<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1997
REGISTRATION NO.
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WHG RESORTS & CASINOS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7011 36-3277019
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6063 EAST ISLA VERDE AVENUE
CAROLINA, PUERTO RICO 00979
(787) 791-2222
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PAMELA E. FLAHERTY, ESQ.
SHACK & SIEGEL, P.C.
530 FIFTH AVENUE
NEW YORK, NEW YORK 10036
(212) 782-0700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Voting Common Stock, par value $.01 per share
and associated Stock Purchase Rights.............. 1,729,425 $11.375 $19,672,209 $5,961.28
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the high and low
prices reported on the New York Stock Exchange for the Registrant's Voting
Common Stock, par value $.01 per share, on June 13, 1997.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 19, 1997
PROSPECTUS
WHG RESORTS & CASINOS INC.
1,729,425 SHARES VOTING COMMON STOCK
PAR VALUE $.01 PER SHARE AND
ASSOCIATED STOCK PURCHASE RIGHTS
This Prospectus relates to 1,729,425 shares (the 'Shares') of the voting
common stock, par value $.01 per share (the 'Common Stock'), constituting 28.58%
of the outstanding Common Stock, of WHG Resorts & Casinos Inc. (the 'Company')
owned by Sumner M. Redstone and National Amusements, Inc. (collectively, the
'NAI Group'). The NAI Group has advised the Company that they have no current
plan or proposal to sell any of the Shares. Due to the quantity of the Shares,
the sale of the Shares by the NAI Group without registration under the
Securities Act of 1933, as amended (the 'Act'), may be subject to quantity and
manner of sale limitations imposed by applicable laws, rules and regulations.
The NAI Group has requested that the Company register the Shares under the Act
in order to provide greater flexibility should a future decision to sell any of
the Shares be made. The NAI Group may sell some, all or none of the Shares and
may sell the Shares in one or more transactions or a series of transactions. The
Company will not receive any proceeds from the sale of the Shares by the NAI
Group.
The Common Stock is traded on the New York Stock Exchange (the 'NYSE')
under the symbol 'WHG'. On June 13, 1997, the last reported sales price per
share of Common Stock, as reported by the NYSE, was $11.50. See 'Price Range of
Common Stock and Dividends.'
If a decision to sell all or any portion of the Shares is made, such Shares
may be sold from time to time directly by the NAI Group, or through agents,
dealers or underwriters designated from time to time on terms to be determined
at the time of sale. To the extent required, the specific portion of the Shares
to be sold, the purchase price, the public offering price, the names of any such
agents, dealers or underwriters and any applicable commissions or discount with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement (or, if required, a post-effective amendment to the Registration
Statement of which this Prospectus forms a part). A sale of any of the Shares by
the NAI Group may be effected in one or more transactions that may take place on
the NYSE, including ordinary brokers' transactions, privately-negotiated
transactions or through sales to one or more dealers for resale of such Shares
as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees, discounts and commissions
may be paid by the NAI Group in connection with such sales of the Shares.
The NAI Group and any brokers, dealers, agents or underwriters that
participate with the NAI Group in the distribution of the Shares may be deemed
to be 'underwriters' within the meaning of the Act, and any commissions received
by them and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Act. See 'Plan of
Distribution.'
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 7 FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SHARES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission'), a Registration Statement on Form S-1 (the 'Registration
Statement' which term shall include any amendments thereto) under the Act with
respect to the securities offered hereby. This Prospectus, filed as a part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain items
of which are omitted in accordance with the rules and regulations of the
Commission. For further information regarding the Company and the securities
offered hereby, reference is made to the Registration Statement and to the
exhibits filed as a part thereof, which may be inspected at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 without charge or
copied upon request to the Public Reference Section of the Commission and
payment of the prescribed fee. Statements contained in this Prospectus as to the
contents of any agreement or other document referred to herein are not
necessarily complete and in each instance reference is made to the copy of such
agreement or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
The Company is a reporting company under the Securities Exchange Act of
1934, as amended (the 'Exchange Act'), and in accordance therewith files
reports, proxy statements and other information with the Commission. Reports
filed by the Company with the Commission pursuant to the information
requirements of the Exchange Act may be inspected and copied at prescribed rates
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the following Regional
Offices of the Commission: 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, the address of which is: 'http://www.sec.gov'.
The Common Stock is listed on the NYSE and reports and other information
concerning the Company can be inspected at the NYSE, 20 Broad Street, New York,
New York 10005.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements,
including the notes thereto, set forth elsewhere in this Prospectus. Capitalized
terms used but not defined in this Summary are defined elsewhere in this
Prospectus.
THE COMPANY
The Company owns interests in three of the leading hotels and casinos in
Puerto Rico -- the Condado Plaza Hotel & Casino (the 'Condado Plaza'), the El
San Juan Hotel & Casino (the 'El San Juan') and the El Conquistador Resort &
Country Club (the 'El Conquistador'). These three hotels are managed by Williams
Hospitality Group Inc. ('WHGI'), which is 62% owned by the Company. In all, the
Company owns interests in and manages 1,875 suites and hotel rooms, 39,300
square feet of casino floor space containing 120 gaming tables and 940 slot
machines and approximately 146,000 square feet of convention and meeting space.
These properties also include a total of 22 restaurants, 41 shops, one showroom,
three health and fitness centers, 12 tennis courts, an 18-hole championship golf
course, a marina and 25 cocktail and entertainment lounges. See the Consolidated
Financial Statements of the Company, formerly Williams Hotel Corporation, and
the financial statements of nonconsolidated affiliates included elsewhere
herein.
The Company's hotels are each focused on different market segments: the
Condado Plaza primarily services the business traveler, the El San Juan caters
to individual vacation travelers, as well as to small groups and conferences and
corporate executives and the El Conquistador offers extensive group and
conference facilities and also attracts the individual leisure traveler.
In a survey of its readers conducted in 1996 by Conde Nast Traveler
magazine, the El Conquistador was rated among the top 100 resorts in the world
and both the El Conquistador and El San Juan were rated among the top 50
tropical resorts. The Company's casinos are among the largest and most
successful in Puerto Rico. In fiscal 1996, the Condado Plaza casino achieved the
highest table game play and the highest slot machine play in Puerto Rico while
the El San Juan casino achieved the second highest table game play and the third
highest slot machine play. The Company is a market share leader in Puerto Rico
maintaining average occupancy at the same or higher levels than reported by its
competitors.
The Condado Plaza was recently awarded a 'Four Diamond' rating by the
American Automobile Association for the ninth consecutive year. The Condado
Plaza maintained an average occupancy during the fiscal year ended June 30, 1996
of 87.4% and an average room rate of $138.68.
The El San Juan was recently awarded a 'Four Diamond' rating by the
American Automobile Association for the tenth year in a row. The El San Juan
maintained an average occupancy during the fiscal year ended June 30, 1996 of
82.3% and an average room rate of $185.30.
The El Conquistador has received the prestigious Gold Key Award by Meetings
and Conventions Magazine and the Paragon Award by Corporate Meetings and
Incentives Magazine for excellence in meetings and conventions. It was awarded
the American Automobile Association 'Four Diamond' rating for each of its three
full years of operation. The Las Casitas at the El Conquistador was recently
awarded a 'Five Diamond' rating by the American Automobile Association. During
the fiscal year ended March 31, 1997, the resort's third full fiscal year of
operations, the El Conquistador had an average occupancy of 71.9% and an average
room rate of $202.86.
The Company's business strategy is to maximize the economic potential of
its existing properties while building on its hotel and casino expertise by
seeking other opportunities to manage and own hotels and casinos in Puerto Rico,
the Caribbean and elsewhere. The Company believes that its strengths make it an
attractive candidate to other hotel and casino owners seeking third-party
managers as well as an attractive joint venture partner for other hotel and
casino developers and owners. The Company continues to explore potential
opportunities but is not currently engaged in any negotiations, agreements or
understandings with respect to any acquisition, management agreement or joint
venture.
