.A. 1998 (File No. 0-25244)
4.20 Series A Warrant to Purchase Common Incorporated by reference to Exhibit 4(VI)
Stock dated March 31, 1998 contained in the Form 8-K filed on April 14,
1998 (File No. 0-25244)
4.21 Series B Warrant to Purchase Common Incorporated by reference to Exhibit 4(VII)
Stock dated March 31, 1998 contained in the Form 8-K filed on April 14,
1998 (File No. 0-25244)
4.22 Agreement to Amend Warrants dated March Incorporated by reference to Exhibit 4(VIII)
31, 1998 among the Company and the named contained in the Form 8-K filed on April 14,
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C>
Holders 1998 (File No. 0-25244)
10.1 Agreement for Exchange of Shares dated Incorporated by reference to Exhibit 10.1
July 12, 1994,between the Company and contained in the registration statement on
the shareholders of Lee Young Form SB-2 (File No. 33-85446-A).
Enterprises, Inc.
10.2 Asset Purchase Agreement dated as of Incorporated by reference to Exhibit 10.2
September 21,1994, between the contained in the registration statement on
Company and Prime Properties, Inc. Form SB-2 (File No. 33-85446-A).
10.3 Agreement of Sale dated as of September Incorporated by reference to Exhibit 10.3
21, 1994,between the Company and Prime contained in the registration statement on
Properties, Inc. Form SB-2 (File No. 33-85446-A).
10.4 Form of Lease between Prime Properties, Incorporated by reference to Exhibit 10.4
Inc. and the Company. contained in the registration statement on
Form SB-2 (File No. 33-85446-A).
10.5 Agreement dated September 21, 1994, among Incorporated by reference to Exhibit 10.5
Chrysolith, LLC, Prime Properties, Inc., contained in the registration statement on
Monarch Casinos, Inc. of Louisiana, Form SB-2 (File No. 33-85446-A).
("Monarch") and the Company.
10.6 Asset Purchase Agreement dated September 21, Incorporated by reference to Exhibit 10.6
1994, between Chrysolith L.L.C. and Monarch contained in the registration statement on
Form SB-2 (File No. 33-85446-A).
10.7 Lease (with option) dated May 10, 1994 among Incorporated by reference to Exhibit 10.7
Lula Miller, Inc., Charles A. Jones III and contained in the registration statement on
Kelly McCoy Jones, as Lessor, and Monarch, as Form SB-2 (File No. 33-85446-A).
Lessee.
10.8 Offer to Purchase dated October 4, 1994, Incorporated by reference to Exhibit 10.8
among Trans World Gaming of Louisiana, contained in the registration statement on
Inc., Monarch, Lula Miller, Inc., Form SB-2 (File No. 33-85446-A).
Charles A. Jones III and Kelly McCoy
Jones.
10.9 Memorandum of Agreement dated March 18, Incorporated by reference to Exhibit 10.9
1994, between the Company and Yves contained in the registration statement on
Gouhier and Camille Costard to acquire Form SB-2 (File No. 33-85446-A).
shares of Casino Cherbourg S.A., as
amended (English translation, except
amendment is in French.)
10.10 Shareholder Agreement dated April 7, 1994, Incorporated by reference to Exhibit 10.10
between the Company and Michael A. Edwards, contained in the registration statement on
as the shareholders of Monarch Form SB-2 (File No. 33-85446-A).
10.11 Employment Agreement dated March 6, Incorporated by reference to Exhibit 10.11
1996 between the Company and Stanley contained in the Form 10-KSB for the fiscal
Kohlenberg year ended December 31, 1995 (File No.
0-25244).
10.12 Employment Agreement between the Company Incorporated by reference to Exhibit 10.12
and Dominick J. Valenzano contained in the registration statement on
Form SB-2 (File No. 33-85446-A).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.13 1993 Incentive Stock Option Plan Incorporated by reference to Exhibit 10.13
contained in the registration statement on
Form SB-2 (File No. 33-85446-A).
10.14 Form of 41/2% Bridge Note Incorporated by reference to Exhibit 10.14
contained in the registration statement on
Form SB-2 (File No. 33-85446-A).
10.15 Form of 10% Secured Bridge Incorporated by reference to Exhibit 10.15
contained in the registration statement on
Form SB-2 (File No. 33-85446-A).
10.16 Collateral Mortgage relating to the Incorporated by reference to Exhibit 10.16
Woodlands Travel Plaza. contained in the registration statement on
Form SB-2 (File No. 33-85446-A).
10.17 Operating Agreement dated as of Incorporated by reference to Exhibit 10.17
December 22, 1994 Gold Coin. contained between the Company and Chrysolith
relating to the in the Form 10-KSB for the fiscal
year ended December 31, 1994 (File No. 0-25244).
10.18 Note in principal amount $75,000 payable Incorporated by reference to Exhibit 10.18
by Monarch (and assumed by the Company). contained in the Form 10-KSB for the fiscal
year ended December 31, 1994 (File No.
0-25244).
10.19 Lease Agreement dated May 1, 1993 between Incorporated by reference to Exhibit 10.19
National Auto/Truck Stops, Inc. and Prime contained in the Form 10-KSB for the fiscal
Properties with respect to the 76 Plaza year ended December 31, 1995 (File No.
0-25244).
10.20 Agreement and General Release dated as Incorporated by reference to Exhibit 10.20
of March 6, 1996 between the Company and contained in the Form 10-KSB for the fiscal
R. K. Merkey. year ended December 31, 1995 (File No.
0-25244).
10.21 Forbearance Agreement dated January 19, Incorporated by reference to Exhibit 10.21
1996 between the Company and Chrysolith contained in the Form 10-KSB for the fiscal
year ended December 31, 1995 (File No.
0-25244).
10.22 Letter Agreement dated January 30, 1996 Incorporated by reference to Exhibit 10.22
between the Company and Chrysolith contained in the Form 10-KSB for the fiscal
regarding forbearance payments year ended December 31, 1995 (File No.
0-25244).
10.23 Consulting Agreement dated January 1, 1997 Incorporated by reference to Exhibit 10.23
between the Company and Stanley Kohlenberg contains in Form 10-KSB for the fiscal year
ended December 31, 1996 (File No. 0-25244).
10.24 Employment Agreement dated December 26, 1996 Incorporated by reference to Exhibit 10.24
between the Company and Andrew Tottenham contains in Form 10-KSB for the fiscal year
ended December 31, 1996 (File No. 0-25244).
</TABLE>
39
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.25 Employment Agreement date February 1, 1997 Incorporated by reference to Exhibit 10.25
between the Company and Christopher Moore contains in Form 10-KSB for the fiscal
year ended December 31, 1996 (File No.
0-25244).
10.26 Cancellation Agreement dated as of October Incorporated by reference to Exhibit 10.26
3, 1996 between the Company and Mid-City contained in the Form 10-KSB for the
Associates fiscal year ended December 31, 1996 (File
No. 0-25244).
10.27 Agreement of Lease dated as of October 2, Incorporated by reference to Exhibit 10.27
1996 between the Company and Mid-City contained in the Form 10-KSB for the
Associates fiscal year ended December 31, 1996 (File
No. 0-25244).
10.28 Stock Purchase Agreement dated as of January Incorporated by reference to Exhibit 10.28
1, 1997 among the Company, Andrew Tottenham contained in the Form 10-KSB for the
and Robin Tottenham fiscal year ended December 31, 1996 (File
No. 0-25244).
10.29 Employment Agreement dated April 15, 1997 Incorporated by reference to Exhibit 10.29
between Company and James Hardman contained in Form 10-KSB for the fiscal
year ended December 31, 1997 filed on
March 30, 1998. (File No. 0-25244)
10.30 Stock Purchase Agreement dated as of January Incorporated by reference to Exhibit 10.30
20, 1998 between the Company and 21st contained in Form 10-KSB for the fiscal
Century Resorts year ended December 31, 1997 filed on
March 31, 1998. (File No. 0-25244)
10.31 Form of the Subscription Agreement for the Incorporated by reference to Exhibit 10.31
Private Placement contained in Form 10-KSB for the fiscal
year ended December 31, 1997 filed on
March 31, 1998. (File No. 0-5244)
10.32 Escrow Agreement dated March 17, 1998 among Incorporated by reference to Exhibit 10.32
the Company, TWG Finance Corp., TWG contained in Form 10-KSB for the fiscal
International U.S. Corporation as Issuer and year ended December 31, 1997 filed on
U.S. Trust Company of Texas, N.A., as Trustee March 30, 1998. (File No. 0-25244)
10.33 Consulting Agreement between Chrysolith, Incorporated by reference to Exhibit 10
L.L.C. and Lee Young dated January 1, 1997 contained in the Form 10-QSB for the
quarter ended June 30, 1996 filed on
August 14, 1996 (File No. 0-25244)
10.34 Purchase Agreement dated as of April 15, Incorporated by reference to Exhibit 10.34
1997 among the Company, James R. Hardman, contained in the Form 10-Q for the quarter
Jr. and Multiple Application Tracking System ended March 31, 1997, filed on May 9, 1997
(File No. 0-25244)
10.35 License Agreement dated as of April 15, 1997 Incorporated by reference to Exhibit 10.35
between the Company and James R. Hardman, Jr. contained in the Form 10-Q for the quarter
ended March 31, 1997, filed on May 9, 1997
(File No. 0-25244)
- ------------------------------------------------------------------------------------------------------------------
40
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------
10.36 Loan Agreement dated June 11, 1997 between Incorporated by reference to Exhibit
the Company and Value Partners 10.36 contained in the Form 8-K filed on
June 17, 1997 (File No. 0-25244)
10.37 $350,000 Senior Promissory Note dated June Incorporated by reference to Exhibit
11, 1997 10.37 contained in the Form 8-K filed on
June 17, 1997 (File No. 0-25244)
10.38 Joint Activity Agreement dated March 31, Incorporated by reference to Exhibit
1997 between Mr. Mahmud Avdiyev and 10.38 contained in the Form 8-K filed on
Tottenham & Co., d/b/a ART marketing Ltd. June 17, 1997 (File No. 0-25244)
10.39 Loan Agreement dated October 27, 1997, Incorporated by reference to Exhibit
between Value Partners, and the Company 10.39 contained in the Form 10-QSB for
the quarter ended September 30, 1997,
filed on November 12, 1997 (File No.
0-25244)
10.40 $262,500 Senior Promissory Note dated Incorporated by reference to Exhibit
October 27, 1997 10.40 contained in the Form 10-QSB for
the quarter ended September 30, 1997,
filed on November 12, 1997 (File No.
0-25244)
10.41 Warrant to Purchase Common Stock dated Incorporated by reference to Exhibit
November 27, 1997 10.41 contained in the Form 10-QSB for
the quarter ended September 30, 1997,
filed on November 12, 1997 (File No.
0-25244)
10.42 Employment Agreement between the Company Incorporated by reference to Exhibit
and Rami S. Ramadan dated July 12, 1999 10.42 contained in the Form 8-K filed on
July 13, 1999 (File No. 0-25244)
10.43 Severance Agreement between the Company Incorporated by reference to Exhibit
and Stanley Kohlenberg dated May 23, 1999 10.43 contained in the Form 8-K filed on
July 13, 1999 (File No. 0-25244)
10.44 Severance Agreement among the Company, Incorporated by reference to Exhibit
Trans World Gaming of Louisiana, TWG 10.44 contained in the Form 8-K filed on
International U.S. Corporation and TWG July 13, 1999 (File No. 0-25244)
Finance Corp. and Dominick J. Valenzano
dated July 12, 1999
10.45 Form of Lease Agreement between London Incorporated by reference to Exhibit
Investments s.r.o. and the Company 10.45 contained in the Form 8-K filed on
July 13, 1999 (File No. 0-25244)
10.46 1998 Incentive Stock Option Plan Filed herewith. (File No. 0-25244)
Filed herewith. (File No. 0-25244)
10.47 1999 Non-Employee Director Stock Option Filed herewith. (File No. 0-25244)
Plan
10.48 Form 12% Secured Senior Note due March 2005 Filed herewith. (File No. 0-25244)
10.49 Form of Warrant to Purchase Common Stock Incorporated by reference to Exhibit
dated October 15, 1999 16.1 contained in the Form 10-QSB for
the fiscal year ended December 31, 1995,
filed on November 12, 1997 (File No.
0-25244)
16.1 Letter from Bederson & Co. (the Company's
former independent public accountants)
relating to a change of accountants
16.2 Letter from Pannell, Kerr, Forster PC (the Incorporated by reference to Exhibit
Company's former independent public 16.2 contained in the Form 8-K filed
on accountants) relating to a change of February 25, 1999 (File No. 0-25244)
accountants Filed herewith (File No. 0-25244)
- ------------------------------------------------------------------------------------------------------------------
41
<PAGE>
- ------------------------------------------------------------------------------------------------------------------
21.0 Subsidiaries Filed herewith (File No. 0-25244)
27.1 Financial Data Schedule Filed herewith
</TABLE>
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1999 AND 1998
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statements of Operations and Comprehensive Loss 3
Consolidated Statements of Stockholders' Deficit 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-23
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Trans World Gaming Corp.