3
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The Company is constantly seeking new ways to reduce operating costs as
well as upgrade or add amenities to its hotel and casino properties to enhance
the overall experience of its guests. The lobby of the Condado Plaza was fully
renovated during the current fiscal year and restaurants, a nightclub and shops
were added. The El San Juan recently completed a major renovation and
refurbishment which included all guest rooms, guest room corridors, an
additional restaurant and public areas. The El Conquistador recently opened
three new restaurants, a nightclub and nine new retail shops. The El
Conquistador is currently negotiating to open a world class spa by the end of
1997.
The Company's key strengths which have contributed to its success include:
Marketing -- The Company has extensive experience in marketing to three
distinct hotel guest types -- the corporate-executive traveler, the
individual leisure traveler and the group and convention traveler. Through
its 40 person U.S. mainland exclusive marketing service, numerous sales
professionals at each property, general sales agents in South America and
Europe as well as excellent strategic relationships with major airlines,
cruise ship operators and travel industry partners, the Company is able to
maintain its market share leadership in Puerto Rico. With this structure
in place, the Company is equipped to market additional properties.
Management -- The Company employs approximately 400 managers in its three
hotels and casinos. These managers provide a pool of experienced talent to
the Company for purposes of operating its existing properties as well as
for future training and expansion. The Company has a proven track record
of successful management of hotels and casinos due to long-term management
philosophy and commitment to excellence and service.
Centralized Reservations System -- The Company maintains a centralized
reservation system staffed by trained personnel who handle over 500,000
telephone inquiries per year. This centralized system provides the Company
the opportunity to cross-sell its properties depending on supply and
demand, guest type and various other factors.
Centralized Purchasing -- Through the centralized purchasing system
established during fiscal 1996 for the three hotels and casinos it owns
and manages, the Company is able to reduce operating costs and achieve
certain economies of scale so that it can more effectively compete with
larger hotel chains as well as provide its guests first-class amenities at
lower incremental costs.
The Company is the sole owner of the Condado Plaza. The El San Juan and
WHGI are owned in part by the Company and in part by unaffiliated third parties
(the 'Other Owners'). The Company was formed in 1983 and in that same year,
together with the Other Owners, formed Posadas de Puerto Rico Associates,
Incorporated ('PPRA') and WHGI for the purpose of acquiring and managing the
hotel and casino property now known as the Condado Plaza. A year later, the
Company, together with the Other Owners, caused the formation of Posadas de San
Juan Associates for the purpose of acquiring and managing, through WHGI, the
hotel and casino property now known as the El San Juan. Since 1993, the Company
has increased its ownership interests in PPRA and WHGI and the Company currently
owns 100% of PPRA, a 50% interest in the El San Juan and 62% of WHGI. In 1990
the Company, together with the Other Owners, caused the formation of WKA El Con
Associates ('WKA') for the purpose of becoming a general and limited partner of
El Conquistador Partnership L.P. El Conquistador Partnership L.P. was formed by
WKA and Kumagai Caribbean, Inc. ('Kumagai'), a subsidiary of Kumagai Gumi Co.,
Ltd., a large Japanese construction company, for the purpose of acquiring and
renovating the hotel and casino property now known as the El Conquistador. The
Company's interest in WKA represents a 23.3% effective ownership interest in the
El Conquistador. The El Conquistador is also managed by WHGI. See 'Relationship
Between the Company and Its Subsidiaries and Affiliates.'
Prior to April 21, 1997, the Company was a wholly-owned subsidiary of WMS
Industries Inc., a Delaware corporation ('WMS'). Effective April 21, 1997 (the
'Distribution Date'), WMS distributed all of the outstanding shares of Common
Stock to its stockholders as a tax free dividend on its common stock (the 'WMS
Common Stock'). Such dividend and the transactions effected in connection
4
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therewith are referred to in this Prospectus as the 'Distribution.' As a result
of the Distribution, the Company became an independent public company.
The Company's principal executive offices are located at 6063 East Isla
Verde Avenue, Carolina, Puerto Rico 00979; telephone: (787) 791-2222.
CORPORATE STRUCTURE
The organization structure of the significant entities comprising the
Company is as follows:
[GRAPH]
THE NAI GROUP
National Amusements, Inc., a Maryland corporation ('NAI'), and Sumner M.
Redstone are the owners of all the Shares. The principal businesses of NAI are
owning and operating movie theaters in the United States, United Kingdom and
South America and holding common stock of Viacom Inc. Mr. Redstone, as trustee
for various trusts, is the beneficial owner of 75% of the issued and outstanding
shares of capital stock of NAI. Mr. Redstone's principal occupation is Chairman
of the Board, President and Chief Executive Officer of NAI and Chairman of the
Board and Chief Executive Officer of Viacom Inc. Mr. Redstone and NAI acquired
the Shares on the Distribution Date as part of the Distribution. The NAI Group
has advised the Company that it has no current plan or proposal to sell any of
the Shares. See 'The NAI Group.'
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Selling
Stockholders............................ 1,729,425 shares of Common Stock
Common Stock Outstanding at
June 13, 1997........................... 6,050,200 shares of Common Stock
Purchase Price............................ To be determined at time of sale.
Proceeds of the Offering.................. All of the proceeds from any sale of Common Stock covered by this
Prospectus will be received by the NAI Group. The Company will not
receive any of the proceeds.
NYSE Symbol for the Common Stock.......... WHG
The NAI Group............................. The shares of Common Stock covered by this Prospectus are owned by
the NAI Group.
</TABLE>
5
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<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data set forth below for the fiscal years ended June
30, 1996, 1995, 1994, 1993 and 1992 have been derived from the audited
consolidated financial statements of the Company (formerly Williams Hotel
Corporation) for such periods. Williams Hotel Corporation owned 100% of the
Company and was merged with and into the Company on April 8, 1997, with the
Company as the surviving corporation. The summary financial data set forth below
for the nine months ended March 31, 1997 and 1996 has been derived from the
unaudited consolidated financial statements of the Company (formerly Williams
Hotel Corporation) but, in the opinion of management, reflect all adjustments,
consisting only of normal recurring accruals, considered necessary for a fair
presentation of the results for such periods. The unaudited pro forma balance
sheet data as of March 31, 1997 and the unaudited pro forma statement of income
data for the nine months ended March 31, 1997 and the year ended June 30, 1996
are derived from the Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere herein. The data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Consolidated Financial Statements of the Company (formerly
Williams Hotel Corporation) and related notes thereto, separate statements of
nonconsolidated affiliates and other financial information included elsewhere
herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEARS ENDED JUNE 30,
--------------------------- ---------------------------------------------------------
(UNAUDITED) 1996
SELECTED STATEMENT OF 1997 PRO FORMA
INCOME DATA PRO FORMA 1997 1996 (UNAUDITED) 1996 1995 1994 1993 1992(1)
--------- ------- ------- ------------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 51,646 $51,646 $52,306 $68,694 $68,694 $70,878 $75,480 $70,680 $62,352
--------- ------- ------- ------- ------- ------- ------- ------- -------
--------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income......... 12,520 13,217 11,091 12,194 13,558 7,624 13,892 14,162 6,909
Interest expense, net.... (846) (846) (1,448) (1,859) (1,859) (1,752) (3,551) (3,873) (4,074)
Equity in income (loss)
of nonconsolidated
affiliates............. (2,395) (2,395) (3,915) (3,465) (3,465) (7,003) (3,534) (135) 2,992
--------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before tax
provision and minority
interests.............. 9,279 9,976 5,728 6,870 8,234 (1,131) 6,807 10,154 5,827
Credit (provision) for
income taxes........... (3,684) (2,302) (710) (2,621) (1,645) 234 7 (1,050) (1,881)
Minority interests in
(income) loss.......... (2,822) (2,932) (2,779) (3,684) (3,636) (2,910) (4,597) (3,332) 1,383
Dividend on Condado Plaza
Preferred Stock........ -- (246) (422) -- (516) (557) -- -- --
--------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........ $ 2,773 $ 4,496 $ 1,817 $ 565 $ 2,437 $(4,364) $ 2,217 $ 5,772 $ 5,329
--------- ------- ------- ------- ------- ------- ------- ------- -------
--------- ------- ------- ------- ------- ------- ------- ------- -------
Pro forma net income
(loss) reflecting
income taxes on a
separate return basis
(unaudited) (2)........ $ 3,881 $ 451 $ 1,537 $(6,500) $ 1,257 $ 5,579 $ 2,407
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Pro forma net income per
share of common
stock.................. $ 0.46 $ 0.09
--------- -------
--------- -------
Pro forma shares
outstanding (3)........ 6,050 6,050
--------- -------
--------- -------
</TABLE>
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET
DATA
MARCH 31, 1997
-----------------------
PRO FORMA HISTORICAL
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Investments in,
receivables and
advances to
nonconsolidated
affiliates............. $ 28,801 $ 28,801
Property and equipment,
net.................... 44,073 43,153
Total assets............. 113,176 109,846
Long-term debt, including
current maturities..... 23,792 23,792
Minority interests....... 18,920 21,590
Shareholders' equity..... 52,503 41,996
</TABLE>
- ------------
(1) 1992 includes the operations of WHGI on a consolidated basis for the period
subsequent to the Company's April 30, 1992 purchase of an additional 5%
interest in WHGI which increased the Company's ownership to 55%. Prior to
April 30, 1992, the operations of WHGI were included in the consolidated
financial statements by the equity method.
(2) Pro forma net income (loss) reflecting income taxes on a separate return
basis (unaudited) reflects the provision for income taxes without the tax
benefits allocated to the Company from WMS primarily for utilization of
partnership losses in the WMS consolidated Federal income tax return.
(3) Pro forma net income per share of the Company was calculated using
anticipated distribution of one share of Common Stock for every four of the
24,200,800 outstanding shares of WMS Common Stock.
6
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RISK FACTORS
An investment in the shares of Common Stock involves certain risk factors,
including those described below and elsewhere in this Prospectus, which could
adversely affect the value of such shares. Neither the Company nor the NAI Group
makes, nor is any other person authorized to make, any representation as to the
future market value of Common Stock. Any forward-looking statements contained in
this Prospectus should not be relied upon as predictions of future events. Such
forward-looking statements may be found in the material set forth under
'Prospectus Summary,' 'Risk Factors' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations,' as well as elsewhere in this
Prospectus generally. Such statements are necessarily dependent on assumptions,
data or methods that may be incorrect or imprecise and that may be incapable of
being realized. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
FINANCIAL LEVERAGE OF EL CONQUISTADOR; OWNERSHIP INTEREST IN EL CONQUISTADOR
The El Conquistador is a highly-leveraged property having at March 31, 1997
aggregate short-term and long-term indebtedness of approximately $199,709,260,
of which $145,000,000 represents term loans secured by substantially all of the
assets of the El Conquistador; $1,500,000 represents outstanding amounts under a
secured revolving credit facility; $4,339,859 represents equipment financing
arrangements; $37,956,658 represents loans plus accrued interest due its
partners; $5,542,528 represents incentive management fees due WHGI; $338,405
represents interest due WHGI on incentive management fees; $4,656,282 represents
subordinated loans and accrued interest thereon due WHGI and $375,528 represents
other cash advances due WHGI. The aggregate annual interest costs and expenses
in respect of such indebtedness is approximately $16,870,000 of which
approximately $13,750,000 is paid on a current basis and the balance of
$3,120,000 is deferred. $120,000,000 of such indebtedness will be due February
1, 1998, unless extended, and is secured by substantially all of the assets of
the El Conquistador. If such financing is not renewed or replaced and as a
consequence thereof the existing lenders foreclose on the El Conquistador, the
Company would probably suffer a total loss of its investment in the property of
approximately $910,000 at March 31, 1997, a write-off by WHGI of its incentive
management fees and certain other amounts due from the El Conquistador of
approximately $8,777,036 at March 31, 1997 and a loss of WHGI's agreement to
manage the El Conquistador. WHGI received basic management fees from the El
Conquistador of $3,170,000 and $3,025,000 during the fiscal years ended June 30,
1996 and 1995, respectively. In the event that the proceeds of a sale of the
property on foreclosure are insufficient to satisfy the approximately
$160,000,000 of mortgage indebtedness, then, the Company will be contingently
liable for approximately $4,000,000. In addition, as of March 31, 1997 WHGI is
contingently liable for approximately $2,530,000 with respect to certain
equipment financing arrangements and certain other obligations of the El
Conquistador. The Company has retained an investment banking firm to assist in
structuring the refinancing of the El Conquistador debt. Based on the operating
history of the El Conquistador, the Company believes such refinancing will be
achieved, but there can be no assurance thereof. See 'Hotel Financings and
Certain Contingent Obligations.'
The El Conquistador is owned by El Conquistador Partnership L.P., a
Delaware limited partnership, of which the Company owns approximately a 23.3%
indirect interest. The balance of the ownership interests in the El Conquistador
are owned approximately 26.7% by the Other Owners and 50% by Kumagai. The
partners have had good relations with each other. However, should significant
disagreements develop between the Company and the Other Owners, or the Company
and/or the Other Owners and Kumagai, such disagreements could adversely affect
the operations of the El Conquistador. See 'Relationship Between the Company and
Its Subsidiaries and Affiliates -- The El Conquistador.'
OPERATING AND FINANCING LIMITATIONS ASSOCIATED WITH DEBT COVENANTS
Each of the hotels and casinos in which the Company has an interest and
WHGI has separate financing arrangements which are non-recourse, subject to
certain limited exceptions, to any of the owners of the hotels and casinos and
WHGI, as applicable. A default by one of the hotels and casinos or WHGI under
any of their respective financing arrangements would not necessarily trigger a
default
7
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under any of the other hotels' and casinos' financing arrangements or provide
creditors of the defaulting entity any rights against a non-defaulting entity,
except with respect to certain specific property and guarantees which serve as
collateral under the financing arrangements in default. See 'Hotel Financings
and Certain Contingent Obligations.'
The aggregate interest expense for the Company's three hotels and casinos
and WHGI for the 1996 fiscal year was approximately $23,788,000 of which
$19,846,000 was paid on a current basis and $3,942,000 was deferred. The ability
of the Company's individual hotels and casinos to meet their respective debt
service obligations is largely dependent upon the future performance of each
hotel and casino which will be subject to financial, business and other factors,
including factors beyond its control, such as competition and weather-related
disasters. Currently or in the future financing for the hotels and casinos and
WHGI, among other things, may restrict in certain circumstances incurrence of
additional indebtedness, the payment of dividends or other distributions to
owners, redemption of capital stock or repurchase of other equity interests,
creation of additional liens, disposition of certain assets, engagements in
mergers and the entry into additional transactions with affiliates. These
restrictions could limit the ability of the hotels and casinos in which the
Company has an interest to respond to changing market and economic conditions
and provide for capital expenditures. If the hotels and casinos in which the
Company has an interest are unable to generate sufficient cash flow from
operations, they may be required to refinance their outstanding debt or obtain
additional financing. There can be no assurance that any such refinancing would
be possible or that any additional financing, if available, could be obtained on
terms that would be favorable or acceptable to the Company. See 'Hotel
Financings and Certain Contingent Obligations.'
The existing financing arrangements for the Condado Plaza do not prohibit
the payment of dividends provided there exists no payment default. Distributions
to the partners of El Conquistador Partnership L.P. are restricted by such
partnership's existing financing arrangements and are expected to continue to be
restricted by any new arrangements. Existing financing arrangements for the El
San Juan prohibit distributions to its partners in excess of 50% of Excess Net
Free Cash Flow (as defined). There can be no assurance that dividends or other
distributions to owners can be made. There is currently no contractual
restriction on the payment of dividends by WHGI. See 'Hotel Financings and
Certain Contingent Obligations.'
LACK OF OPERATING HISTORY AS A SEPARATE PUBLIC COMPANY
Prior to the Distribution Date, the Company was a wholly-owned subsidiary
of WMS and accordingly, did not have an operating history as a separate public
company. Historically, WMS on certain occasions previously provided credit
enhancement, loans, advances or other capital in connection with the Company's
business. The Company is now dependent upon its own financial resources
including amounts provided by WMS as part of the Distribution, internally
generated funds and its ability to raise capital or borrow funds to expand
and/or meet the capital requirements of its operations and any future growth.
Management of the Company had also historically relied upon WMS for certain
legal and financial services. However, since the Distribution, the Company has
been responsible for maintaining its own administrative functions, except for
certain transitional services provided by WMS pursuant to agreements between the
Company and WMS. See 'Arrangements Between the Company and WMS.'