We have audited the accompanying consolidated balance sheet of Trans World
Gaming Corp. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations and comprehensive loss, stockholders'
deficit and cash flows for the years ended December 31, 1999 and 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of a wholly-owned subsidiary, which statements reflect total assets
of approximately $1,636,000 as of December 31, 1999, and total revenues of
approximately $3,877,000 and $3,481,000 for the years ended December 31, 1999
and 1998, respectively. Those financial statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for the wholly-owned subsidiary, is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our report and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Trans World Gaming
Corp. and Subsidiaries as of December 31, 1999, and the consolidated results of
their operations and their cash flows for the years ended December 31, 1999 and
1998, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered significant losses
from operations and has a working capital deficit and a stockholders' deficit at
December 31, 1999. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding those
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Roseland, New Jersey
February 17, 2000, except for Note
15, for which the date is March 28, 2000
1
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
(in thousands, except for per share data)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 934
Accounts receivable 38
Prepaid expenses and other current assets 770
------------------
TOTAL CURRENT ASSETS 1,742
------------------
PROPERTY AND EQUIPMENT, net 5,112
------------------
OTHER ASSETS
Goodwill and other intangible assets, less accumulated
amortization of $3,999 10,429
Deposits and other assets 710
------------------
11,139
------------------
$ 17,993
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Short-term debt $ 146
Accounts payable 1,804
Accrued expenses and other current liabilities 3,768
------------------
TOTAL CURRENT LIABILITIES 5,718
------------------
LONG-TERM LIABILITIES
Long-term debt 20,549
Other long-term liabilities 5,970
------------------
26,519
------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, 2,000 shares authorized,
none issued
Common stock $.001 par value, 50,000 shares authorized,
5,365 shares issued and outstanding 5
Additional paid-in capital 10,104
Stock warrants outstanding 4,912
Accumulated other comprehensive income 1,035
Accumulated deficit (30,300)
------------------
TOTAL STOCKHOLDERS' DEFICIT (14,244)
------------------
$ 17,993
==================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
Years Ended December 31, 1999 and 1998
(in thousands, except for per share data)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
REVENUES $ 12,294 $ 9,016
------------------ ------------------
COSTS AND EXPENSES
<S> <C> <C>
Cost of revenues 8,149 7,458
Depreciation and amortization 2,485
2,839 2,486
4,349 4,000
Write-offs 559
------------------ ------------------
15,337 16,988
------------------ ------------------
LOSS FROM OPERATIONS (3,043) (7,972)
------------------ ------------------
OTHER INCOME (EXPENSE)
Interest income 40 85
Interest expense (3,025) (2,465)
Foreign exchange gain (loss) (217) 148
Other 58 (296)
------------------ ------------------
(3,144) (2,528)
------------------ ------------------
LOSS BEFORE INCOME TAXES (6,187) (10,500)
INCOME TAXES, foreign (191)
------------------ ------------------
LOSS FROM CONTINUING OPERATIONS (6,187) (10,691)
DISCONTINUED OPERATIONS, loss from operations of discontinued
truckstop segment (222) (38)
------------------ ------------------
NET LOSS (10,729)
$ (6,409) $
================== ==================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, basic and diluted
3,598 3,044
================== ==================
LOSS PER COMMON SHARE, basic and diluted
From continuing operations $ (1.72) $ (3.51)
From discontinued operations
(0.06) (0.01)
================== ================
Net loss $ (1.78) (3.52)
================== ================
COMPREHENSIVE LOSS
NET LOSS $ (6,409) $ (10,729)
OTHER COMPREHENSIVE INCOME, foreign currency
translation adjustment 112
923
------------------ ------------------
COMPREHENSIVE LOSS $ (5,486) $ (10,617)
================== ==================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 1999 and 1998
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
---------------------------------
Shares Amount Capital
---------------- --------------- -------------------
<S> <C> <C> <C>
BALANCES, January 1, 1998 3,044 $ 3 $ 8,896
ISSUANCE OF STOCK WARRANTS
ISSUANCE OF COMMON STOCK
IN SETTLEMENT OF NOTES PAYABLE AND
ACCRUED INTEREST 320 240
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
NET LOSS
---------------- --------------- -------------------
BALANCES, December 31, 1998 3,364 3 9,136
ISSUANCE OF WARRANTS
EXERCISE OF WARRANTS 2,001 2 968
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
NET LOSS
---------------- --------------- -------------------
BALANCES, December 31, 1999 5,365 $ 5 $ 10,104
============== ============ ===================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Stock Other
Warrants Comprehensive Accumulated
Outstanding Income Deficit
------------------ ----------------- ------------------
<S> <C> <C> <C>
BALANCES, January 1, 1998 $ 537 $ - $ (13,162)
ISSUANCE OF STOCK WARRANTS 4,700
ISSUANCE OF COMMON STOCK
IN SETTLEMENT OF NOTES PAYABLE AND
ACCRUED INTEREST
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 112
NET LOSS (10,729)
------------------ ----------------- ------------------
BALANCES, December 31, 1998 5,237 112 (23,891)
ISSUANCE OF WARRANTS 625
EXERCISE OF WARRANTS (950)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 923
NET LOSS (6,409)
------------------ ----------------- ---------------
BALANCES, December 31, 1999 $ 4,912 $ 1,035 $ (30,300)
================== ================= ===============
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Deficit
-------------------
<S> <C>
BALANCES, January 1, 1998 $ (3,726)
ISSUANCE OF STOCK WARRANTS 4,700
ISSUANCE OF COMMON STOCK
IN SETTLEMENT OF NOTES PAYABLE AND
ACCRUED INTEREST 240
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 112
NET LOSS (10,729)
-------------------
BALANCES, December 31, 1998 (9,403)
ISSUANCE OF WARRANTS 625
EXERCISE OF WARRANTS 20
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 923
NET LOSS (6,409)
---------------
BALANCES, December 31, 1999 $ (14,244)
===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FIANCIAL STATEMENTS.
4
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
(in thousands, except for per share data)
<TABLE>
<CAPTION>
1999 1998
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,409) $ (10,729)
Add: loss from discontinued operations (222) (38)
------------------ -------------------
Loss from continuing operations (6,187) (10,691)
Adjustments to reconcile net loss from continuing operations to net cash used in
continuing operations:
Provision for allowance for doubtful accounts 252
Depreciation and amortization 2,839 2,485
Noncash interest 542 610
Provision for impairment 4,000
Write-offs 559
Other 8
Increase (decrease) in cash attributable to changes in operating assets
and liabilities:
Accounts and other receivables 186 (25)
Prepaid expenses and other current assets (331) (540)
Other assets (85) (612)
Accounts payable, accrued expenses and other liabilities 2,369 2,590
------------------ ---------------------
(667) (1,364)
Net cash provided by (used in) discontinued operations (197) 28
------------------ ---------------------
NET CASH USED IN OPERATING ACTIVITIES (864) (1,336)
------------------ ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of Resorts and CDZ, net of cash acquired (12,754)
Purchases of property and equipment (2,422) (1,476)
Payment for deposit (34)
Proceeds from the sale of property of discontinued operations 379
------------------ -------------------
NET CASH USED IN INVESTING ACTIVITIES (2,077) (14,230)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term debt 450 1,250
Payments of short-term debt (1,360) (194)
Proceeds from long-term debt 3,000 17,525
Payments of long-term debt (1,312)
Proceeds from exercise of warrants 20
------------------ -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,110 17,269
------------------ -------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (190) 54
------------------ -------------------
NET INCREASE (DECREASE) IN CASH (1,021) 1,757
CASH
Beginning of year 1,955 198
------------------ -------------------
End of year $ 934 $ 1,955
================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED) Years Ended December 31,
1999 and 1998
(in thousands, except for per share data)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the year for:
Interest $ 2,515 $ 1,706
================== ==================
Income taxes, foreign $ 162 346
================== ==================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Common stock issued in settlement of notes payable
and accrued interest $ - $ 240
================== ==================
Issuance of stock warrants with debt $ 625 $ 4,700
================== ==================
Note payable forgiven in connection with sale of subsidiary $ 206 $ -
================== ==================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 1 - NATURE OF BUSINESS AND GOING CONCERN CONSIDERATION
OVERVIEW
Trans World Gaming Corp. and Subsidiaries (the "Company"), a
Nevada corporation, is primarily engaged in the gaming business in
the United States, the Czech Republic and Spain. Its United States
gaming operations ceased as of June 30, 1999 (sEE NOTE 14).
GAMING OPERATIONS - UNITED STATES
Until March 1998, the Company's only gaming operations were two
video poker parlors ("Gold Coin" and "Toledo Palace") situated at
truck stops in Louisiana. The Company's video poker operations in
Louisiana were managed by Chrysolith, LLC ("Chrysolith"), a
Louisiana-licensed video gaming operator in which the Company owns
49% of its Class B membership units.
As a result of parish (county) votes to eliminate video poker in
the parishes in Louisiana where the Company's video poker
operations are located, the Company ceased its video poker
operations on June 30, 1999. The Company, together with other
companies operating video poker parlors in the affected parishes,
continue to challenge the votes through the courts. The viability
of such challenge is uncertain.
GAMING OPERATIONS - CZECH REPUBLIC
In March 1998, the Company acquired a company operating two
casinos in the western Czech Republic, close to the border of the
German State of Bavaria (SEE NOTE 3). The larger casino, located
in Ceska Kubice, currently has fifteen table games and seventy
slot machines. The smaller casino, located in Rozvadov, currently
has seven table games and thirty-eight slot machines.
As part of the March 1998 transaction, the Company also acquired
land in the southern Czech Republic, close to the border of
Austria. In December 1999, construction of the Company's third
Czech casino was completed on the land and operations commenced.
The newly-opened casino, located in Hate (near Snojmo), currently
has eleven table games and forty-two slot machines.
GAMING OPERATIONS - SPAIN
In April 1998, the Company acquired a company that owns the
license to operate the only casino in the Spanish province of
Aragon (SEE NOTE 3). The casino, with nine table games and
twenty-four slot machines, is currently situated fifteen miles
outside of Zaragoza. The Company had reached an understanding with
an agency of the provincial government, the Diputacion General de
Aragon ("DGA"), to allow the casino to move to the center of
Zaragoza, subject to the issuance of a decree. However, instead of
a decree, in February 2000, the DGA introduced a law that would
allow the casino to relocate. The law is expected to be presented
to local Spanish parliament in June 2000. Management has indicated
that, based on its discussions with Spanish authorities, the law
has little opposition and is expected to pass.
OTHER -
In March 1997, the Company, through a wholly-owned subsidiary,
signed a twenty-year consulting agreement with the owner and
operator of Boxer Casino located in Gyandja, Azerbaijan Republic
(a former member of the Soviet Union). In January 1998, the
Company, through a wholly-owned subsidiary, entered into a
twenty-year management agreement with Jockey Club Casinos LLC for
the management and operation of a casino in Bishkek, Kyrgyz
Republic (a former member of the Soviet Union). Both of these
arrangements were abruptly halted by local governments' decisions
to cease casino operations and written off by the Company during
the year ended December 31, 1998 (SEE NOTE 9).
7
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 1 - NATURE OF BUSINESS AND GOING CONCERN CONSIDERATION (CONTINUED)
GOING CONCERN CONSIDERATION
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
The Company has suffered significant losses from operations and
has a working capital deficit of $3,976 and a stockholders'
deficit of $14,244 as of December 31, 1999. Furthermore, the
Company is highly leveraged with debt (SEE NOTE 5). These
conditions raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty. The Company has taken steps to improve its
situation including the December 1999 opening of its third Czech
casino and certain cost cutting measures. Further, management's
plans include an expansion strategy to counter the affects of
seasonality on the Company's cash flows. The goals of the
expansion strategy are to diversify the Company's portfolio of
operations in terms of geographical location and to add hotels to
the mix of operations. In implementing its expansion strategy, the
Company is seeking management or joint venture agreements and
leased space arrangements that will avoid further indebtedness.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company and its
wholly-owned and majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
CASH - Cash consists of cash in banks and on hand. The Company
maintains its bank accounts at several financial institutions
which, at times, may exceed Federal Deposit Insurance Corporation
("FDIC") insured limits. In addition, the Company's foreign cash,
aggregating $818 at December 31, 1999, is not insured by the FDIC.
The Company has not incurred any losses in such accounts and
believes it is not exposed to any significant credit risk on cash.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost
less accumulated depreciation and amortization. The Company
provides for depreciation and amortization using the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
ASSETS LIFE
<S> <C>
Building and improvements 45 years
Gaming equipment 4-12 years
Furniture, fixtures and other equipment 3-8 years
</TABLE>
PRE-OPENING AND DEVELOPMENT COSTS - Pre-opening and development
costs incurred in connection with the pursuit and development of
new gaming projects in various jurisdictions are expensed as
incurred.
8
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL - Goodwill, which represents the excess of cost of
acquired companies over the fair value of their net assets at
dates of acquisition, is being amortized on a straight-line basis
over 7 years.
The carrying value of goodwill is periodically reviewed by the
Company based upon the expected future undiscounted operating
cash flows of the related business (SEE NOTE 9).
FOREIGN CURRENCY TRANSLATION - For foreign subsidiaries whose
functional currency is the local foreign currency, balance sheet
accounts are translated at exchange rates in effect at the end of
the year and statement of operations accounts and cash flows are
translated at average exchange rates for the year. Resulting
translation adjustments are included in accumulated other
comprehensive income.
LOSS PER COMMON SHARE - Loss per common share is based on the
weighted average number of common shares outstanding.
The Company complies with Statement of Financial Accounting
Standards ("SFAS") 128, "Earnings Per Share", which requires dual
presentation of basic and diluted earnings per share. Basic
earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average
common shares outstanding for the year. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
Since the effect of outstanding warrants and options is
antidilutive, they have been excluded from the Company's
computation of loss per common share.
INCOME TAXES - The Company complies with SFAS 109, "Accounting for
Income Taxes", which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible
amounts, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
CASINO REVENUE - Casino revenue is the net win from gaming
activities, which is the difference between gaming wagers less the
amount paid out to patrons.
PROMOTIONAL ALLOWANCES - Promotional allowances primarily consist
of food and beverages furnished gratuitously to customers. For the
years ended December 31, 1999 and 1998, revenues do not include
the retail amount of food and beverage of $128 and $194,
respectively, provided gratuitously to customers. The cost of
these items of $55 and $82, respectively, is included in cost of
revenues.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair values of the
Company's assets and liabilities which qualify as financial
instruments under SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," approximate their carrying amounts
presented in the consolidated balance sheet at December 31, 1999.
9
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically reviews
the carrying value of its long-lived assets in relation to
historical results, as well as management's best estimate of
future trends, events and overall business climate. If such
reviews indicate that the carrying value of such assets may not be
recoverable, the Company would then estimate the future cash flows
(undiscounted and without interest charges). If such future cash
flows are insufficient to recover the carrying amount of the
assets, then impairment is triggered and the carrying value of any
impaired assets would then be reduced to fair value.
RECLASSIFICATIONS - Certain prior year amounts have been
reclassified to conform to the 1999 presentation.
INVESTMENT CARRIED AT EQUITY - The Company's investment in
Chrysolith is being accounted for under the equity method of
accounting. Accordingly, the investment is recorded at cost and
adjusted for the Company's proportionate share of undistributed
earnings or losses (SEE NOTE 13).
DEBT ISSUANCE COSTS - Cost incurred in connection with certain of
the Company's debt financing were deferred and amortized on a
straight-line basis over the term of the related debt.
Amortization of debt issuance costs were $145 and $279 for the
years ended December 31, 1999 and 1998, respectively.
NOTE 3 - BUSINESS COMBINATIONS
On March 31, 1998, the Company acquired substantially all of the
voting and non-voting interests of 21st Century Resorts a.s.
("Resorts"), a Czech Republic joint stock company, Resorts'
subsidiaries and certain assets of companies affiliated with
Resorts in a business combination accounted for as a purchase.
Resorts, through its subsidiaries, operates three casinos in the
Czech Republic including its newly-opened casino near Snojmo. The
results of operations of Resorts have been included in the
accompanying consolidated financial statements since the date of
acquisition. The total cost of the acquisition of $12,356
(including acquisition costs of $1,584) was allocated to the
assets acquired and liabilities assumed based on their estimated
fair values. The excess of the total cost over the fair value of
the net assets acquired (goodwill), $10,537 is being amortized on
the straight-line basis over seven years.
On April 17, 1998, the Company acquired 90% of the shares of
Casino de Zaragoza, S.A. ("CDZ") in a business combination
accounted for as a purchase. The results of operations of CDZ have
been included in the accompanying consolidated financial
statements since the date of acquisition. The total cost of the
acquisition of $1,458 (including acquisition costs of $678) was
allocated to the assets acquired and liabilities assumed based on
their estimated fair values. Goodwill of $7,367 is being amortized
on the straight-line basis over seven years.