TOURISM TAX EXEMPTIONS
The hotels in which the Company has an interest and WHGI enjoy certain tax
exemptions under the Puerto Rico Tourism Incentive Acts designed to encourage
the island's tourism industry. The tourism resolutions provided under such acts
afford tax exemptions to the grantees for ten years, which may be extended for
an additional ten years. The hotels in which the Company has an interest and
WHGI have historically had tax exemptions under the Tourism Incentive Act of
1983 and have received concessions under the Puerto Rico Tourism Development Act
of 1993. The exemptions do not apply to casino revenues. The resolutions are
conditioned upon continued compliance with various terms and conditions set
forth in the resolutions. Failure of the applicable entity to comply with these
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requirements could result in the revocation of the resolution resulting in the
elimination of the exemptions provided. There can be no assurance that these
exemptions will continue to be available, and if changed, what effect a change
would have on the Company's operations. See Note 6 to the Consolidated Financial
Statements of the Company (formerly Williams Hotel Corporation) included
elsewhere herein.
CAPITAL REQUIREMENTS
Each of the three hotel and casino properties in which the Company has an
ownership interest requires substantial ongoing expenditures for the purchase of
property and equipment and refurbishment of facilities in order to continue to
provide first-class facilities to the hotels' and casinos' guests. During the
fiscal years ended June 30, 1996, 1995 and 1994, the Condado Plaza and El San
Juan made aggregate capital expenditures of $4,390,000, $5,797,000 and
$10,482,000, respectively. Additionally, the Company anticipates aggregate
capital expenditures for those two hotels in fiscal 1997 to be approximately
$9,000,000 based upon annual capital expenditure budgets approved by the
Company's Board of Directors (the 'Board') including the completion of the
refurbishment of the Condado Plaza lobby, casino, restaurants and nightclub. For
fiscal years 1997, 1996 and 1995, the El Conquistador had capital expenditures
of $1,306,000, $864,000 and $3,002,000, respectively. Capital expenditures at
the El Conquistador in 1997 and 1996 were low due to the newness of the
facility. Capital expenditures at the El Conquistador for fiscal 1998 have been
budgeted at $2,800,000. There can be no assurance that cash provided from
operating activities or additional financing will be available in such amounts
in the future for similar capital expenditures and refurbishment projects.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a significant extent upon the
performance of senior management and its ability to continue to attract,
motivate and retain highly-qualified employees. The loss of services of senior
management or other key employees could have a material adverse effect on the
Company. Competition for highly-skilled employees with management, marketing and
other specialized training in the hotel and casino business is intense,
especially in Puerto Rico and other parts of the Caribbean, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. Specifically, the Company may experience increased costs in order to
attract and retain skilled employees.
The Company is a party to a stockholders agreement with respect to WHGI
which provides, among other things, that commencing April 30, 1999, or such
earlier date as Mr. Louis J. Nicastro ceases to be Chairman of the Board of WHGI
and to regularly exercise the functions of Chief Executive Officer of WHGI, then
action by the Board of Directors of WHGI with respect to certain major decisions
shall require an affirmative vote of 65% of the members of the entire Board of
WHGI and, to the extent a vote of stockholders is required by law to authorize
such a major decision, then an affirmative vote of the holders of 66 2/3% of the
outstanding shares of WHGI common stock will be required. The major decisions
requiring such a vote include the issuance of additional shares, a sale of
substantially all of the assets of WHGI, compensation of directors and
incurrence of indebtedness in excess of $2.0 million for any single item or $5.0
million in the aggregate. See 'Relationship Between the Company and Its
Subsidiaries and Affiliates -- WHGI.'
SERIES B PREFERRED STOCK
The Company has entered into an agreement with Mr. Louis J. Nicastro, the
Company's Chairman and Chief Executive Officer, pursuant to which the Company
can at any time prior to December 31, 1999 require Mr. Nicastro to purchase
300,000 shares of Series B Preferred Stock for an aggregate purchase price of
$3,000,000. The Company has granted Mr. Nicastro an option to purchase such
300,000 shares of Series B Preferred Stock for $3,300,000 which option becomes
exercisable in the event that any person or entity hereafter acquires or
announces his or its intention to acquire 10% or more of the outstanding Common
Stock. Such option expires on the earlier to occur of December 31, 1999 or the
death of Mr. Nicastro. Among other features, the Series B Preferred Stock
entitles the holder
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thereof to five votes per share of Series B Preferred Stock and to vote together
with the Common Stock as if one class. If such Series B Preferred Stock were
issued as of June 1, 1997, such shares would represent approximately 19.9% of
the then outstanding voting power of the Company's capital stock. The Series B
Preferred Stock might make a change in control of the Company more difficult and
could discourage potential acquisition proposals without the consent of Mr.
Nicastro. See 'Related Party Transactions' and 'Purposes and Anti-Takeover
Effects of Certain Provisions -- Series B Preferred Stock' and 'Description of
the Company's Capital Stock -- Series B Preferred Stock.'
LACK OF FULL CONTROL
The Company is not a majority owner of the El San Juan or the El
Conquistador. Accordingly, the Company does not control such entities. Pursuant
to the stockholders agreement among the owners of WHGI, should Mr. Louis J.
Nicastro cease to be Chairman and Chief Executive Officer of WHGI and in any
event commencing April 30, 1999, then certain super majority voting requirements
of the WHGI Board of Directors and stockholders will apply. See 'Relationship
Between the Company and Its Subsidiaries and Affiliates.' Although the Company
has generally good relationships with the Other Owners of its subsidiaries,
there can be no assurance that such relationships will continue. WHGI, as the
manager of the three hotels and casinos in which the Company has an interest,
has substantial influence and control over the day-to-day operations of each
property.
CHANGES IN TAX LAW
Section 936 of the Internal Revenue Code of 1986, as amended (the 'Code'),
was recently amended. That section had historically provided tax incentives for
U.S. companies to invest funds earned in Puerto Rico back into Puerto Rico, the
result of which was to encourage business in Puerto Rico and make available to
certain Puerto Rico businesses financing at rates below those generally offered
by commercial banks. As a result of the recent changes in the Code, such
favorable financing rates are no longer available. In addition, as a direct
result of the change, debt service expenses at the El Conquistador will be
increased on an annual basis by approximately $700,000. See 'Hotel Financings
and Certain Contingent Obligations -- The El Conquistador.'
Arguably, the changes in provisions of Section 936 of the Code which phase
out annually through 2005 certain tax benefits which are applicable to domestic
corporations, such as pharmaceutical companies, doing business in Puerto Rico,
may result in such corporations reducing or closing their Puerto Rico operations
and reducing their re-investments in Puerto Rico. The Company does not yet know
the full extent to which its business will be affected by such tax law changes.
However, if the effect of the changes is to reduce the number of business
travelers to Puerto Rico, such reduction could adversely affect the occupancy
and room rates achievable by the Company's hotels, particularly the Condado
Plaza which caters to the traveling executive.
COMPETITION
The hotel and casino business in the Caribbean region is highly
competitive. The Company's facilities compete with each other and with numerous
hotels and resorts on the island of Puerto Rico (including 16 other hotels and
resorts with casinos) and on other Caribbean islands as well as those in the
southeastern United States and Mexico. The Company competes with such chains as
Hyatt, Marriott, Hilton, Holiday Inn and Westin as well as numerous other hotel
and resort chains and independent hotel and motel operators. The Company
competes for hotel and casino customers to a lesser extent with the Nevada and
New Jersey hotels and casinos as well as other casinos now operating in the
United States. During the past three years, six new hotels and casinos have
opened in Puerto Rico alone and three hotels and casinos are expected to open in
Puerto Rico during the next 12 months. Continuous capital improvement programs
are essential to stay current with industry trends and maintain the Company's
market share. Many hotels with which the Company competes are owned or managed
by hotel chains possessing substantially greater financial and marketing
resources than those of the Company. There can be no assurance that the Company
will effectively compete in the future.
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RELIANCE ON SINGLE MARKET
All of the Company's current hotel and casino interests are located in
Puerto Rico. Any adverse events such as hurricanes, water shortages, labor
strikes and the like which may affect Puerto Rico generally will adversely
affect the Company's entire business. Additionally, Puerto Rico is served by a
small number of airlines and the market is dominated by American Airlines. Any
adverse events in the airline industry as a whole, and especially to American
Airlines, including airline strikes, increased fuel prices or accidents could
have a material adverse effect on the Company's business and financial
condition.
SEASONALITY
Tourism in Puerto Rico is at its peak during the months of December through
April, with occupancy levels and room rates lower during the balance of the
year. Successful operation of the Company's hotels and casinos is dependent in
large part to a successful high season, the ability of the Company's hotels and
casinos to attract guests during the off-season months and careful management of
costs throughout the year. Weather, airline strikes, water shortages and other
uncontrollable events may adversely affect occupancy levels and, therefore, cash
flows as well as profits at any time of the year the effects of which may not be
recovered in any given year. The El Conquistador, with its high debt service
requirements is particularly vulnerable to these types of events. Efforts are
made at all of the hotels and casinos to actively market during off-season
months so as to minimize the adverse effects of such events. There can be no
assurance that such efforts will be successful.
CASINO GAMING REGULATION
The ownership and operation of casinos in Puerto Rico and elsewhere is
heavily regulated. The Company has been granted a franchise as an owner of the
three casinos it currently operates and certain of its employees must be
licensed to work in the casinos. Each casino is required to renew its franchise
quarterly; and, unless a change of ownership of a franchisee has occurred or
regulators have reason to believe that reinvestigation of the franchisee is
necessary, renewal is generally automatic. Although the Company has no reason to
believe that any of its current franchises will not be renewed, there can be no
assurance of such renewal. Additionally, in the event the Company seeks to
acquire interests in other casinos, there can be no assurance that it will be
able to obtain the licenses and/or franchises necessary to operate such casinos.
See 'Business -- Government Regulation and Licensing.'
Puerto Rico casinos compete with other jurisdictions in which gaming is
permitted. Changes in gaming laws can affect both positively and negatively the
attractiveness of a casino to visitors. There can be no assurance that the
Puerto Rico gaming laws will not be changed or modified so as to make Puerto
Rico casinos less attractive to visitors.
DIVIDEND POLICY AND WITHHOLDING TAX
The Company expects that it will retain all available earnings, if any,
generated by its operations for the development and growth of its business and
does not anticipate paying cash dividends on Common Stock in the foreseeable
future. Additionally, the Company is a holding company whose only material
assets are its interests in its subsidiaries. As a result, the Company conducts
no business and will be dependent on distributions from its subsidiaries to pay
dividends. Each hotel and casino has separate financing arrangements which, in
certain cases, may limit the declaration of dividends or other distributions to
their owners. The Company's interest in the El San Juan and WHGI are owned by
PPRA, the owner of the Condado Plaza. Therefore, the Company's ability to
receive dividends from such entities will be dependent on the ability of PPRA to
declare and pay dividends. The existing financing arrangements for the Condado
Plaza do not prohibit the payment of dividends provided there exists no payment
default with respect to such financing. Distributions to the partners of El
Conquistador Partnership L.P. are restricted by its existing financing
arrangements and are expected to continue to be restricted by any new
arrangements for quite some time. Existing financing arrangements for the El San
Juan prohibit distributions to its owners in excess of 50% of Excess Net Free
Cash Flow. There is currently no contractual restriction on the payment of
dividends by WHGI. There can be no
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assurance that dividends can be declared and paid by the Company to its public
stockholders. See 'Hotel Financings and Certain Contingent Obligations.'
If the Company is deemed for tax purposes to be doing business in Puerto
Rico, then dividends paid to the Company's stockholders who are not Puerto Rico
residents out of the Company's earnings subject to the Tourism Incentive Act of
1983 will be subject to Puerto Rico withholding tax of 10%. Dividends paid by
the Company to such stockholders out of earnings subject to the Tourism
Development Act of 1993 will not be subject to such 10% withholding.
CERTAIN ANTI-TAKEOVER FEATURES
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the 'Certificate') and the Company's Amended and Restated Bylaws
(the 'Bylaws') and Delaware statutory law could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. The
Control Provisions could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers at a price above the then
current market value of Common Stock. The Control Provisions may also inhibit
fluctuations in the market price of Common Stock that could result from takeover
attempts. See 'Purposes and Anti-Takeover Effects of Certain Provisions.'
The Board has the authority to issue shares of Preferred Stock and to
determine the designations, preferences and rights and the qualifications or
restrictions of those shares without any further vote or action by the
stockholders and has designated the rights and preferences of 300,000 shares of
Series B Preferred Stock. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate actions, could have the effect of making it
more difficult for a third-party to acquire a majority of the outstanding voting
stock of the Company. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law (the 'DGCL').
In general, this statute prohibits a publicly held Delaware corporation from
engaging in a 'business combination' with an 'interested stockholder' for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. See 'Purposes and Anti-Takeover Effects of Certain
Provisions -- Series B Preferred Stock' and ' -- Certain Provisions of the
Delaware General Corporation Law.'
The Company has designated 300,000 shares of Series B Preferred Stock which
Mr. Louis J. Nicastro has the right to acquire in the event a non-exempt person
or entity acquires 10% or more of the Common Stock. The Series B Preferred Stock
has enhanced voting rights. Based upon the number of outstanding shares of
Common Stock as of June 1, 1997, the Series B Preferred Stock would represent
approximately 19.9% of the voting power of the Company's capital stock. The
effect of the foregoing may be to inhibit or make more difficult a change in
control of the Company that may be beneficial to the Company's stockholders. See
'Purposes and Anti-Takeover Effects of Certain Provisions -- Series B Preferred
Stock.'
In addition, the preferred stock purchase rights issued pursuant to a
rights agreement dated as of April 21, 1997 between the Company and The Bank of
New York (the 'Rights Agreement') provide discount purchase rights to
stockholders of the Company upon certain acquisitions of beneficial ownership of
15% or more of the outstanding shares of Common Stock. The effect of the
foregoing may be to inhibit a change in control of the Company which has not
been approved by the Board and which may be beneficial to the Company's
stockholders. See 'Purposes and Anti-Takeover Effects of Certain
Provisions -- Stockholder Rights Agreement.'
The Company has a classified Board consisting of three classes, each class
serving for a term of three years. The classification has the effect of making
it more difficult for stockholders to change the composition of the Board in a
short period of time. At least two annual meetings instead of one will generally
be required to effect a change in a majority of the Board. The existence of a
classified Board can therefore have the effect of discouraging a third-party
from making a tender offer or otherwise attempting to obtain control of the
Company. See 'Purposes and Anti-Takeover Effects of Certain Provisions.'
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The Shares represent approximately 28.58% of the outstanding Common Stock.
If all of such Shares are sold without the prior consent of the Board to a
single person or to a person who as a result of which would own 10% or more of
the Company's outstanding Common Stock, then one or more of the foregoing
features would be triggered.
SHARES ELIGIBLE FOR FUTURE SALE.
There are 900,000 shares of Common Stock reserved for issuance under the
Company's stock option plan of which, as of June 13, 1997, 897,000 shares are
subject to outstanding options. Options with respect to 472,000 shares are
currently exercisable and the balance of such options covering 425,000 shares
become exercisable in installments commencing April 21, 1999. The Company
intends to register the shares subject to such options under the Act.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock from time to time. The sale of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock. See 'Security Ownership of
Certain Beneficial Owners and Management' and 'Shares Eligible for Future Sale.'
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Prior to April 21, 1997, the Company was a wholly-owned subsidiary of WMS.
On April 21, 1997, all of the Common Stock was distributed to the stockholders
of WMS as a tax free dividend. As of such date, the Company became a separate
independent public company. The Common Stock is traded on the NYSE under the
symbol 'WHG'. The following chart sets forth, for the period from the
commencement of trading of the Common Stock on a when issued basis on April 17,
1997 through the date indicated, the high and low sales prices for the Common
Stock on the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Year Ending June 30, 1997
April 17, 1997 through June 13, 1997................................ $11.625 $8.375
</TABLE>
On June 13, 1997, the last reported sale price of the Common Stock on the
NYSE was $11.50. As of June 13, 1997, there were approximately 1,329 holders of
record of the Common Stock.