10
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 3 - BUSINESS COMBINATIONS (CONTINUED)
During the fourth quarter of 1998, the Company adjusted the
carrying amount of goodwill as it relates to the Resorts and
CDZ acquisitions by $2,500 and $1,500, respectively (SEE
NOTE 9).
The following summarized unaudited 1998 consolidated pro forma
information assumes the 1998 acquisitions had occurred on January
1, 1998.
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 11,370
===================
Loss from continuing operations $ (11,705)
===================
Loss per common share from continuing operations,
basic and diluted $ (3.85)
===================
</TABLE>
The summarized unaudited 1998 consolidated pro forma results are
not necessarily indicative of results which actually would have
occurred if the acquisitions had actually occurred on January 1,
1998. Further, the summarized unaudited 1998 consolidated pro
forma results are not intended to be a projection of future
results and do not reflect any integration costs or cost savings
resulting from synergistic opportunities.
NOTE 4 - PROPERTY AND EQUIPMENT
At December 31, 1999, property and equipment consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 1,121
Building and improvements 1,519
Gaming equipment 1,650
Furniture, fixtures and other equipment 1,732
Construction in progress 217
-------------------
6,239
Less accumulated depreciation and amortization 1,127
-------------------
$ 5,112
===================
</TABLE>
11
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 5 - LONG-TERM DEBT
At December 31, 1999, long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C>
12% Senior Secured Promissory Notes (a) (d) $ 17,000
12% Secured Convertible Senior Bonds (b) 4,800
12% Senior Secured Note due March 17, 2005 ( c) (d) 3,000
-------------------
24,800
Less unamortized debt discount (4,251)
-------------------
$ 20,549
===================
</TABLE>
(a) In March 1998, the Company borrowed $17,000 ($9,000 from Value
Partners, Ltd. - "Value Partners") in a private placement
("March 1998 Private Placement"). The loan is represented by
12% Senior Secured Notes ("March 1998 Senior Notes") issued
pursuant to indentures by and among the Company and an
independent indenture trustee. The March 1998 Senior Notes,
which are due March 2005, require mandatory prepayments based
upon excess cash flows generated from Resorts. The March 1998
Senior Notes are collateralized by substantially all of
Resort's gaming equipment and a majority interest in the
capital stock of all of the Company's subsidiaries (except
CDZ). In addition to the March 1998 Senior Notes, each
investor received a proportionate share of warrants to
purchase 7,087 shares of the Company's common stock (SEE NOTE
11).
The indentures were amended in October 1998 in connection with
the restructuring of the Company's ownership of Resorts as a
result of a 1998 change in Czech gaming law which restricted
foreign ownership of Czech casinos. The amended indentures did
not alter the underlying basis of the March 1998 Senior Notes.
Of the $17,000 principal amount of notes and warrants issued
in the March 1998 Private Placement, the Company has allocated
approximately $4,700 as the estimated value of the warrants
issued with the notes. This amount is being amortized as
additional interest expense with a corresponding increase to
notes payable over the lives of the respective notes using the
effective interest method until such notes are repaid. At
December 31, 1999 approximately $1,054 has been amortized and
the remaining balance of approximately $3,646 at December 31,
1999 is reflected as a reduction of notes payable.
(b) As a condition to the March 1998 Private Placement, the
Company was required to renegotiate the terms and conditions
of the 12% Secured Convertible Senior Bonds ("Senior Bonds")
originally due June 30, 1999. In March 1998, the Company and
the holders of the Senior Bonds agreed to amend such
indebtedness as follows: (i) the principal and interest
obligations was to be paid only from excess cash flow
generated from the terminated Louisiana operations and Bishkek
operations; (ii) the maturity date was extended to December
31, 2005; (iii) the ability to convert the Senior Bonds into
the Company's common stock was terminated; (iv) the holders of
the Senior Bonds received Series A warrants and Series B
warrants (SEE NOTE 11). Value Partners hold $3,000 of the
Senior Bonds. The Senior Bonds were collateralized by all of
the Company's Louisiana assets.
12
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 5 - LONG-TERM DEBT (CONTINUED)
(c) In October 1999, the Company borrowed $3,000 ($2,700 from
Value Partners) in a private placement ("October 1999 Private
Placement"). The loan is represented by 12% Senior Secured
Notes ("October 1999 Senior Notes") issued pursuant to
indentures by and among the Company and an independent
indenture trustee. The October 1999 Senior Notes, which are
due March 2005, require mandatory prepayments based upon
excess cash flows generated from Resorts. The October 1999
Senior notes are collateralized by primarily all of Resort's
gaming equipment and a majority interest in the capital stock
of all of the Company's subsidiaries (except CDZ). In addition
to the October 1999 Senior Notes, each investor received a
proportionate share of warrants to purchase 1,251 shares of
the Company's common stock (SEE NOTE 11).
Of the $3,000 principal amount of notes and warrants issued in
the October 1999 Private Placement, the Company has allocated
approximately $625 as the estimated value of the warrants
issued with the notes. This amount is being amortized as
additional interest expense with a corresponding increase to
notes payable over the lives of the respective notes using the
effective interest method until such notes are repaid. At
December 31, 1999, approximately $20 has been amortized and
the remaining balance of approximately $605 at December 31,
1999 is reflected as a reduction to notes payable.
(d) The Company was not in compliance with certain covenants in
certain of its long-term debt obligations. In March 2000, the
Company received waivers on the defaults from the holder of
the majority in interest of those debt instruments (Value
Partners) (SEE NOTE 15).
NOTE 6 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
At December 31, 1999, accrued expenses and other current
liabilities consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Taxes payable to Spanish Taxing
Authorities (SEE NOTE 7) $ 1,315
Accrued interest 1,399
Other 1,054
------------------
$ 3,768
=====================
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS - The Company is obligated under operating
leases relative to its various facilities expiring through 2010.
Future aggregate minimum annual rental payments under all of these
leases for the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 464
2001 442
2002 444
2003 418
2004 410
</TABLE>
Rent expense under these leases amounted to approximately $120 for
each of the years ended December 31, 1999 and 1998.
13
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS - The Company has entered into employment
agreements with certain of its executives which provide for annual
compensation plus, in most cases, participation in future benefit
programs and stock options plans. Future annual compensation under
these employment agreements is as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 733
2001 590
2002 157
-------------------
$ 1,480
===================
</TABLE>
CONSULTING AGREEMENTS - The Company is obligated to pay a certain
percentage of future revenues of its newly-opened Czech casino
pursuant to a thirty year consulting contract.
CONTINGENCIES - The Company is involved in certain legal actions
that arose in the normal course of business. In the opinion of the
Company's management, the resolution of these matters will not
have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
FOREIGN ACTIVITIES - During the years ended December 31, 1999 and
1998, a substantial amount of the Company's operations are outside
of the United States (SEE NOTE 13). Operating internationally
involves additional risks relating to such things as currency
exchange rates, different legal and regulatory environments,
political and economic risks relating to the stability or
predictability of foreign governments, differences in the manner
in which different cultures do business, difficulties in staffing
and managing foreign operations, differences in financial
reporting, operating difficulties, different types of criminal
threats and other factors. The occurrence of any of these risks,
if severe enough, could have a material adverse effect on the
consolidated financial condition, results of operations and cash
flows of the Company.
COLLECTIVE AGREEMENT - The Company has yet to sign the collective
agreement with its Spanish workforce for the years 1994 through
1999. In the opinion of the Company's management, the resolution
of this matter will not have a material adverse effect on the
consolidated financial position, results of operations or cash
flows of the Company.
TEMPORARY RECEIVERSHIP - On January 25, 1997 (prior to the
Company's acquisition of 90% of CDZ), the directors of CDZ filed
an application in Court of First Instance number 11 of Zaragoza to
declare CDZ in temporary receivership. Temporary receivership was
granted on June 23, 1997.
On April 17, 1998 (the date of the Company's acquisition of 90% of
CDZ), CDZ signed a composition with creditors, most notably the
DGA, the Spanish Social Security Authorities and the City Council
of Alfajarin ("Spanish Taxing Authorities"-SEE NOTES 6 AND 9),
which set the terms of payment to the Spanish Taxing Authorities
and other creditors for debts existing as of January 25, 1997. The
composition with the Spanish Taxing Authorities and other
creditors resulted in a debt reduction of approximately $1,743.
This reduction was accounted for as a reduction of goodwill.
During the years ended December 31, 1999 and 1998, DGA granted the
Company a deferral of approximately $1,784 in taxes on gaming
winnings accruing during 1997-1999. Furthermore, in April 1999,
the Company reached an agreement with the Spanish Social Security
Authorities to defer approximately $1,211 related to all debts
generated in 1997 and the first quarter of 1998.
14
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1999, taxes payable to Spanish Taxing Authorities
consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Gaming tax $ 4,369
Property tax 683
Social security 1,470
Other 553
-------------------
7,075
Less current portion 1,315
-------------------
Long-term portion $ 5,760
===================
</TABLE>
Included in deposits and other assets on the accompanying December
31, 1999 consolidated balance sheet is $61 of restricted cash
guaranteeing the social security tax obligation.
Future aggregate payments to the Spanish Taxing Authorities are
due as follows (excluding interest):
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDING DECEMBER 31,
2000 $ 1,315
2001 1,258
2002 468
2003 468
2004 1,249
Thereafter (through 2009) 2,317
------------------
$ 7,075
==================
</TABLE>
If the Company does not make its payments according to the
schedule and is unable to obtain further deferral from the Spanish
Taxing Authorities, the debt would become immediately payable and
revert to pre receivership levels. Management has indicated that,
based on its discussions with Spanish Taxing Authorities, further
deferral of payments until April 2001 is anticipated.
TAXING JURISDICTION - The Czech Republic currently has a number of
laws related to various taxes imposed by governmental authorities.
Applicable taxes include value added tax ("VAT"), corporate tax,
and payroll (social) taxes, together with others. In addition,
laws related to these taxes have not been in force for significant
periods, in contrast to more developed market economies;
therefore, regulations are often unclear or nonexistent.
Accordingly, few precedents with regard to issues have been
established. Often, differing opinions regarding legal
interpretations exist both among and within government ministries
and organizations, thus, creating uncertainties and areas of
conflict. Tax declarations, together with other legal compliance
areas (as examples, customs and currency control matters) are
subject to review and investigation by a number of authorities,
who are enabled by law to impose extremely severe fines, penalties
and interest charges. These facts create tax risks in the Czech
Republic substantially more significant than typically found in
countries with more developed tax systems. Management believes
that it has adequately provided for tax liabilities.
15
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 8 - STOCKHOLDERS' DEFICIT
In December 1998, the Company issued 320 shares of its common
stock in settlement of unsecured notes payable, and accrued
interest to its president and chief executive officer and his
spouse aggregating $240.
In March 1998 and October 1999, in connection with the issuance of
certain debt instruments (SEE NOTE 5), the Company has allocated
$4,700 and $625, respectively, as the estimated value of the
warrants issued with the debt instruments. Upon surrender of a
warrant , the holder is entitled to purchase one share of the
Company's common stock for $.01. The warrants expire on various
dates through March 31, 2008.
During 1999, certain Series C and Series E warrant holders
exercised warrants to purchase 2,001 shares of the Company's
common stock.
NOTE 9 - OTHER MATTERS
PREPAID EXPENSES AND OTHER CURRENT ASSETS - Included in prepaid
expenses and other current assets at December 31, 1999 is a VAT
receivable from the Czech taxing authorities of $452 and other
items aggregating $318.
LICENSE BOND - Included in deposits and other assets at December
31, 1999 is approximately $612 in restricted deposits relating to
Czech license bond requirements.
SHORT-TERM DEBT - At December 31, 1999, short-term debt consisted
of a working capital loan payable in installments through April
2000. The debt, which is collateralized by the Company's casino in
Rozvadov and guaranteed by Resorts, bears interest at
approximately 10% and is subject to certain covenants.
OTHER LONG-TERM LIABILITIES - Included in other long-term
liabilities at December 31, 1999 are taxes payable to Spanish
Taxing Authorities of $5,760 (see Note 7) and other items
aggregating $210.
SETTLEMENTS - In connection with various legal proceedings related
to the Company's sublease agreement with Prime Properties, Inc.
(the lessor of the Gold Coin facility) which includes the right to
operate its gaming license, the Company negotiated settlements by
and amongst the involved parties. Under the terms of the
settlement, the Company made a settlement payment of $450.
In connection with an action brought by a former affiliate,
alleging the Company's breach of a management contract, the
Company executed a Mutual Release and Settlement Agreement whereby
the Company paid the former affiliate $100 in exchange for release
of all claims against it.
Settlement charges in connection with the preceding legal
proceedings have been reflected in selling, general and
administrative expenses in the accompanying 1998 consolidated
statement of operations.
PROVISION FOR IMPAIRMENT - In light of certain 1998 developments,
in accordance with its policy on impairment of long-lived assets,
the Company adjusted the carrying amounts of its goodwill as it
relates to the Resorts and CDZ acquisitions by $2,500 and $1,500,
respectively, during the fourth quarter of 1998. However, the
Company's management believes that, as a result of (i) improved
revenues in all of its Czech and Spanish casinos, (ii) the
December 1999 opening of its third Czech casino and (iii) positive
developments regarding the relocation of the Spanish casino,
further adjustment is not warranted in 1999.
16
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 9 - OTHER MATTERS (CONTINUED)
In 1998, the Company further wrote-down the value of its
DeRidder, Louisiana land by $192. During the year ended December
31, 1999, the Company sold this land and related property for
$295.
WRITE-OFFS - During 1998, the President of the Azerbaijan Republic
ordered the closure of all casinos in the Republic resulting in
the write-off of the Company's unamortized investment in the Boxer
Casino of approximately $295. Additionally, during 1998, in light
of mounting losses and unrealistic future prospects, the Company
wrote-off its investment in the Bishkek Casino of approximately
$264. Other 1998 write-offs include $204 of receivables from
Chrysolith.
RECAPITALIZATION - Pursuant to Spanish law, in order to maintain
solvency, a Spanish entity must maintain a defined minimum
capitalization. In October 1999, the Company adjusted CDZ's
capital to zero and simultaneously increased it to 250,000 pesetas
(approximately $1,576). As a result of the October 1999
recapitalization, the Company owns 99.92% of CDZ, as a result of
CDZ's prior owner not subscribing to the new shares in the
recapitalization process.
NOTE 10 - INCOME TAXES
At December 31, 1999, the Company's deferred income tax asset is
comprised of the tax benefit (cost) associated with the following
based on the statutory tax rates currently in effect:
<TABLE>
<CAPTION>
U.S. FOREIGN TOTAL
---------------- ---------------- ----------------
<S> <C> <C> <C>
Deferred tax assets
Loss carryforwards $ 3,407 $ 4,492 $ 7,899
Impairment 2,801 2,801
Other 52 52
---------------- ---------------- ----------------
6,208 4,544 10,752
Deferred tax liabilities (11) (11)
---------------- ---------------- ----------------
Deferred tax asset, gross 6,208 4,533 10,741
Valuation allowances (6,208) (4,533) (10,741)
---------------- ---------------- ----------------
Deferred tax asset, net $ - $ - $ -
================ ================ ================
</TABLE>
The following table presents the U. S. and foreign components of
pretax loss from continuing operations before income taxes for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
U.S. $ (4,400) $ (8,562)
Foreign (1,787) (1,938)
------------------- -------------------
$ (6,187) $ (10,500)
=================== ===================
</TABLE>
The 1998 provision for income taxes of $191 relates to earnings
from certain of Resorts' wholly-owned subsidiaries, recognized
under Czech tax laws, as separate reporting entities.
17
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 10 - INCOME TAXES (CONTINUED)
The following table presents the principal reasons for the
differences between the effective tax rate and the U.S. federal
statutory income tax rate for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
U.S federal statutory income tax rate (34%) (34%)
Effect of nondeductibility of goodwill
amortization and impariment 10 19
Effect of net operating loss carryforwards
and valuation allowances, net 29 15
Other (5) 2
------------------ ------------------
34 36
-% 2%
================== ==================
</TABLE>
At December 31, 1999, the Company has net operating loss
carryforwards available for income tax reporting purposes of
approximately:
<TABLE>
<CAPTION>
<S> <C>
U.S. $ 8,735
Foreign 12,857
-------------------
$ 21,592
===================
</TABLE>
The U.S. net operating loss carryforwards expire between 2009 and
2019. The foreign net operating loss carryforwards expire between
2002 and 2009.
NOTE 11 - WARRANTS AND STOCK OPTIONS
WARRANTS
In connection with the October 1999 Private Placement (SEE NOTE
5), the Company issued Series G Warrants to purchase 1,251 shares
of the Company's common stock with an exercise price of $.01 per
share expiring March 31, 2008.
In connection with the March 1998 Private Placement including the
restructuring of certain long-term debt obligations (SEE NOTE 5),
the Company issued the following series of warrants to purchase
the Company's common stock:
Series A Warrants - consists of warrants to purchase 960
shares of the Company's common stock with an exercise price of
$1.00 per share expiring on December 31, 2005. These warrants
were issued to replace warrants in connection with the
issuance of convertible senior bonds dated July 1, 1996.
Series B Warrants - consists of warrants to purchase 3,200
shares of the Company's common stock with an exercise price of
$1.50 per share expiring on December 31, 2005. These warrants
were issued to replace conversion rights in connection with
the convertible senior bonds dated July 1, 1996.
18
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 11 - WARRANTS AND STOCK OPTIONS (CONTINUED)
WARRANTS (CONTINUED)
Series C Warrants - consists of warrants to purchase 7,087
shares of the Company's common stock with an exercise price of
$.01 per share expiring on March 31, 2008. These warrants were
issued pursuant to the March 1998 Private Placement.
Series D Warrants - consists of warrants to purchase 2,052
shares of the Company's common stock with an exercise price of
$.01 per share expiring on March 31, 2008. These warrants were
issued to replace 500 warrants containing anti-dilution
provisions issued in connection with a September 1996
financing.
Series E Warrants - consists of warrants to purchase 354
shares of the Company's common stock with an exercise price of
$.01 per share expiring on March 31, 2008. These warrants were
issued to the placement agent and its affiliates pursuant to
the March 1998 Private Placement.
In connection with a March 1998 debt financing to fund the Bishkek
Casino transaction (SEE NOTE 1), the Company issued warrants to
purchase 104 shares of the Company's common stock with an exercise
price of $.01 per share expiring on March 31, 2008.
All of the warrants issued in 1998 contain certain demand
registration rights provided that the holders of such warrants
hold in excess of 100 shares. The Series C and E Warrants also
contain anti-dilution provisions.
19
<PAGE>
NOTE 11 - WARRANTS AND STOCK OPTIONS (CONTINUED)
For the years ended December 31, 1999 and 1998, warrant activity
is as follows:
<TABLE>
<CAPTION>
PRICE BALANCE, BALANCE, BALANCE,
PER JANUARY 1, GRANTED EXPIRED DECEMBER 31, GRANTED EXERCISED EXPIRED DECEMBER 31,
SHARE 1998 1998 1998 1998 1999 1999 1999 1999
- ------------ ------------ ----------- ---------- ------------- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 13.50 151 151 (151)
11.55 151 151 (151)
8.50 1,511 1,511 (1,511)
1.50 3,200 3,200 3,200
1.00 960 960 (960) 960 960
0.59 250 250 250
0.50 131 90 221 (221)
0.01 500 9,598 (500) 9,598 1,251 (2,001) 8,848
------------------------------------------------------------------------------------------------------------
3,654 13,848 (1,460) 16,042 1,251 (2,001) (2,034) 13,258
============================================================================================================
</TABLE>
All warrants outstanding at December 31, 1999 are exercisable.
STOCK OPTION PLANS
The Company has incentive and nonstatutory stock option plans
under which certain key employees may purchase up to a total of
2,000 common shares of the Company. Under the incentive stock
option plan, the exercise price can not be less than the fair
market value of a share on the date of grant or at 110 percent of
the fair market value on the date of grant, if, any employee owns
more than 10 percent of the total combined voting power of all
classes of outstanding stock of the Company. In addition, the
incentive stock option plan provided for automatic grant of an
option to purchase 2 shares of common stock to non-employee
directors on a quarterly basis. In the case of a nonstatutory
stock option, the exercise price may be any amount determined by
the Board on the date of grant, but not less than the par value of
the stock subject to the option.
During 1999, in light of diminishing shares remaining available
for grant to non-employee directors, the Company's Board of
Directors approved the 1999 Non-Employee Director Stock Option
Plan (the "1999 Plan"). Under the 1999 Plan, an aggregate of 250
shares of the Company's common stock were reserved for issuance
pursuant to options issued pursuant to the 1999 Plan. The 1999
Plan provides for an automatic grant of an option to purchase 2
shares of common stock to non-employee directors on a quarterly
basis. Under the 1999 Plan, the exercise price shall equal the
fair market value of the Company's common stock on the date of
grant. Options issued under the 1999 Plan shall be immediately
exercisable over ten years.
20
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 11 - WARRANTS AND STOCK OPTIONS (CONTINUED)
The activity in the stock option plans is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
NUMBER OF WEIGHTED
OPTIONS RANGE AVERAGE
------------------- ------------------- ------------------
Balance outstanding,
<S> <C> <C> <C>
January 1, 1997 573 $ .91-9.00 $ 4.64
Granted 267 .30-2.00 0.56
Expired (320) 7.00 7.00
------------------- ------------------- ------------------
Balance outstanding,
January 1, 1998 520 .30-9.00 1.09
Granted 125 .24 - .63 0.25
Expired (6) .30-1.59 0.80
------------------- ------------------- ------------------
Balance outstanding,
December 31, 1998 639 .24-9.00 0.93
Granted 131 .24 - .83 0.50
------------------- ------------------- ------------------
Balance outstanding,
December 31, 1999 770 $ .24-9.00 $ 0.86
=================== =================== ==================
Exercisable,
December 31, 1999 639 $ .24-9.00 $ 0.93
=================== =================== ==================
</TABLE>
There were no options exercised during 1999 or 1998. The option
price per share was equal to or above the market value of the
underlying stock on the date of grant. Options generally expire
between five and ten years after the date of grant or earlier upon
termination as defined in the plans.
The Company complies with the disclosure-only provisions of SFAS
123, "Accounting for Stock-Based Compensation".
21
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 11 - WARRANTS AND STOCK OPTIONS (CONTINUED)
The Company applies APB Opinion No. 25 and related interpretations
in accounting for its stock option plans and, accordingly, no
compensation cost has been recognized because stock options
granted under the plans were at exercise prices which were equal
to or above the market value of the underlying stock at date of
grant. Had compensation expenses been determined as provided by
SFAS 123 using the Black-Scholes option-pricing model, the pro
forma effect on the Company's net loss and per share amounts would
have been:
<TABLE>
<CAPTION>
1999 1998
Net loss
<S> <C> <C>
As reported $ (6,409) $ (10,729)
Pro forma (6,469) (10,759)
Loss per common share,
basic and diluted
As reported $ (1.78) $ (3.52)
Pro forma (1.80) (3.53)
</TABLE>
The fair value of each option grant is calculated using the
following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Expected life (years) 5 5
Risk-free rate 5% 5%
Volatility 154% 275%
Dividend yield 0% 0%
</TABLE>
NOTE 12 - INFORMATION CONCERNING GEOGRAPHIC AREAS
During the years ended December 31, 1999 and 1998, the Company
operated principally in three geographic areas: the United States,
the Czech Republic and Spain. The following table presents
information about the Company by geographic area. There were no
material amounts of sales or transfers among geographic areas.
<TABLE>
<CAPTION>
UNITED CZECH
STATES REPUBLIC SPAIN OTHER ELIMINATIONS CONSOLIDATED
-------------- --------------- --------------- -------------- -------------- ---------------
1999
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,549 $ 8,250 $ 3,877 $ 167 $ (2,519) $ 15,324
Long-lived assets 9 10,475 4,711 346 15,541
1998
Revenues $ 6,114 $ 5,466 $ 2,778 $ 1,080 $ (359) $ 15,079
Long-lived assets 184 10,524 5,444 441 16,593
</TABLE>
22
<PAGE>
TRANS WORLD GAMING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
NOTE 13 - SUMMARIZED FINANCIAL INFORMATION
The Company has a nonvoting 49% interest in Chrysolith and entered
into an agreement with Chrysolith pursuant to which Chrysolith
owns, maintains and operated (through June 30, 1999) the video
lottery terminals at the Gold Coin and Toledo Palace properties.
Prior to July 1, 1999, the Company received 100% of the net
operating revenues (the "Net Win") derived from the Gold Coin and
the Toledo Palace, after payment of all the gaming taxes payable
to the State of Louisiana and payout of winnings from the gaming
establishments. Further, the Company paid a management fee to
Chrysolith in an amount equal to the direct operating expenses of
the gaming establishment. A summary of the December 31, 1999 and
1998 financial information of Chrysolith is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets $ 291 $ 442
Liabilities 216 367
Stockholders' equity 75 75
Net income - -
</TABLE>
NOTE 14 - DISCONTINUED OPERATIONS
The Company's United States gaming operations ceased as of June
30, 1999. Summary operating results of discontinued operations
for the years ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES $ 3,030 $ 6,063
------------------- -------------------
COSTS AND EXPENSES
Cost of revenues 1,506 2,879
Depreciation and amortization 145 285
Selling general and administrative 1,025 1,903
Provision for impairment 192
Write-offs 204
------------------- -------------------
2,676 5,463
------------------- -------------------
INCOME FROM OPERATIONS 354 600
INTEREST 576 638
------------------- -------------------
$ (222) $ (38)
</TABLE>
NOTE 15- SUBSEQUENT EVENTS
In March 2000, the Company received waivers on all defaults under
the March 1998 Senior Notes and October 1999 Senior Notes.
In March 2000, the Company executed an approximate $550,000 Czech
bank note payable in equal monthly payments through September
2001. The bank note bears interest at approximately 10.5% per
annum and is collateralized by certain Czech property.
23
<PAGE>
CASINO DE ZARAGOZA, S.A.
CONSOLIDATED ANNUAL ACCOUNTS
AS OF DECEMBER 31, 1999
TOGETHER WITH AUDITORS' REPORT
<PAGE>
CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) DESCRIPTION OF BUSINESS
Casino de Zaragoza, S.A. (hereinafter referred to as the Casino) was
founded in 1978 and is located in Alfajarin (Zaragoza). The second article
of the Casino's bylaws defines its corporate purpose, basically, as the
operation of a gambling casino and appurtenant services, namely bar,
restaurant, sitting rooms, show halls, night clubs, athletic facilities and
shopping establishments located in the casino's building complex.
Details of the Casino's holdings are as follows:
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------- --------------------
Name Catering y Gestion, S.L. Los Albares, S.A.
Location Ctra. Nacional II Ctra. Nacional II
Km. 343,250 Km. 343,250
Alfajarin (Zaragoza) Alfajarin (Zaragoza)
Line of business Lodging Inoperative
- -------------------------------------------------------------------------------------
U.S. Dollars
-----------------------------------------------
<S> <C> <C>
Proportion of stock held as of
December 31, 1999 100% 50,31%
Capital stock as of December 31,
1999 458,882 448,315
Earnings/(Accumulated losses)
as of December 31, 1999 (835,648) 299,004
Losses for the year ended
December 31, 1999 (271,748) (,145)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------- ---------------------
Thousands of Pesetas
-----------------------------------------------
<S> <C> <C>
Proportion of stock held as of
December 31, 1999 100% 50,31%
Capital stock as of December 31,
1999 76,000 74,250
Earnings/(Accumulated losses)
as of December 31, 1999 (138,400) 49,521
Losses for the year ended
December 31, 1999 (271,748) (,145)
- ------------------------------------- ------------------------- ---------------------
</TABLE>
This data was supplied by the Group companies, and their net worth is as
shown in their unaudited annual accounts as of December 31, 1999.
<PAGE>
-2-
Up until October 1997, the properties and other assets needed to manage
Catering y Gestion, S.L. were owned by and included in the book fixed
assets of Casino de Zaragoza, S.A., which did not charge Catering y
Gestion, S.L. for the use of those assets. In October 1997, Diputacion
General de Aragon (the Aragon Provincial Council) acquired all of the
properties that belonged to Casino de Zaragoza, S.A. through an auction
(see Note 6). On May 28, 1998, the Company entered into a lease agreement
with Diputacion General de Aragon in relation to the assets mentioned in
the previous paragraph. This agreement is effective for six months from
April 17, 1998, and automatically renewable for consecutive six-month
periods unless either of the parties repudiates the agreement with a
minimum of two months' notice. The amount was set at Ptas. 2,500,000
thousand per month (including VAT).
The Casino is subject to the regulations set forth in the Ministerial Order
of January 9, 1979, which approved the Gambling Casino Regulations.
The Casino holds a ten-year business license that is valid until December
23, 2000.
(2) BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
a) ACCOUNTING POLICIES
The accompanying financial statements as of December 31, 1999 were
obtained from the accounting records and are presented in accordance
with accounting principles generally accepted in the United States,
which required certain adjustments and reclassifications to adapt the
financial statements to US GAAP.
All amounts are reported in local currency (thousands of pesetas) and
in U.S. dollars. Assets and liabilities are translated using exchange
rates published by Bank of Spain in effect at December 31, 1999.
Revenues and expenses are translated using a monthly average exchange
rate for the period. Resulting translation adjustments are recorded as
a separate component of shareholders' equity.