The Company has not paid cash dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company is a holding
company whose material assets are its interests in its subsidiaries. As a
result, the Company conducts no business and is dependent on distributions from
its affiliates to pay dividends. Each hotel and casino has separate financing
arrangements which, in certain cases, may limit the declaration of dividends or
other distributions to owners. The payment of any cash dividends in the future
will be subject to such restrictions and will depend upon the Company's
earnings, financial condition and capital needs and on other factors deemed
relevant by the Board of Directors. See 'Hotel Financings and Certain Contingent
Obligations.'
THE NAI GROUP
The NAI Group owns 1,729,425 shares of Common Stock, constituting 28.58% of
the Company's outstanding Common Stock. The NAI Group acquired the Shares in the
Distribution. The NAI Group may sell all, some or none of such Shares and in one
or more transactions or a series of transactions. The NAI Group has no current
plan or proposal to sell any of the Shares.
NAI's principal businesses are owning and operating movie theaters in the
United States, United Kingdom and South America and holding common stock of
Viacom Inc. Mr. Redstone, as trustee for various trusts, is the beneficial owner
of 75% of the issued and outstanding shares of capital stock of NAI. Mr.
Redstone's principal occupation is Chairman of the Board, President and Chief
Executive Officer of NAI and Chairman of the Board and Chief Executive Officer
of Viacom Inc.
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The following table sets forth certain information with respect to the
Common Stock beneficially owned and offered hereby by the NAI Group.
<TABLE>
<CAPTION>
NAI GROUP
- -------------------------------------------------------------------- PERCENT OF
SECURITIES CLASS SECURITIES
OWNED OUTSTANDING OFFERED
---------- ----------- ----------
SHARES SHARES
---------- ----------
<S> <C> <C> <C>
Sumner M. Redstone.................................................. 858,450 14.18% 858,450
NAI................................................................. 870,975 14.40% 870,975
</TABLE>
The Company is registering, on behalf of the NAI Group, the offer and sale
of the number of presently issued and outstanding shares of Common Stock set
forth above under the column captioned 'Securities Offered -- Shares.' The NAI
Group has advised the Company that it has no current plan or proposal to sell
any of the Shares. Due to the quantity of the Shares, the sale of such Shares by
the NAI Group without registration under the Act, may be subject to quantity and
manner of sale limitations imposed by applicable laws, rules and regulations.
The NAI Group has requested that the Company register the Shares under the Act
in order to provide greater flexibility should a future decision to sell any of
the Shares be made. The NAI Group may sell some, all or none of the Shares in
one or more transactions or a series of transactions. The Company will not
receive any proceeds from the sale of the Shares by the NAI Group. The Company
is paying the costs and expenses associated with the registration of the Shares.
Because the NAI Group may offer all, some or none of the Shares pursuant to
this Prospectus and because this offering is not being underwritten on a firm
commitment basis, no estimate can be given as to the amount of the Shares to be
offered for sale by the NAI Group nor the amount of the Shares that will be held
by the NAI Group upon termination of this offering. See 'Plan of Distribution.'
However, in the event the NAI Group sells all of the Shares which are subject to
the Registration Statement of which this Prospectus forms a part, the NAI Group
will own no shares of Common Stock. If a future decision is made to sell any of
the Shares, then, to the extent required, the specific amount of the Shares to
be sold in connection with a particular offer will be set forth in an
accompanying Prospectus Supplement or, if required, a post-effective amendment
to the Registration Statement of which this Prospectus forms a part.
PLAN OF DISTRIBUTION
The NAI Group has no current plan or proposal to sell the Shares. The NAI
Group may sell all, some or none of such Shares in one or more transactions or a
series of transactions. Any or all of the Shares may be sold from time to time
to purchasers directly by the NAI Group. Alternatively, the NAI Group may from
time to time offer the Shares through underwriters, dealers or agents who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the NAI Group and/or the purchasers of Common Stock for whom
they may act as agents. The NAI Group and any such underwriters, dealers or
agents that participate in the distribution of the Shares may be deemed to be
underwriters within the meaning of the Act, and any profit on the sale of the
Shares by them and any discounts, commissions or concessions received by them
may be deemed to be underwriting discounts and commissions under the Act. The
Shares may be sold from time to time in one or more transactions or a series of
transactions that may take place on the NYSE, including ordinary brokers'
transactions, privately-negotiated transactions or through sales to one or more
brokers or dealers for resale of such Shares as principals at a fixed offering
price, which may be changed, or at varying prices determined at the time of sale
or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees, discounts and commissions may be paid by the NAI Group in
connection with such sales of the Shares.
At the time a particular offer of Shares is made, to the extent required, a
supplement to this Prospectus will be distributed (or, if required, a
post-effective amendment to the Registration Statement of which this Prospectus
forms a part will be filed) which will identify and set forth the aggregate
amount of the Shares being offered and the terms of the offering, including the
name or names of any underwriters, dealers or agents, the purchase price paid by
any underwriter for any of the Shares purchased from the NAI Group, any
discounts, commissions and other items constituting compensation from the NAI
Group and/or the Company and any discounts, commissions or concessions allowed
or
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reallowed or paid to dealers, including the proposed selling price to the
public. In addition, an underwritten offering will require clearance by the
National Association of Securities Dealers, Inc. of the underwriter's
compensation arrangements. The Company will not receive any of the proceeds from
the sale by the NAI Group for the Shares covered by this Prospectus. All of the
filing fees and certain other expenses of this Registration Statement will be
borne in full by the Company, other than any underwriting fees, discounts and
commissions relating to any offering.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Common Stock may not simultaneously engage in
market making activities with respect to the Common Stock for a period of two
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, the NAI Group will be subject to applicable
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, including, without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of the Shares by the NAI
Group.
In order to comply with certain states' securities laws, if applicable, the
Shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states the Shares may not be sold unless the
Shares have been registered or qualified for sale in such state, or unless an
exemption from registration or qualification is available and is obtained.
In addition to sales pursuant to the Registration Statement of which this
Prospectus forms a part, the Shares may be sold in accordance with Rule 144
under the Act.
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RELATIONSHIP BETWEEN THE COMPANY AND ITS
SUBSIDIARIES AND AFFILIATES
The Company is a holding company for interests in three hotels and casinos
in Puerto Rico (the Condado Plaza, the El San Juan and the El Conquistador) and
in the management company (WHGI) for each of such hotels and casinos.
THE CONDADO PLAZA
The Company owns 100% of PPRA, the owner of the Condado Plaza. The Company
also owns 41 shares of preferred stock, par value $50,000 per share, of PPRA
('the Condado Plaza Preferred Stock') with a liquidation preference of $50,000
per share or $2,050,000 in the aggregate. The Condado Plaza Preferred Stock pays
cumulative cash dividends at a rate of 8% per annum on the aggregate liquidation
preference of such stock and is redeemable, in whole or in part, at the option
of PPRA, at any time. The Condado Plaza Preferred Stock does not entitle the
holders thereof to vote on any matters except as required by law.
The Condado Plaza is managed by WHGI pursuant to a management agreement
expiring in 2003.
THE EL SAN JUAN
The El San Juan is owned by Posadas de San Juan Associates, a New York
general partnership. The Company owns a 50% general partnership interest in such
partnership. Of the remaining 50%, 40% is owned by Burton and Richard Koffman
(the 'Koffmans') of Binghamton, New York or members of their families (the
'Koffman Family') and 10% is owned by a former employee of WHGI. The Posadas de
San Juan Associates partnership is governed by a venturers committee consisting
of six persons, three of whom are designated by the Company and the remaining
three are designated by the Other Owners.
The El San Juan is managed by WHGI pursuant to a management agreement
expiring in 2005.
THE EL CONQUISTADOR
The El Conquistador is owned by El Conquistador Partnership L.P., a
Delaware limited partnership. 50% of the general and limited partnership
interests are owned by Kumagai, a subsidiary of Kumagai Gumi Co., Ltd., a large
Japanese construction company, and the remaining 50% of the general and limited
partnership interests are owned by WKA, a New York general partnership of which
46.54% is owned by the Company's wholly owned subsidiary WHG El Con Corp.,
37.23% is owned by members of the Koffman Family and the remaining 16.23% is
owned by the former employee of WHGI who is also an owner of the El San Juan.