The following exchange rates were used to translate the financial
statements as of December 31, 1999:
<TABLE>
<CAPTION>
----------------------------------------
Ptas./U.S. Dollars
-------------------
<S> <C>
Balance Sheet Exchange Rate 165,620
Profit and Loss Exchange Rate 156,207
----------------------------------------
</TABLE>
<PAGE>
-3-
b) CONSOLIDATION PRINCIPLES
The accompanying consolidated accounts have been prepared from the
accounting records of Casino de Zaragoza, S.A. and of the companies
included in the consolidation (listed in Note 1), whose respective
annual accounts were prepared by the directors of each company in
accordance with accounting principles generally accepted in the United
States, and give a true and fair view of the net worth, financial
position and results of the Group. These consolidated accounts, which
have been prepared by the directors of Casino de Zaragoza, S.A., and
the individual accounts of Casino de Zaragoza, S.A. and of each of the
consolidated companies will be submitted to the respective Meetings of
Shareholders for approval. It is anticipated that they will be
approved without changes.
All major intercompany balances and transactions have been eliminated
on consolidation.
The results of companies over which there is effective control through
a majority of votes in their representative and decision-making bodies
have been fully consolidated. Minority interests in the net worth and
income of the consolidated companies are shown under "Minority
interests" in the consolidated balance sheet and "Income (loss)
attributable to minority interests" in the statement of consolidated
income, respectively.
The consolidated accounts do not provide for the tax effect of
including in the parent company's books the results and reserves of
the companies, because it is considered that reserves not taxable at
source will not be transferred but used as funds to self-finance each
consolidated company.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
<PAGE>
-4-
b) CURRENT ASSETS AND LIABILITIES
Current assets are those assets which expect to be received within one
year. Current liabilities are those liabilities which are expected to
be paid within one year.
c) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and cash in bank
current accounts, with original maturities of three months or less.
d) TANGIBLE FIXED ASSETS
Tangible fixed assets are shown at cost.
Expenditure on expansion, modernization or improvement is capitalized
as an increased cost of the related assets provided that it increases
productivity, capacity or efficiency, or extends the useful lives of
these assets.
Upkeep and maintenance costs are expensed currently.
The Company depreciates its tangible fixed assets on a straight-line
basis over the years of estimated useful life of each asset as
follows:
<TABLE>
<CAPTION>
---------------------------------------------
Years of estimated
useful life
-------------------------- ------------------
<S> <C>
Gaming equipment 10 to 12
Tools 6 to 8
Furniture and fixtures 8 to 25
Data processing equipment 4
-------------------------- ------------------
</TABLE>
e) NON-TRADE LOANS
Long-term loans are recorded on the basis of the amount delivered. The
difference between said amount and the face value of the loan is
recorded according to the effective interest method as interest
revenue. Interest receivable is recognized under assets in the balance
sheet until actual collection.
f) INCOME TAXES
Period corporate income tax is computed on the basis of book income
before tax adjusted by the corresponding permanent differences with
regard to the income
<PAGE>
-5-
for tax purposes, i.e. the corporate income tax base, less any
abatements and tax credits, excluding withholdings and payments on
account.
The Casino accounts for income taxes in accordance with Statement of
Financial Accounting Standards (`SFAS') No. 109 `Accounting for Income
Taxes'. SFAS 109 requires an asset and liability approach for
financial accounting and reporting for income tax purposes. Under the
asset and liability method, deferred income taxes are recognized on
account of the consequences of timing differences and net operating
carryforwards by applying the statutory tax rates applicable to future
years. Valuation allowances are recorded when it is determined that
realization of such amounts is not deemed more likely than not.
g) DEFERRED INDEMNITIES
The Casino is obligated to compensate employees whom it dismisses, in
certain circumstances, pursuant to ruling labor legislation. In 1997
and 1998 the Casino dismissed some employees, as a result of which it
is involved in various legal actions.
The balance sheet as of December 31, 1999 does include provisions for
Ptas. 10.4 million (US$ 62,855) for the liability which may result
from the aforesaid dismissals (Note 9).
h) CASINO REVENUE
Casino revenue is the net win from gaming activities, which is the
difference between gaming wagers less the amount paid out to patrons,
and the portion of customers' tips due to the Casino.
i) FOREIGN CURRENCY TRANSACTIONS
Credits and debits denominated in foreign currency are translated into
pesetas at the exchange rate ruling at the transaction date, and at
year-end are valued at the rates of exchange then prevailing. Gains or
losses from foreign currency transactions are reported in "Other
income - Other, net".
(4) ACCOUNTS RECEIVABLE
Accounts receivable (debtors) as of December 31, 1999 consist of the
following:
<PAGE>
-6-
<TABLE>
<CAPTION>
-------------------------------------------------------------------
U.S. Thousands
Dollars of Pesetas
-------------------------------------------------------------------
<S> <C> <C>
Accounts Receivable 518,506 85,875
Less:
Allowance for Doubtful Accounts (496,026) (82,152)
----------------------------
22,480 3,723
--------------------------------------------------------------------
</TABLE>
The rollforward of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
U.S. Thousands
Dollars of Pesetas
---------------------------------------------------------------------
<S> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS AS OF
DECEMBER 31, 1998 1,303,740 185,092
Bad debt expense for the period ended
December 31, 1999 - -
Recoveries/other for the period ended
December 31, 1999 (20,867) (3,456)
Effect of consolidation (599,596) (99,305)
Other (1,080) (179)
Translation adjustment (186,171) -
---------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS AS OF
DECEMBER 31, 1999 496,026 82,152
---------------------------------------------------------------------
</TABLE>
(5) INTANGIBLE ASSETS
Movement in the cost of the assets and the related accumulated depreciation
was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
December 31, Translation December 31,
U.S. Dollars 1998 Additions Adjustment 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Software 144,291 3,369 (20,604) 127,056
Accumulated depreciation (117,039) (23,391) 16,713 (123,717)
-------------------------------------------------------
27,252 (20,022) (3,891) 3,339
-------------------------------------------------------
Other 725 - (103) 622
Accumulated depreciation (725) - 103 (622)
-------------------------------------------------------
- - - -
-------------------------------------------------------
TOTAL:
Cost 145,016 3,369 (20,707) 127,678
Accumulated depreciation (117,764) (23,391) 16,816 (124,339)
-------------------------------------------------------
TOTAL INTANGIBLE ASSETS - NET 27,252 (20,022) (3,891) 3,339
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-7-
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
December 31, December
Thousands of Pesetas 1998 Additions 31, 1999
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Software 20,485 558 21,043
Accumulated depreciation (16,616) (3,874) (20,490)
-----------------------------------------
3,869 (3,316) 553
-----------------------------------------
Other 103 - 103
Accumulated depreciation (103) - (103)
-----------------------------------------
- - -
-----------------------------------------
TOTAL:
Cost 20,588 558 21,146
Accumulated depreciation (16,719) (3,874) (20,593)
---------------------------------------------------------------------------------
TOTAL INTANGIBLE ASSETS - NET 3,869 (3,316) 553
---------------------------------------------------------------------------------
</TABLE>
(6) PROPERTY AND EQUIPMENT
Movement in the cost of the assets and the related accumulated depreciation
was as follows:
<TABLE>
<CAPTION>
- ---------------------------------- --------------- -------------- --------------- --------------
December 31, Translation December 31,
U.S. Dollars 1998 Additions adjustment 1999
- ---------------------------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Land 89,948 88,383 (*) (12,844) 165,487
--------------- -------------- --------------- --------------
Gaming equipment 335,063 93,727 (47,846) 380,944
Accumulated depreciation (229,464) (23,747) 32,767 (220,444)
--------------- -------------- --------------- --------------
Tools 158,554 - (22,640) 135,914
Accumulated depreciation (149,110) (4,196) 21,293 (132,013)
--------------- -------------- --------------- --------------
9,444 (4,196) (1,347) 3,901
--------------- -------------- --------------- --------------
Furniture 1,406,881 0,211 (200,897) 1,206,195
Accumulated depreciation (1,321,908) (16,018) 188,759 (1,149,167)
--------------- -------------- --------------- --------------
84,973 (15,807) (12,138) 57,028
--------------- -------------- --------------- --------------
Data Processing Equipment 137,373 6,672 (19,616) 124,429
Accumulated depreciation (131,993) (2,940) 18,848 (116,085)
--------------- -------------- --------------- --------------
5,380 3,732 (768) 8,344
--------------- -------------- --------------- --------------
Other 500 - (71) 500
Accumulated depreciation (500) - 71 (500)
--------------- -------------- --------------- --------------
- - -
--------------- -------------- --------------- --------------
TOTAL:
Cost 2,128,319 188,993 (303,914) 2,013,398
Accumulated depreciation (1,832,975) (46,901) 261,738 (1,618,138)
- ---------------------------------- --------------- -------------- --------------- --------------
TOTAL TANGIBLE ASSETS - NET 295,344 142,092 (42,176) 395,260
- ---------------------------------- --------------- -------------- --------------- --------------
</TABLE>
<PAGE>
-8-
(*) The effect of applying global integration procedures in the
consolidation process
<TABLE>
<CAPTION>
- ------------------------------------ --------------- -------------- ---------------
December 31, December 31,
Thousands of Pesetas 1998 Additions 1999
- ------------------------------------ --------------- -------------- ---------------
<S> <C> <C> <C>
Land 12,770 14,638 (*) 27,408
--------------- -------------- ---------------
Gaming equipment 47,569 15,523 63,092
Accumulated depreciation (32,577) (3,933) (36,510)
--------------- -------------- ---------------
14,992 11,590 26,582
--------------- -------------- ---------------
Tools 22,510 22,510
Accumulated depreciation (21,169) (695) (21,864)
--------------- -------------- ---------------
1,341 (695) 646
--------------- -------------- ---------------
Furniture 199,735 35 199,770
Accumulated depreciation (187,672) (2,653) (190,325)
--------------- -------------- ---------------
12,063 (2,618) 9,445
--------------- -------------- ---------------
Data Processing Equipment 19,503 1,105 20,608
Accumulated depreciation (18,739) (487) (19,226)
--------------- -------------- ---------------
764 618 1,382
--------------- -------------- ---------------
Other 71 - 71
Accumulated depreciation (71) - (71)
--------------- -------------- ---------------
- - -
--------------- -------------- ---------------
TOTAL:
Cost 302,158 31,301 333,459
Accumulated depreciation (260,228) (7,768) (267,996)
- ------------------------------------ --------------- -------------- ---------------
TOTAL TANGIBLE ASSETS - NET 41,930 23,533
- ------------------------------------ --------------- -------------- ---------------
</TABLE>
(*) The effect of applying global integration procedures in the
consolidation process
In October 1997 Diputacion General de Aragon (the Aragon Provincial
Council) auctioned off all the properties of the Casino, that had been
mortgaged or which secured its debt in respect of gambling tax. The
properties were auctioned off to settle debt for Ptas. 865 million (US$ 6.1
million), while their net book value for the Casino was Ptas. 396 million
(US$ 2.8 million). Ptas. 469 million (US$ 3.9 million) in extraordinary
revenues obtained on the auction were recorded in 1997 financial
statements.
(7) INTERCOMPANY TRANSACTIONS
Intercompany accounts receivable and payable as of December 31, 1999 were
as follows:
<PAGE>
-9-
<TABLE>
<CAPTION>
- ------------------------- --------------------------- --------------------------
U.S. Dollars Thousands of Pesetas
------------- ------------- ------------- ------------
Accounts Accounts Accounts Accounts
receivable payable receivable payable
- ------------------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Transworld Gaming 900,000 184,603 149,058 30,574
- ------------------------- ------------- ------------- ------------- ------------
900,000 184,603 149,058 30,574
- ------------------------- ------------- ------------- ------------- ------------
</TABLE>
In 1999, Casino de Zaragoza, S.A. granted a loan of US$ 900,000 (Ptas.
142,738,000) to Trans World Gaming, its parent company. This loan falls due
in 2002 and bears 3% interest. The difference between the amount granted
and the amount recorded in the financial statements relates to variations
in the exchange rate (Note 3-i).
The account payable relates to the outstanding balance of certain payments
that the parent company made on behalf of Casino de Zaragoza, and payables
in respect of services provided by the parent company, comprising
management, internal audit, management control and the company's marketing
under an agreement entered into between the parties on October 1, 1999 for
the period running from April 1, 1998. The amount recorded in this respect
in 1999 amounted to Ptas. 73,789 and is recorded under the "Costs and
expenses - Selling, general and administrative" caption in the accompanying
statement of income.
(8) TAX MATTERS
Set out below are the balances payable to the Spanish tax authorities:
<TABLE>
<CAPTION>
- -------------------------------------------- --------------------------------------------------------------------
U.S. Dollars
--------------------------------------------------------------------
Long term Short term
----------------------------------------- --------------------------
Temporary Temporary
receivership Other Total receivership Other
- -------------------------------------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Diputacion General de Aragon
- - Gambling tax 2,159,920 1,783,764 3,943,684 195,737 229,170
City Council of Alfajarin:
- - Tax on business activities, property tax 176,632 - 176,632 19,623 485,793
Central tax authorities:
- - Personal income tax - 428,090 428,090 - 122,503
- - Value added tax
Social Security authorities 719,684 490,985 1,210,669 - 260,427
Other - 1,449 1,449 - 2,072
------------- ------------- ------------- ------------- ------------
3,056,236 2,704,288 5,760,524 215,360 1,099,965
- -------------------------------------------- ------------- ------------- ------------- ------------- ------------
</TABLE>
<PAGE>
-10-
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Thousands of Pesetas
--------------------------------------------------------
Long term Short term
--------------------------------------------------------
Temporary Temporary
receivership Other Total receivership Other
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Diputacion General de Aragon
- -- Gambling tax 357,726 295,427 653,153 32,418 37,955
City Council of Alfajarin:
- -- Tax on business activities, property tax 29,254 -- 29,254 3,250 80,457
Central tax authorities:
- -- Personal income tax -- 70,900 70,900 -- 20,289
- -- Value added tax
Social Security authorities 119,194 81,317 200,511 -- 43,132
Other -- 240 240 -- 343
--------------------------------------------------------
506,174 447,884 954,058 35,668 182,176
- --------------------------------------------------------------------------------------------------------------
</TABLE>
On April 17, 1998, the Company signed a composition with creditors
(Diputacion General de Aragon, the Social Security authorities and the City
Council of Alfajarin) which set the terms of payment for the Casino's debts
as of January 25, 1997, which is the date of the Company's application for
temporary receivership (see Note 14).
In 1998 and 1999 Diputacion General de Aragon granted the Company a
deferral of Ptas. 295.4 million (US$ 1.784 million) in taxes on game
winnings accruing during 1997, 1998 and 1999. These taxes will begin to
fall due between 2001 and 2006.
Likewise, in April 1999 the Casino reached an agreement with the Social
Security authorities to defer payment of debts affected by the temporary
receivership and the debts generated in 1997 and in the first quarter of
1998, with a combined total of Ptas. 200.5 million (US$ 1.211 million),
maturing between 2002 and 2009.
Corporate income tax is calculated on the basis of book income, which is
determined in accordance with generally accepted accounting principles.
Such income need not be equal to the income for tax purposes, i.e. the
corporate income tax base.
The reconciliation of 1999 results per books to the corporate income tax
base is as follows:
<PAGE>
-11-
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
U.S. Thousand
Dollars of Pesetas
- -----------------------------------------------------------------------
<S> <C> <C>
Results per books (loss) (after tax) (1,859,955) (290,538)
Permanent differences 6,683 1,107
- -----------------------------------------------------------------------
TAX BASE (1,853,272) (289,431)
- -----------------------------------------------------------------------
</TABLE>
The tax loss carryforwards and maximum terms (under Spanish tax
legislation) allowed for offset are as follows:
- -----------------------------------------------------------------------
U.S. Thousands Last year for
Year Dollars of Pesetas offset
- -----------------------------------------------------------------------
1992 360,899 56,375 2002
1993 305,883 47,781 2003
1994 1,534,579 239,712 2004
1995 1,726,504 269,692 2005
1996 1,060,068 165,590 2006
1997 3,162,137 493,948 2007
1998 2,488,781 388,765 2008
1999 2,008,815 313,791 2009
- -----------------------------------------------------------------------
12,647,666 1,975,654
--------------------------
Under current legislation, losses incurred in a given year can be offset
against taxable income in the following ten years. However, the ultimate
amount to carry forward may depend on the outcome of a tax inspection of
the years in which losses were incurred. The accompanying balance sheet
does not reflect the possible impact of offsetting such tax losses. The
last four years are open for review of all applicable taxes by the tax
authorities.
(9) COMMITMENTS AND CONTINGENCIES
The main legal disputes in which the Casino is involved are set out below:
- Complaint filed on March 9, 1998 by the Casino against HERALDO DE ARAGON
(a newspaper) in Court of First Instance no. 11 of Zaragoza, for
infringement and violation of the right to honor, claiming Ptas. 1,456
million (US$ 8.79 million) in damages. The case is currently at the
discovery stage. No amounts have been recorded in respect of this gain
contingency.
- An appeal for reversal filed by the Casino against the Superior Court of
Justice of Aragon in November 1998 against a judgement handed down by
Labor Court no.
<PAGE>
-12-
1 of Zaragoza in October 1998 sentencing the Casino to compensate an
ex-employee. In 1998 the Casino booked Ptas. 10.4 million (US$ 0.06
million) for the compensation in question in case it is finally
sentenced to pay the ex-employee. On November 8, 1999, the Supreme Court
discharged Casino de Zaragoza, S.A. from its payment obligations
relating to back pays amounting to Ptas. 4.2 million (US$ 0.03 million).
- The Group's parent company has yet to sign the collective agreement with
the workers for the years 1994 through 1999, inclusive, and this matter
must be arranged with the Works' Committee. In addition, the last
collective agreement signed by the Company provided for the payment of
retirement bonuses to employees who retire before age 65. The balance
sheet as of December 31, 1999 does not include any provision for the
liabilities that could result from pay raises, the aforementioned
retirement bonus or any other item that could come to light once the
collective agreements have been settled.
- As a result of the different interpretations to which ruling tax
legislation lends itself and the Company's tax treatment of certain
transactions, tax contingencies that cannot be objectively quantified
could arise in respect of the years still open to inspection.
- Net worth as per the accompanying balance sheet as of December 31, 1999
is negative by Ptas. 1,063 million (US$ 6.3 million). This situation
constitutes a cause for compulsory dissolution unless capital is
increased or decreased accordingly, pursuant to the Revised Spanish
Corporations Law, and it raises substantial doubt about its ability to
continue as a going concern.
In addition, as indicated in Note 14, in the first few months of 1998
the Company signed a composition with creditors in connection with the
application for temporary receivership that Casino de Zaragoza, S.A.
filed in January 1997. Note 13 indicates the sums and terms agreed for
the partial acquittance and deferral with the Company's creditors. In
April 1998, the majority of the Company's capital stock was acquired by
a new shareholder who plans to undertake a process of recapitalization
and to relocate the Company's premises in order to boost the Company's
operations and increase earnings. On February 1, 2000, in accordance
with the terms of the letter of intent signed as of that date between
the Aragon Provincial Council and the new shareholder, the Aragon
Provincial Council passed the Gaming Bill, which will enable the Company
to relocate its premises to the center of the city of Zaragoza. The
aforesaid Bill is currently at the stage of being considered at the
Aragon Parliament.
<PAGE>
-13-
The accompanying financial statements as of December 31, 1999 were
prepared on a going concern basis, although, considering the above
circumstances, the Company's ability to continue as a going concern is
dependent on the success of its future operations and on the continued
support of its shareholders so as to enable it to realize its assets and
settle its liabilities for the amounts and according to the
classification in the financial statements referred to above, which have
been prepared assuming that the Company will continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
(10) MINORITY INTERESTS
This caption reflects the value of minority shareholdings in fully
consolidated companies. Furthermore, the balance in the accompanying
statement of consolidated income represents the minority shareholders'
equity in results.
The entire balance of this caption of the balance sheet relates to minority
shareholdings in the equity of Los Albares, S.A.
(11) CAPITAL STOCK
As of December 31, 1999 the Company's capital stock consisted of 2,500
fully subscribed and paid registered shares of Ptas. 100,000 (US$ 604) par
value each.
On November 18, 1999 the resolutions adopted by the Company's Annual and
Special Shareholders' Meeting held on July 21, 1998 were recorded in a
public deed. At that meeting, it was agreed that the Company's capital
stock be reduced from Ptas. 250 million (US$ 1.760 million) to zero in
order to offset losses through the redemption of the 2,500 registered
shares representing the Company's capital for Ptas. 250 million by means of
cash contributions and to increase it by Ptas. 250 million (US$ 1.509
million) by issuing 2,500 new registered shares of Ptas. 100,000 (US$ 604)
each.
In addition and as of the same date, the Company offset losses against
reserves of an amount totaling Ptas. 580.8 million (US$ 3.5 million)
The list of all shareholders by ownership percentage as of December 31,
1999 was as follows:
<PAGE>
-14-
<TABLE>
<S> <C>
- -------------------------------------------------------
Trans World Gaming Corp. 99,92%
Andrew Tottenham 0,04%
Jaime Vaca de Arrazola 0,04%
- -------------------------------------------------------
</TABLE>
(12) EXTRAORDINARY ITEMS
The composition of Extraordinary items as of December 31, 1999 is as
follows:
- ------------------------------------------------------------------------------
U.S. Dollars Thousands
of Pesetas
- ------------------------------------------------------------------------------
Parent company charges for expenses 458,539 71,627
Other 57,712 9,015
-----------------------
516,251 80,642
- ------------------------------------------------------------------------------
(13) SEGMENT DISCLOSURES
SFAS 131 requires disclosures of segment information provided that it is
used internally for evaluating segment performance and deciding how to
allocate resources to segments.
A breakdown of net sales for ordinary Group operations, by activity, is
provided below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
U.S. Dollars Thousands
of Pesetas
- ---------------------------------------------------------------
<S> <C> <C>
Games 3,579,475 559,139
Rooms 164,532 25,701
Restaurant 56,675 8,853
Beverages 73,953 11,552
Other 2,170 339
- ---------------------------------------------------------------
3,876,805 605,584
- ---------------------------------------------------------------
</TABLE>
All of the Group's activities are carried out within Spain.
As of December 31, 1999, no customer represents more than 10% of net sales.
<PAGE>
-15-
(14) TEMPORARY RECEIVERSHIP
On January 25, 1997, the directors of the Company filed an application in
Court of First Instance number 11 of Zaragoza to declare Casino de
Zaragoza, S.A. in temporary receivership, which was granted on June 23,
1997.
On April 17, 1998, the secondary creditors listed as such in the list of
creditors approved by the court and the preferred creditors who attended
the Meeting of Creditors voted for the proposed composition, in which
Casino de Zaragoza, S.A. agreed to make the following payments:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Thousands
of Pesetas US Dollars
- -------------------------------------------------------------------------------
<S> <C> <C>
Social Security authorities (Note 8) 119,194 719,684
Partial acquittance of 35.75% of the credits of
the rest of the creditors of the composition 206,529 1,247,005
Repayment schedule for the remaining 64.25%
of the credits of the rest of the
creditors of the composition:
Year 1 - -
Year 2 39,518 238,606
Year 3 36,840 222,437
Year 4 36,840 222,437
Year 5 36,840 222,437
Year 6 110,520 667,311
Year 7 110,520 667,311
- -------------------------------------------------------------------------------
TOTAL CREDIT OF THE CREDITORS WHO SIGNED THE
COMPOSITION 696,801 4,207,228
- -------------------------------------------------------------------------------
</TABLE>
If the Casino does not make its payments according to the schedule, the
debt would go back to pre-composition levels.
In addition, there are Ptas 102.7 million (US$ 0.62 million) due to other
privileged creditors that are subject to the same payment and acquittance
conditions conditions as described for the rest of the creditors in the
composition.
<PAGE>
CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES
STATEMENT OF SHAREHOLDERS' EQUITY
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
US Dollars
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated
Subscribed Other
Capital Accumulated Income Comprehensive Comprehensive
Stock Losses for the year Income Income
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPENING BALANCE AS OF DECEMBER 31, 1998 1,760,935 (9,413,115) 564,831 23,075 -
- -------------------------------------------------------------------------------------------------------------------------------
Transfer to accumulated losses - 564,831 (564,831) - -
Capital reduction charged against reserves (1,760,935) 1,760,935 - - -
Capital increase 1,509,479 - - - -
Translation adjustment - - - 1,114,466 1,114,466
Income (loss) for the year - - (1,859,955) - (1,859,955)
Other - - - 29,839 29,839
- -------------------------------------------------------------------------------------------------------------------------------
CLOSING BALANCE AS OF DECEMBER 31, 1999 1,509,479 (7,087,349) (1,859,955) 1,167,380 (715,650)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Thousands of Pesetas
- ---------------------------------------------------------------------------------------------
Subscribed Income
Capital Accumulated for the
Stock Losses Year
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPENING BALANCE AS OF DECEMBER 31, 1998 250,000 (1,336,380) 83,465
- ---------------------------------------------------------------------------------------------
Transfer to accumulated losses - 83,465 (83,465)
Capital reduction charged against reserves (250,000) 250,000 -
Capital increase 250,000 - -
Income (loss) for the year - - (290,538)
Other - 4,942 -
- ---------------------------------------------------------------------------------------------
CLOSING BALANCE AS OF DECEMBER 31, 1999 250,000 (997,973) (290,538)
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
U.S. Thousands
ASSETS Dollars of Pesetas
----------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 165,457 27,403
Short-Term financial investments 65,560 10,858
Due from affiliates (within TWG Group) 3,743 620
Accounts receivable (Note 4) 22,480 3,723
Inventories 13,803 2,286
Prepaid expenses and other receivables 5,585 925
----------------------------
Total Current Assets 276,628 45,815
----------------------------
NON-CURRENT ASSETS
Intangible assets, net (Note 5) 3,339 553
Gross tangible assets (Note 6) 395,260 65,463
Due from affiliates (within TWG Group) (Note 7) 900,000 149,058
Other long-term 60,862 10,080
----------------------------
Total Non-Current Assets 1,359,461 225,154
----------------------------
TOTAL ASSETS 1,636,089 270,969
============================
U.S. Thousands
LIABILITIES AND STOCKHOLDERS' EQUITY Dollars of Pesetas
----------------------------
CURRENT LIABILITIES
Accounts payable, trade 190,195 31,500
Accounts payable, affiliates (within TWG Group) (Note 7) 184,603 30,574
Taxes (Note 8) 1,315,325 217,844
Other current liabilities 135,539 22,448
----------------------------
Total Current Liabilities 1,825,662 302,366
----------------------------
NON-CURRENT LIABILITIES
Taxes (Notes 8 and 14) 5,760,524 954,058
Long-term debt 110,349 18,276
----------------------------
Total Long-Term Debt 5,870,873 972,334
----------------------------
COMMITMENTS AND CONTINGENCIES (Note 9) 135,877 22,504
----------------------------
MINORITY INTERESTS (Note 10) 74,121 12,276
----------------------------
SHAREHOLDERS' EQUITY
Common Shares (Note 11) 1,509,480 250,000
Accumulated losses (7,087,349) (997,973)
Accumulative translation adjustment 1,167,380 -
Profit/Loss (1,859,955) (290,538)
----------------------------
Total Shareholders' Equity (6,270,444) (1,038,511)
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,636,089 270,969
============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
U.S. Thousands
Dollars of Pesetas
-------------------------------
<S> <C> <C>
REVENUES (Note 1)
Gaming 3,579,475 559,139
Other revenues 297,330 46,445
-------------------------------
3,876,805 605,584
-------------------------------
COSTS AND EXPENSES
Operating departments (Note 1) (3,304,347) (516,162)
Selling, general and administrative (Note 7) (1,753,897) (273,971)
Depreciation and amortization (78,210) (12,217)
-------------------------------
(5,136,454) (802,350)
-------------------------------
LOSS FROM OPERATIONS (1,259,649) (196,766)
-------------------------------
OTHER INCOME (EXPENSE)
Interest expenses (161,273) (25,192)
Interest income 5,397 843
Other, net 71,745 11,207
-------------------------------
(84,131) (13,142)
-------------------------------
INCOME TAXES - -
NET LOSS BEFORE EXTRAORDINARY ITEM (1,343,781) (209,908)
-------------------------------
EXTRAORDINARY ITEMS, NET OF RELATED TAX EFFECT (Note 12) (516,251) (80,642)
-------------------------------
NET INCOME (1,860,032) (290,550)
===============================
LOSS ATTRIBUTABLE TO MINORITY INTERESTS 0,072 12
INCOME ATTRIBUTABLE TO THE GROUP (1,859,955) (290,538)
LOSS PER SHARE BEFORE EXTRAORDINARY ITEM (537.51) (83.96)
EXTRAORDINARY LOSS PER SHARE (206.52) (32.26)
LOSS PER SHARE (WEIGHTED AVERAGE SHARES: 2,500) (744.01) (116.22)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
CASINO DE ZARAGOZA, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
U.S. Thousands
Dollars of Pesetas
--------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) before extraordinary items (1,343,781) (209,908)
Adjustments to reconcile net income to net cash provided by (used in) operating activitie:
Provision for allowance for doubtful accounts (22,124) (3,456)
Depreciation and amortization 78,210 12,217
Unrealized net depreciation (appreciation) on investments - -
(Gain) loss from investments in affiliates - -
Deferred income taxes - -
Minority interest 72 12
Changes in operating assets and liabilities:
(Increase) decrease in investments (858,097) (142,118)
(Increase) decrease in account receivable 153,858 25,482
(Increase) decrease in account receivable, affiliates 350 58
(Increase) decrease in inventories (13,803) (2,286)
(Increase) decrease in other current assets 1,183 196
(Increase) decrease in other assets 58,562 9,699
Increase (decrease) in account payable (5,042) (835)
Increase (decrease) in account payable affiliates (136,034) (22,530)
Increase (decrease) in accrued expenses and other current liabilities 484,682 80,273
Increase (decrease) in other long terms liabilities 649,777 107,616
--------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (952,186) (145,580)
--------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Payment for purchase of fixed assets (188,993) (31,301)
Proceeds form sale of fixed assets - -
Payment for purchase of intangible assets (3,369) (558)
Payment for purchase of investments - -
--------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (192,362) (31,859)
--------------------------------
CASH FLOW FROM FINANCIAL ACTIVITIES
Proceeds from long-term debt - -
Principal repayment of long-term debt - -
Proceeds from short-term debt - -
Principal repayment of short-term debt - -
Proceeds from issuance of common stock 1,509,479 250,000
Proceeds from issuance of preferred stock - -
Capital contributions (withdrawals), net - -
Minority interest 74,121 12,276
--------------------------------
NET CASH PROVIDED BY (USED IN) FINANCIAL ACTIVITIES 1,583,600 262,276
--------------------------------
CASH FLOW FROM EXTRAORDINARY ACTIVITIES
(Increase) decrease in extraordinary items (486,910) (80,642)
--------------------------------
NET CASH PROVIDED BY (USED IN) EXTRAORDINARY ACTIVITIES (486,910) (80,642)
--------------------------------
TRANSLATION ADJUSTMENT 73,186
--------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,329 4,195
CASH AND CASH EQUIVALENTS
Beginning of the year 140,128 23,208
--------------------------------
End of the year 165,457 27,403
================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest - -
Income taxes - -
================================
- -
================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment recorded pursuant to obligations under capital leases - -
Other (please explain). - -
================================
- -
================================
</TABLE>
<PAGE>
EXHIBIT 10.46
TRANS WORLD GAMING CORP.