The Company's interest in WKA represents approximately a 23.3% ownership
interest in the El Conquistador.
Pursuant to the El Conquistador partnership agreement, WKA is the managing
general partner of the partnership; provided, however, that certain major
decisions require the consent of Kumagai. Such major decisions include the
transfer of a general partnership interest, the entry into certain significant
agreements including loan agreements, the sale of a significant asset, and the
approval of yearly budgets.
Pursuant to the WKA partnership agreement, WKA is governed by a venturers
committee consisting of six persons, three of whom are designated by the Company
and the remaining three are designated by the Other Owners. The WKA partnership
agreement also prohibits the transfer of any interest in the WKA partnership
except to an affiliate of the partners.
The El Conquistador is managed by WHGI pursuant to a management agreement
expiring in 2013.
WHGI
WHGI is a Delaware corporation. The Company owns 62% of the outstanding
common stock of WHGI. The remaining 38% is owned by affiliates of the Koffman
Family. The Company is a party to a stockholders agreement pursuant to which the
Company has the right to designate a majority of the Board of Directors of WHGI.
The stockholders agreement further provides that there shall not be less
16
<PAGE>
<PAGE>
than seven nor more than eight directors. There are currently seven directors,
five of whom have been designated by the Company and two of whom have been
designated by the Koffman Family. The Koffman Family has the right to designate
up to three members of the WHGI Board of Directors, but currently has only
designated two directors. Such stockholders agreement provides that actions by
the WHGI Board of Directors shall require a simple majority vote except that
commencing April 30, 1999, or such earlier date as Mr. Louis J. Nicastro ceases
to be Chairman of the Board of WHGI and to regularly exercise the functions of
Chief Executive Officer of WHGI, then action by the Board with respect to
certain major decisions shall require an affirmative vote of 65% of the members
of the entire Board of WHGI and, to the extent a vote of the stockholders is
required by law to authorize such a major decision, then an affirmative vote of
the holders of 66 2/3% of the outstanding shares of WHGI common stock will be
required. The major decisions requiring such a vote include the issuance of
additional shares, a sale of substantially all of the assets of WHGI,
compensation of directors and incurrence of indebtedness in excess of $2.0
million for any single item or $5.0 million in the aggregate. Under the
stockholders agreement, each of the stockholders has granted WHGI and the other
stockholder the right of first refusal with respect to such stockholder's shares
of WHGI.
Mr. Louis J. Nicastro is Chairman and Chief Executive Officer of the
Company and WHGI. Mr. Nicastro is not separately compensated by WHGI in his
capacity as Chief Executive Officer of WHGI but he is entitled to receive
directors fees. See 'Management -- Compensation of Directors' and
' -- Employment Agreements.'
Mr. Brian R. Gamache is President and Chief Operating Officer of the
Company and WHGI. Mr. Richard F. Johnson is Senior Vice President and Chief
Financial Officer of WHGI and Treasurer and Chief Financial Officer of the
Company. See 'Management -- Executive Officers,' ' -- Executive Officer
Compensation' and ' -- Employment Agreements.'
ARRANGEMENTS BETWEEN THE COMPANY AND WMS
For the purpose of governing certain of the ongoing relationships between
the Company and WMS and to provide mechanisms for an orderly transition after
the Distribution, the Company and WMS entered into a Plan of Reorganization and
Distribution Agreement (the 'Distribution Agreement') and a tax sharing
agreement (the 'Tax Sharing Agreement').
DISTRIBUTION AGREEMENT
The Distribution Agreement provides for, among other things: (i) the
Distribution; (ii) cross-indemnification between the Company and WMS with
respect to the respective businesses of the Company and WMS; and (iii) certain
other arrangements for the furnishing of certain financial, legal and corporate
secretary functions for a transitional period following the Distribution.
Subject to certain exceptions, the Distribution Agreement provides for
cross-indemnities designed to allocate, effective as of the Distribution Date,
financial responsibility for the liabilities arising out of or in connection
with the business of the Company and its subsidiaries, and financial
responsibility for the liabilities arising out of or in connection with WMS and
its subsidiaries remaining businesses. See ' -- Tax Sharing Agreement.'
The Distribution Agreement provides for the Company to indemnify WMS in
respect of certain limited guarantees provided by WMS in respect of the El
Conquistador, and for WMS to provide, following the Distribution Date, certain
financial, legal and corporate services to the Company on a transitional basis.
With respect to any services provided by WMS to the Company, the Company will
reimburse WMS for the estimated cost of such services based upon an hourly rate
for employees furnishing the services calculated using the individual's base
salary. The Company anticipates that costs associated with the aforementioned
services will not exceed $200,000.
WMS has a registered trademark of the name 'Williams' for video output game
machines, coin-operated video games, video game cartridges and disks, computer
video game software and coin-operated pinball machines. The Distribution
Agreement provides that following the Distribution, the Company and its
subsidiaries, particularly WHGI, will continue to be able to use the 'Williams'
name in the ownership and management of hotels and casinos but will not use the
'Williams' name as a
17
<PAGE>
<PAGE>
corporate name, except WHGI, and will not use the 'Williams' name outside its
business of owning and managing hotels and casinos. WMS has agreed not to use
the 'Williams' name in the future in connection with the ownership and
management of hotels and casinos.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be borne by WMS.
TAX SHARING AGREEMENT
The Company and WMS have entered into the Tax Sharing Agreement that
defines the parties' rights and obligations with respect to deficiencies and
refunds of Federal, state, Puerto Rico and other income or franchise taxes
relating to the Company's business for tax years prior to the Distribution and
with respect to certain tax attributes of the Company after the Distribution. In
general, with respect to periods ending on or before the last day of the year in
which the Distribution occurred, WMS is responsible for (i) filing both
consolidated Federal tax returns for the WMS affiliated group and combined or
consolidated state tax returns for any group that includes a member of the WMS
affiliated group, including in each case the Company and its subsidiaries for
the relevant periods of time that such companies were members of the applicable
group; and (ii) paying the taxes relating to such returns (including any
subsequent adjustments resulting from the redetermination of such tax
liabilities by the applicable taxing authorities). The Company will reimburse
WMS for a defined portion of such taxes relating to the Company's business. The
Company is responsible for filing returns and paying taxes related to the
Company's business for subsequent periods. The Company and WMS have agreed to
cooperate with each other and to share information in preparing such tax returns
and in dealing with other tax matters.
ACCOUNTING TREATMENT
The historical consolidated financial statements of the Company (formerly
Williams Hotel Corporation) present its financial position, results of
operations and cash flows as if it was a separate entity for all periods
presented. WMS' historical basis in the assets and liabilities has been carried
over.
HOTEL FINANCINGS AND
CERTAIN CONTINGENT OBLIGATIONS
THE CONDADO PLAZA
At March 31, 1997, PPRA, the owner of the Condado Plaza, had aggregate
long-term indebtedness (current and non-current) of $22,073,413 of which
$21,900,000 represents a term loan due to its secured mortgage lender (the
'Condado Term Loan'); and $173,413 represents equipment financing arrangements.
PPRA has available a revolving line of credit of up to $2,000,000. PPRA also has
outstanding after the Distribution $2,050,000 of Condado Plaza Preferred Stock,
all of which is owned by the Company. The principal amount of the Condado Term
Loan is payable in semi-annual installments of $1,200,000 each in 1997,
$1,350,000 each in 1998 and the remaining balance of $18,000,000 is due
September 1, 1998. The Condado Term Loan and the related revolving line of
credit are secured by substantially all of the assets of the Condado Plaza. The
Condado Term Loan restricts PPRA from declaring or paying any dividends or
making any advances to any parent, stockholder or affiliate of PPRA unless at
the time PPRA is in compliance with its payment obligations under the Condado
Term Loan.
In connection with additional financing for the El Conquistador in May
1992, PPRA granted a mortgage of $3,750,000 to the Government Development Bank
for Puerto Rico (the 'GDB') on certain vacant land owned by PPRA and used by the
Condado Plaza as a parking lot as security for the obligations of WKA in respect
of the $4,000,000 of indebtedness to GDB. The original purchase price of that
land was $2,100,000.