1998 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Trans World Gaming Corp. (the "Company") hereby establishes this 1998
Stock Option Plan (the "Plan") upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Company by providing Employees with a proprietary interest in the Company as
an incentive to contribute to the success of the Company, and rewarding those
Employees for outstanding performance and the attainment of targeted goals. All
Incentive Stock Options issued under this Plan are intended to comply with the
requirements of Section 422 of the Code, and the regulations thereunder, and all
provisions hereunder shall be read, interpreted and applied with that purpose in
mind.
ARTICLE III
DEFINITIONS
3.01 "Board" means the Board of Directors of the Company.
3.02 "Code" means the Internal Revenue Code of 1986, as amended.
3.03 "Committee" means a committee of two or more directors appointed
by the Board pursuant to Article IV hereof, each of whom shall be a
"non-employee director" as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or
any successor thereto.
3.04 "Common Stock" means shares of the common stock, $.001 par value
per share, of the Company.
3.05 "Disability" means any physical or mental impairment which
qualifies an Employee for disability benefits under the applicable long-term
disability plan maintained by the Company or, if no such plan applies, which
would qualify such Employee for disability benefits under the Federal Social
Security System.
3.06 "Effective Date" means the date upon which the Board approves this
Plan.
3.07 "Employee" means any person who is employed by the Company.
3.08 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.09 "Fair Market Value" shall be equal to the fair market value per
share of the Company's Common Stock on the date an Option is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
mean between the high bid and low asked prices that day on the principal market
then in use, or if no such quotations are available, the fair market value on
the date in question of a share as determined by a majority of the Board in good
faith.
3.10 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
<PAGE>
3.11 "Non-Qualified Stock Option" means any Option granted under this
Plan which is not an Incentive Stock Option.
3.12 "Officer" means an Employee whose position in the Company is that
of a corporate officer, as determined by the Board.
3.13 "Option" means a right granted under this Plan to purchase Common
Stock.
3.14 "Optionee" means an Employee or former Employee to whom an Option
is granted under the Plan.
3.15 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Company or as otherwise determined by the Committee.
3.16 "Stock Option Agreement" means the written agreement pursuant to
Section 8.01 hereof that sets forth the terms, conditions, restrictions and
privileges for an Incentive Stock Option.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 DUTIES OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority in its absolute
discretion to adopt, amend and rescind such rules, regulations and procedures
as, in its opinion, may be advisable in the administration of the Plan,
including, without limitation, rules, regulations and procedures which (i) deal
with satisfaction of an Optionee's tax withholding obligation pursuant to
Section 12.02 hereof, (ii) include arrangements to facilitate the Optionee's
ability to borrow funds for payment of the exercise or purchase price of an
Option, if applicable, from securities brokers and dealers, and (iii) include
arrangements which provide for the payment of some or all of such exercise or
purchase price by delivery of previously owned shares of Common Stock or other
property and/or by withholding some of the shares of Common Stock which are
being acquired. The interpretation and construction by the Committee of any
provisions of the Plan, any rule, regulation or procedure adopted by it pursuant
thereto or of any Option shall be final and binding.
4.02 APPOINTMENT AND OPERATION OF THE COMMITTEE. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a "non-employee director" as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. The
Committee shall act by vote or written consent of a majority of its members.
Subject to the express provisions and limitations of the Plan, the Committee may
adopt such rules, regulations and procedures as it deems appropriate for the
conduct of its affairs. It may appoint one of its members to be chairman and any
person, whether or not a member, to be its secretary or agent. The Committee
shall report its actions and decisions to the Board at the next regularly
scheduled meeting of the Board following each meeting of the Committee.
4.03 REVOCATION FOR MISCONDUCT. The Committee may by resolution
immediately revoke, rescind and terminate any Option, or portion thereof, to the
extent not yet vested, previously granted or awarded under this Plan to an
Employee who is discharged from the employ of the Company for cause, which, for
purposes hereof, shall mean termination because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses).
<PAGE>
4.04 LIMITATION ON LIABILITY. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan, any rule, regulation or procedure adopted by it pursuant thereto or any
Options granted under it. If a member of the Committee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Company shall indemnify him to the extent
permitted by the Company's Articles of Incorporation and Bylaws and by the
Nevada General Corporation Law.
4.05 COMPLIANCE WITH LAW AND REGULATIONS. All Options granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of or obtaining of consents or approvals with respect to such
shares under any federal or state law or any rule or regulation of any
government body, which the Company shall, in its sole discretion, determine to
be necessary or advisable. Moreover, no Option may be exercised if such exercise
would be contrary to applicable laws and regulations.
4.06 RESTRICTIONS ON TRANSFER. The Company may place a legend upon any
certificate representing shares acquired pursuant to an Option granted hereunder
noting that the transfer of such shares may be restricted by applicable laws and
regulations.
ARTICLE V
ELIGIBILITY
Options may be granted to such Employees of the Company as may be
designated from time to time by the Committee, pursuant to guidelines, if any,
which may be adopted by the Committee from time to time.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 OPTION SHARES. The aggregate number of shares of Common Stock
which may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 2,000,000 shares of Common Stock. None of such shares shall
be the subject of more than one Option at any time, but if an Option as to any
shares is surrendered before exercise, or expires or terminates for any reason
without having been exercised in full, or for any other reason ceases to be
exercisable, the number of shares covered thereby shall again become available
for grant under the Plan as if no Options had been previously granted with
respect to such shares.
6.02 SOURCE OF SHARES. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Company on the open market or from private sources for use under the Plan.
ARTICLE VII
DETERMINATION OF
OPTIONS, NUMBER OF SHARES, ETC.
The Committee shall, in its discretion, determine from time to time
which Employees will be granted Options under the Plan, the number of shares of
Common Stock subject to each Option, whether each Option will be an Incentive
Stock Option or a Non-Qualified Stock Option and the exercise price of an
Option. In making all such determinations there shall be taken into account the
duties, responsibilities and performance of each respective Employee, his
present and potential contributions to the growth and success of the Company,
his salary and such other factors as the Committee shall deem relevant to
accomplishing the purposes of the Plan.
<PAGE>
ARTICLE VIII
OPTIONS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 STOCK OPTION AGREEMENT. The proper Officers or a member of the
Committee on behalf of the Company and each Optionee shall execute a Stock
Option Agreement which shall set forth the total number of shares of Common
Stock to which it pertains, the exercise price, whether it is a Non-Qualified
Stock Option or an Incentive Stock Option and such other terms, conditions,
restrictions and privileges as the Committee in each instance shall deem
appropriate, provided they are not inconsistent with the terms, conditions and
provisions of this Plan. Each Optionee shall receive a copy of his executed
Stock Option Agreement.
8.02 OPTION EXERCISE PRICE.
(a) INCENTIVE STOCK OPTIONS. The per share price at which the
subject Common Stock may be purchased upon exercise of an Incentive Stock Option
shall be no less than one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time such Incentive Stock Option is granted, except
as provided in Section 8.09(b).
(b) NON-QUALIFIED STOCK OPTIONS. The per share price at which
the Common Stock may be purchased upon exercise of a Non-Qualified Stock Option
shall be no less than eighty-five percent (85%) of the Fair Market Value of a
share of Common Stock at the time such Non-Qualified Option is granted.
8.03 VESTING AND EXERCISE OF OPTIONS
(a) GENERAL RULES. Incentive Stock Options and Non-Qualified
Stock Options granted to Employees shall become vested and exercisable at the
rate, to the extent and subject to such limitations as may be specified by the
Committee. Notwithstanding the foregoing, no vesting shall occur on or after an
Employee's employment with the Company is terminated for any reason other than
his death, Disability or Retirement. In determining the number of shares of
Common Stock with respect to which Options are vested and/or exercisable,
fractional shares will be rounded up to the nearest whole number if the fraction
is 0.5 or higher, and down if it is less.
(b) VESTING UPON TERMINATION OF EMPLOYMENT, DEATH, DISABILITY
OR RETIREMENT. Unless the Committee shall specifically state otherwise at the
time an Option is granted, only those Options granted to Employees under this
Plan which are vested and exercisable on the date an Optionee terminates his
employment with the Company because of his termination of employment under
certain circumstances as set forth in the Optionee's Stock Option Agreement, or
because of his death, Disability or Retirement shall be vested and exercisable
by the Optionee thereafter as set forth in Section 8.04.
(c) ACCELERATED VESTING FOR CHANGES IN CONTROL. Notwithstanding
the general rule described in Section 8.03(a), all outstanding Options shall
become immediately vested and exercisable in the event there is a change in
control of the Company. A "change in control of the Company" for this purpose
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or any successor thereto, whether or not the Company in fact is
required to comply with Regulation 14A thereunder.
8.04 DURATION OF OPTIONS.
(a) GENERAL RULE. Except as provided in Sections 8.04(b) and
8.09, each Option granted to Employees shall be exercisable at any time on or
after it vests and becomes exercisable until the earlier of (i) ten (10) years
after its date of grant or (ii) three (3) months after the date on which the
Optionee ceases to be employed by the Company, unless the Committee in its
discretion decides at the time of grant or thereafter to extend such period of
exercise upon termination of employment from three (3) months to a period not
exceeding five (5) years.
<PAGE>
(b) EXCEPTION FOR TERMINATION DUE TO DEATH, DISABILITY OR
RETIREMENT. If an Employee dies while in the employ of the Company or terminates
employment with the Company as a result of Disability or Retirement without
having fully exercised his Options, the Optionee or his legal representative or
guardian, or the executors, administrators, legatees or distributees of his
estate shall have the right, during the twelve-month period following the
earlier of his death, Disability or Retirement, to exercise such Options to the
extent vested on the date of such death, Disability or Retirement. In no event,
however, shall any Option be exercisable within six (6) months after the date of
grant or more than ten (10) years from the date it was granted.
8.05 NONASSIGNABILITY. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Stock Options may transfer
such Options to his or her spouse, lineal ascendants, lineal descendants, or to
a duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Optionee who
originally received the grant or to an individual or trust to whom the Optionee
would have initially transferred the Option pursuant to this Section 8.05.
Options which are transferred pursuant to this Section 8.05 shall be exercisable
by the transferee according to the same terms and conditions as applied to the
Optionee.
8.06 MANNER OF EXERCISE. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be set
forth in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 PAYMENT FOR SHARES. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of any Option shall be
made to the Company upon exercise of the Option. All shares sold under the Plan
shall be fully paid and nonassessable. Payment for shares may be made by the
Optionee in cash or, at the discretion of the Committee, by delivering shares of
Common Stock (including shares acquired pursuant to the exercise of an Option)
or other property equal in Fair Market Value to the purchase price of the shares
to be acquired pursuant to the Option, by withholding some of the shares of
Common Stock which are being purchased upon exercise of an Option, or any
combination of the foregoing. Notwithstanding the foregoing payment may also be
made by delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
8.08 VOTING AND DIVIDEND RIGHTS. No Optionee shall have any voting or
dividend rights or other rights of a shareholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Company's shareholder ledger as the holder of record of such shares acquired
pursuant to an exercise of an Option.
8.09 ADDITIONAL TERMS APPLICABLE TO INCENTIVE STOCK OPTIONS. All
Options issued under the Plan as Incentive Stock Options will be subject, in
addition to the terms detailed in Sections 8.01 to 8.08 above, to those
contained in this Section 8.09.
(a) $100,000 LIMITATION. Notwithstanding any contrary
provisions contained elsewhere in this Plan and as long as required by Section
422 of the Code, the aggregate Fair Market Value, determined as of the time an
Incentive Stock Option is granted, of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year, under this Plan and stock options that satisfy the
requirements of Section 422 of the Code under any other stock option plan or
plans maintained by the Company, shall not exceed $100,000.
<PAGE>
(b) LIMITATION ON TEN PERCENT SHAREHOLDERS. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to shareholders of the
Company, shall be no less than one hundred and ten percent (110%) of the Fair
Market Value of a share of the Common Stock of the Company at the time of grant,
and such Incentive Stock Option shall by its terms not be exercisable after the
earlier of the date determined under Section 8.03 or the expiration of five (5)
years from the date such Incentive Stock Option is granted.
(c) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. An Optionee
shall immediately notify the Company in writing of any sale, transfer,
assignment or other disposition (or action constituting a disqualifying
disposition within the meaning of Section 421 of the Code) of any shares of
Common Stock acquired through exercise of an Incentive Stock Option, within two
(2) years after the grant of such Incentive Stock Option or within one (1) year
after the acquisition of such shares, setting forth the date and manner of
disposition, the number of shares disposed of and the price at which such shares
were disposed. The Company shall be entitled to withhold from any compensation
or other payments then or thereafter due to the Optionee such amounts as may be
necessary to satisfy any withholding requirements of federal or state law or
regulation and, further, to collect from the Optionee any additional amounts
which may be required for such purpose. The Committee may, in its discretion,
require shares of Common Stock acquired by an Optionee upon exercise of an
Incentive Stock Option to be held in an escrow arrangement for the purpose of
enabling compliance with the provisions of this Section 8.09(c).
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any Option relates and the
exercise price per share of Common Stock under any Option shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
this Plan resulting from a split, subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Company. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Company, the shares of the Company's Common
Stock shall be exchanged for other securities of the Company or of another
corporation, each recipient of an Option shall be entitled, subject to the
conditions herein stated, to purchase or acquire such number of shares of Common
Stock or amount of other securities of the Company or such other corporation as
were exchangeable for the number of shares of Common Stock of the Company which
such optionees would have been entitled to purchase or acquire except for such
action, and appropriate adjustments shall be made to the per share exercise
price of outstanding Options.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Options have not been
granted, subject to any required shareholder approval or any shareholder
approval which the Board may deem to be advisable for any reason, such as for
the purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. The Board may not, without the consent of the holder of an
Option, alter or impair any Option previously granted or awarded under this Plan
as specifically authorized herein.
<PAGE>
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor the grant of any Options hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create any
right on the part of any Employee of the Company to continue in such capacity.
ARTICLE XII
WITHHOLDING
12.01 TAX WITHHOLDING. The Company may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is insufficient, the
Company may require the Optionee to pay to the Company the amount required to be
withheld as a condition to delivering the shares acquired pursuant to an Option.
The Company also may withhold or collect amounts with respect to a disqualifying
disposition of shares of Common Stock acquired pursuant to exercise of an
Incentive Stock Option, as provided in Section 8.09(c).
12.02 METHODS OF TAX WITHHOLDING. The Committee is authorized to adopt
rules, regulations or procedures which provide for the satisfaction of an
Optionee's tax withholding obligation by the retention of shares of Common Stock
to which the Employee would otherwise be entitled pursuant to an Option and/or
by the Optionee's delivery of previously owned shares of Common Stock or other
property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on
the Effective Date, and Options may be granted hereunder as of or after the
Effective Date and prior to the termination of the Plan, provided that no
Incentive Stock Option issued pursuant to this Plan shall qualify as such unless
this Plan is approved by the requisite vote of the holders of the outstanding
voting shares of the Company at a meeting of shareholders of the Company held
within twelve (12) months before or after the Effective Date.
13.02 TERM OF PLAN. Unless sooner terminated, this Plan shall remain in
effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Options previously
granted and such Options shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XIV
MISCELLANEOUS
14.01 GOVERNING LAW. To the extent not governed by Federal law, this
Plan shall be construed under the laws of the State of Nevada.
14.02 PRONOUNS. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
<PAGE>
EXHIBIT 10.47
TRANS WORLD GAMING CORP.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The following constitute the provisions of the 1999 Non-Employee
Director Stock Option Plan of Trans World Gaming Corp.
1. PURPOSE
The purpose of the Plan is to provide an investment opportunity to the
Company's Non-employee Directors by granting them Options to purchase shares of
Common Stock as compensation for their service on the Board.
2. DEFINITIONS
As used in this Plan, the following words and phrases shall have the
meanings indicated:
"BOARD" shall mean the Company's Board of Directors.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the Compensation Committee appointed by the
Board, consisting of not less than two Non-Employee Directors.
"COMMON STOCK" shall mean the shares of common stock, $.001 par value
per share, of the Company.
"COMPANY" shall mean Trans World Gaming Corp. and its Subsidiaries.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FAIR MARKET VALUE" shall mean the closing price of a share of the
Common Stock as of a specified date as reported on the principal
securities exchange on which such shares of Common Stock are traded on
the day immediately preceding the date as of which the Fair Market
Value is being determined, or on the next preceding date on which such
shares of Common Stock are traded if no shares of Common Stock were
traded on such immediately preceding day, or if the shares of Common
Stock are not traded on a securities exchange, the Fair Market Value
shall be deemed to be the average of the high bid and low asked prices
of the shares of Common Stock in the over-the-counter market on the day
immediately preceding the date as of which the Fair Market Value is
being determined or on the next preceding date on which such high bid
and low asked prices were recorded. If the shares of Common Stock are
not publicly traded, the Fair Market Value shall be determined by the
Committee or the Board. In no case shall the Fair Market Value be less
then the par value of a share of Common Stock.
"FORM S-8 REGISTRATION STATEMENT" shall mean a registration statement
filed on Form S-8 with and declared effective by the Securities and
Exchange Commission under the Securities Act covering the offer and
sale of the Options and the underlying Common Stock.
"NON-EMPLOYEE DIRECTOR" shall mean any member of the Company's Board
who is a "Non-Employee Director" as such term is defined under Rule
16b-3(b)(3)(i) promulgated under the Exchange Act.
"OPTION" shall mean any option issued pursuant to this Plan.
<PAGE>
"OPTIONEE" shall mean any person to whom an Option is granted under
this Plan.
"PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time
of granting an Option or the sale of any Common Stock, each of the
corporations other than the Company owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"PLAN" shall mean this 1999 Non-employee Director Stock Option Plan.
"REORGANIZATION" shall mean any merger, reorganization, consolidation
or sale of all or substantially all of the Company's assets.
"REGISTERED" shall mean a Form S-8 Registration Statement shall be in
effect covering the purchase of the Options or the underlying shares.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"STOCK OPTION AGREEMENT" shall mean the agreement evidencing the
Options granted to Optionees pursuant to the Plan containing the terms
and conditions specified in Section 7 below.
"SUBSIDIARY" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the
time of granting an Option, each of the corporations, other than the
last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
3. GENERAL ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have the authority in its discretion to administer the Plan and to interpret the
Plan and to prescribe, amend and rescind rules and regulations relating to the
operation of the Plan and to make all other determinations deemed necessary or
advisable for the administration of the Plan; provided, however, that the
Committee may not alter, amend or modify the express provisions of the Plan. The
Board shall fill all vacancies, however caused, in the Committee. The Board may
from time to time appoint additional members to the Committee, and may at any
time remove one or more Committee members and substitute others. No member of
the Board or the Committee shall be liable for any action taken or determination
made in good faith with respect to the Plan or any action taken thereunder.
4. TERM OF PLAN
The Plan became effective upon its adoption by the Company's Board on
September 21, 1999, subject to stockholder approval, and shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 10
hereof. Any Options outstanding under the Plan on such date shall continue to be
exercisable pursuant to their terms, except as provided by Section 7 hereof.
5. ELIGIBILITY
Options may be granted to any Non-employee Director of the Company as
compensation for service on the Board.
6. STOCK SUBJECT TO THE PLAN
An aggregate of 250,000 shares of Common Stock shall be reserved for
issuance pursuant to Options issued pursuant to the Plan. If any outstanding
Option under the Plan for any reason expires or is
<PAGE>
terminated without having been exercised in full, the shares of Common Stock
allocable to the unexercised portion of such Option shall (unless the Plan shall
have been terminated) become available for subsequent issuance of Options under
the Plan.
7. TERMS AND CONDITIONS OF OPTIONS
All Options issued pursuant to the Plan shall be non-statutory options
not entitled to special tax treatment under Section 422 of the code and
evidenced by a Stock Option Agreement containing the terms and conditions
specified in this Section 7.
GRANT OF OPTIONS. Each Non-Employee Director shall be granted an Option
to purchase 2,000 shares of Common Stock on the first business day
following the end of each fiscal quarter during which service on the
Board is rendered commencing with the year 2000.
OPTION EXERCISE PRICE. The exercise price of each Option (the "Option
Exercise Price") shall equal the Fair Market Value of the Common Stock
on the day immediately preceding the date of grant of each Option. The
Option Exercise Price shall be subject to adjustment as provided in
this Section 7.
TERM AND EXERCISE OF OPTIONS. Options shall be exercisable in whole or
in part at any time over the exercise period, but in no event shall
such period exceed ten years from the date of the grant of each such
Option. The exercise period shall be subject to earlier termination as
provided in this Section 7. An Option may be exercised by giving prior
written notice of such exercise to the Company and by paying the Option
Exercise Price to the Company either by delivering on the date of
exercise (i) a check in the amount of the Option Exercise Price, (ii)
Common Stock having a Fair Market Value on the day immediately
preceding the date of exercise equal to or less than the Option
Exercise Price, or (iii) a combination thereof. If the Optionee tenders
shares of Common Stock having a Fair Market Value which exceeds the
Option Exercise Price, the Company shall return to the Optionee any and
all whole shares of Common Stock which exceed the Option Exercise Price
and the Company shall pay the Optionee any additional amount which
exceeds the Option Exercise Price in cash in lieu of issuing the
Optionee a fractional share for such amount.
VESTING AND RESTRICTIONS ON TRANSFERABILITY. Options issued under the
Plan shall vest immediately upon grant and shall not be transferable
other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code
or Title I of the Employee Retirement Income Security Act ("ERISA") or
the rules thereunder.
DEATH OR DISABILITY OF OPTIONEE. If an Optionee shall die or become
disabled, all Options theretofore issued to such Optionee may, unless
earlier terminated in accordance with their terms, be exercised at any
time during the term of the Option by the personal representative of
the Optionee or by the person who acquired the right to exercise such
Option by bequest or inheritance or otherwise by reason of the death or
disability of the Optionee.
TERMINATION OF DUTIES FOR ANY OTHER REASON. In the event an Outside
Director's membership on the Board ceases for any reason other than one
described in Section 7(E) hereof, any Options then held by such Outside
Director shall be terminated within twelve (12) months following his
cessation of Board membership.
SERVICES AS AN EMPLOYEE. If an Outside Director becomes an employee of
the Company or any of its subsidiaries, the Outside Director shall be
treated as continuing in service for purposes of this Outside Director
Plan, but shall not be eligible to receive future grants while an
employee. If the Outside Director's services as an employee terminate
without his again becoming an Outside Director, the provisions of
Section 7(F) shall apply as though such termination of employment were
the termination of the Outside Director's membership on the Board.
<PAGE>
RECLASSIFICATION; RECAPITALIZATION; AND REORGANIZATIONS.
(1) DIVIDENDS AND STOCK SPLITS. If there is any change in the number of
shares of Common Stock through the declaration of stock dividends,
recapitalization resulting in stock splits, or combinations or
exchanges of such shares, then the number of shares of Common Stock
available for Options, the number of such shares covered by outstanding
Options and the Option Exercise Price shall be proportionately adjusted
to reflect any increase or decrease in the number of issued shares of
Common Stock; provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(2) SPIN-OFFS AND LIQUIDATIONS. In the event of the proposed
dissolution or liquidation of the Company, or in the event of any
corporate separation or division, including, but not limited to, a
split-up, a split-off or spin-off, each Option granted under the Plan
shall terminate as of a date to be fixed by the Board, provided,
however, that no less than thirty (30) days' written notice of the date
so fixed shall be given to each Optionee, who shall have the right
during the period of thirty (30)days preceding such termination, to
exercise the Options as to all or any part of the shares of Common
Stock covered thereby.
(3) REORGANIZATIONS. If, while unexercised Options remain outstanding
under the Plan, the Company executes a definitive Reorganization
agreement, the Committee may provide that each Option granted under the
Plan shall (i) terminate as of a date to be fixed by the Board,
provided, however, that no less than thirty (30) days' written notice
of the date so fixed shall be given to each Optionee, who shall have
the right, during the period of thirty (30) days preceding such
termination, to exercise the Options as to all or any part of the
shares of Common Stock covered thereby or (ii) remain outstanding and
be adjusted so that on exercise the Optionee shall receive the
securities, cash or property that would have been issued with respect
to the shares of Common Stock had the Option been exercised immediately
prior to the Reorganization. The Committee may also, in its discretion,
permit the cancellation of outstanding Options in exchange for a cash
payment to the Optionee equal to the difference between the exercise
price of the Option and the value of the consideration that would have
been paid had the Option been exercised immediately prior to the
Reorganization.
(4) EXEMPTIONS. This Section 7(H) shall not apply to a Reorganization
in which the Company is the surviving corporation and shares of Common
Stock are not converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value. Notwithstanding
the preceding sentence, in case of any Reorganization in which the
Company is the continuing corporation and in which there is a
reclassification or change (including a change to the right to receive
cash or property) of the shares of Common Stock (other than a change in
par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any changes in such shares
into two or more classes series of shares), the Committee may provide
that the holder of each Option then exercisable shall have the right to
exercise such Option solely for the kind and amount of shares of stock
and other securities (including those of any new direct or indirect
Parent of the Company), property, cash or any combination thereof
receivable by the holder of the number of shares of Common Stock for
which such Option might have been exercised upon such Reorganization or
reclassification. In the event of a change in the Common Stock as
presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from any
such change shall be deemed to be the Common Stock within the meaning
of the Plan. Except as herein expressly provided, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares
of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, or Reorganization, and any
assurance by the Company of shares of stock of any class, and no
adjustment by reason thereof shall be made with respect to the number
of shares of Common Stock subject to an Option or to the Option Price.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make
<PAGE>
adjustments, reclassifications, Reorganizations or changes of its
capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its
business or assets.
8. RIGHTS AS A SHAREHOLDER
No Optionee shall have any rights as a shareholder with respect to any
shares until the stock certificate evidencing such shares has been issued
evidencing such shares. No adjustments shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 7(H) hereof.
9. GENERAL RESTRICTIONS
INVESTMENT REPRESENTATIONS. The Company may require an Optionee to give
written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock for his or
her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effect as
the Company deems necessary or appropriate in order to comply with
applicable federal and applicable state securities laws.
COMPLIANCE WITH SECURITIES LAWS. Each Option shall be subject to the
requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares
subject thereto on any securities exchange or any state or federal law,
or the consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance of
Options, such Options may not be sold or exercised, in whole or in
part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained on conditions acceptable
to the Board. The Company plans to register the shares subject to the
Options on a Form S-8 Registration Statement. However, nothing herein
shall be deemed to require the Company to obtain an effective Form S-8
Registration Statement or to apply for or to obtain any listing,
registration or qualification of the Options or Common Stock to be
issued pursuant thereto.
10. AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time and from time to time suspend, terminate,
modify or amend the Plan, provided that no suspension, termination, modification
or amendment of the Plan may adversely affect any rights under the Plan unless
the written consent of those affected is obtained.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOUND ON PAGES F-3 AND
F-4 OF THE COMPANY'S 10KSR/A FOR THE YEAR ENDED DECEMBER 31,1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 934 0
<SECURITIES> 0 0
<RECEIVABLES> 38 0
<ALLOWANCES> 0 0
<INVENTORY> 770 0
<CURRENT-ASSETS> 1,742 0
<PP&E> 21,377 0
<DEPRECIATION> (5,126) 0
<TOTAL-ASSETS> 17,993 0
<CURRENT-LIABILITIES> 5,718 0
<BONDS> 26,519 0
0 0
0 0
<COMMON> 5 0
<OTHER-SE> (14,249) 0
<TOTAL-LIABILITY-AND-EQUITY> 17,993 0
<SALES> 0 0
<TOTAL-REVENUES> 12,294 9,016
<CGS> 0 0
<TOTAL-COSTS> (8,149) (7,458)
<OTHER-EXPENSES> (7,307) (9,593)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (3,025) (2,465)
<INCOME-PRETAX> (6,187) (10,500)
<INCOME-TAX> 0 (191)
<INCOME-CONTINUING> (6,187) (10,691)
<DISCONTINUED> (222) (38)
<EXTRAORDINARY> 0 0
<CHANGES> 923 112
<NET-INCOME> (5,486) (10,617)
<EPS-BASIC> (1.78) (3.52)
<EPS-DILUTED> (1.78) (3.52)
</TABLE>