18
<PAGE>
<PAGE>
THE EL SAN JUAN
At March 31, 1997, Posadas de San Juan Associates, the owner of the El San
Juan, had aggregate long-term indebtedness (current and non-current) of
$49,802,082 of which $23,999,737 represents a term loan due to its secured
mortgage lender (the 'ESJ Term Loan'); $763,803 represents equipment financing
arrangements; and $25,038,542 represents unpaid basic and incentive management
fees due WHGI plus accrued interest thereon. The El San Juan also has available
a $1,000,000 revolving credit facility. The ESJ Term Loan is payable in monthly
installments with the balance of $7,500,000 due in March 2003. The ESJ Term Loan
and related revolving line of credit are secured by substantially all of the
assets of the El San Juan and are non-recourse to the general partners of
Posadas de San Juan Associates. The ESJ Term Loan requires the El San Juan to
annually reserve an amount equal to at least 4% of its Annual Gross Revenues (as
defined) for the replacement of furniture, fixtures and equipment, requires
mandatory prepayments equal to 50% of Excess Cash Flow (as defined) until the
last installment is reduced to $3,000,000 and prohibits distributions to the
owners or payment of $16.5 million of unpaid management fees existing at the
time the loan was entered into except out of 50% of Excess Net Free Cash Flow
(as defined).
THE EL CONQUISTADOR
At March 31, 1997, El Conquistador had aggregate short-term and long-term
indebtedness of $199,709,260 of which $145,000,000 represents term loans
provided by various secured mortgage lenders; $1,500,000 represents amounts
outstanding under a revolving credit facility; $4,339,859 represents equipment
financing arrangements; $37,956,658 represents loans plus accrued interest from
its partners and $10,912,743 represents incentive management fees and other
amounts due WHGI. The revolving credit facility is limited to $6,000,000 in
principal amount outstanding at any time, expires in October 1997, and is
secured by a first lien on its accounts receivable and a third mortgage on the
El Conquistador's assets.
The first mortgage lien in the amount of $120,000,000 requires quarterly
payments of interest and will become due February 1, 1998, unless extended or
refinanced. The obligation is non-recourse to the partners of El Conquistador
payable solely from the assets of the partnership.
The El Conquistador is party to an interest rate swap agreement with
respect to the $120,000,000 of first mortgage indebtedness. El Conquistador's
obligations in respect of a default under the swap arrangements ('Swap
Breakage') are secured by a $20,000,000 mortgage on the El Conquistador which is
pari passu with the first mortgage lien. Swap Breakage in excess of $20,000,000
has been guaranteed, one-half by WHGI and one-half by an affiliate of Kumagai.
The second mortgage lien on the El Conquistador is in the principal amount
of $25,000,000. The loan secured by such lien is non-recourse to the partners of
the El Conquistador Partnership L.P. and is the subject of a subordination and
standstill agreement with the holder of the first mortgage. The second mortgage
becomes due in February 2006 and must be prepaid with any Excess Refinancing
Proceeds (as defined).
The third mortgage lien secures the El Conquistador's revolving credit
facility in the principal amount of $6,000,000 which expires in October 1997.
The third mortgage is also subject to the subordination and standstill agreement
with the holder of the first mortgage lien. The revolving credit facility is
also secured by a first lien on El Conquistador's accounts receivable.
In May 1992, each of the partners of the El Conquistador Partnership L.P.
borrowed $4,000,000 from the GDB and in turn loaned the proceeds of such loans
to the El Conquistador Partnership L.P. on the same terms as the loans from GDB.
Such $8,000,000 is included in the $37,956,658 of loans from its partners
referred to above. In connection with such financing, the Company agreed to
deposit in escrow any monies it may receive from the El Conquistador, other than
basic management fees and the fair value of goods or services actually provided,
as security for the repayment of such indebtedness. Interest on such
indebtedness is deferred and added to the outstanding principal of such
indebtedness during the first five years of the loan. Principal payments
commence March 31, 2000 and are required to be made quarterly thereafter until
May 5, 2002 when the entire unpaid principal and interest becomes due. The
partners' obligations with respect to accrued interest on such loans is secured
by a fourth mortgage on
19
<PAGE>
<PAGE>
the El Conquistador in the principal amount of $6,000,000. In addition, the
obligations of WKA in respect of its $4,000,000 indebtedness to GDB is secured
by land owned by PPRA having an original cost of $2,100,000; land owned by WHGI
having an original cost of $1,661,200 and a guaranty by WMS in the amount of
$1,000,000. The Company has assumed and agreed to indemnify WMS in respect of
such guaranty. The other partners of WKA have provided indemnities and
collateral to the Company for their proportionate share of such guaranty.
WHGI
In connection with additional financing for the El Conquistador in May
1992, WHGI granted a mortgage of $1,500,000 to the GDB on certain land located
near the El San Juan. The original purchase price of that land was $1,661,200.
WHGI has guaranteed certain equipment financing arrangements and other
obligations of the El Conquistador of approximately $2,530,000 as of March 31,
1997.
THE COMPANY
In connection with additional financing for the El Conquistador in May
1992, WMS guaranteed up to $1,000,000 of the principal amount of the $4,000,000
loan made by GDB to WKA. The Other Owners of WKA have agreed with WMS to bear a
portion of such obligation equal to their respective ownership interests in WKA
and have pledged as collateral for their obligation cash and 20 shares of WHGI
Common Stock. The Company has agreed to indemnify WMS in respect of its
obligations and associated collateral under the guaranty and receive the benefit
of the obligations of the Other Owners with respect to such guaranty.
In May 1992, WMS and the Other Owners guaranteed severally, in accordance
with their respective ownership interests in WKA, for the benefit of the holder
of the first mortgage on the El Conquistador, WKA's obligations to make certain
additional operating deficiency loans to the El Conquistador Partnership L.P.
WMS' obligation with respect to the aforementioned guaranty is limited to
$1,396,000. The Company has assumed and agreed to indemnify WMS in respect of
its obligations under the guaranty and has executed a similar guaranty in favor
of the holder of the first mortgage. The obligation to make such additional
operating deficiency loans is subject to the partners of the El Conquistador
Partnership L.P. having previously made an aggregate of $14,000,000 of operating
deficiency loans. To date an aggregate of $7,600,000 of operating deficiency
loans have been made by the partners and the Company does not anticipate that
any further operating deficiency loans will be required while the guaranty
remains outstanding.
20
<PAGE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements give effect to the distribution of one share of Common Stock for
every four shares of WMS Common Stock outstanding on the Distribution Date and
reflect the transactions associated with such Distribution.
The unaudited pro forma condensed consolidated balance sheet as of March
31, 1997 was prepared as if the Distribution was effectuated on March 31, 1997
and using the unaudited consolidated balance sheet of the Company (formerly
Williams Hotel Corporation) as of March 31, 1997 modified to include pro forma
adjustments to reflect the following transactions effected in connection with
the Distribution: (i) the merger of Williams Hotel Corporation into the Company;
(ii) the contribution to capital of the Company by WMS of $10,261,000 including
$4,100,000 of Condado Plaza Preferred Stock, an intercompany receivable from WHG
El Con Corp. of $94,000, an intercompany receivable from the Company of
$4,424,000 and $1,643,000 in cash; (iii) the cash payment by WMS of an
intercompany payable to ESJ of $4,357,000 and subsequent loan of this cash to
the Company; (iv) the redemption by PPRA of $2,050,000 of Condado Plaza
Preferred Stock from the Company; (v) the payment of the accumulated dividend on
the Condado Plaza Preferred Stock; (vi) the payment of a $5,500,000 dividend by
WHGI; and (vii) the purchase of the 5% minority interest in PPRA from the
minority stockholders.
The unaudited pro forma condensed consolidated statement of operations for
the nine months ended March 31, 1997 was prepared as if the Distribution was
effectuated as of July 1, 1995 and the change in ownership of certain
subsidiaries of the Company occurred on that date and using the unaudited
statement of operations of the Company (formerly Williams Hotel Corporation) for
the nine months ended March 31, 1997. The unaudited pro forma condensed
consolidated statement of operations for the year ended June 30, 1996 was
prepared as if the Distribution was effectuated as of July 1, 1995 and the
change in ownership of certain subsidiaries of the Company occurred on that date
and using the audited statement of operations of the Company (formerly Williams
Hotel Corporation) for the year ended June 30, 1996. The pro forma adjustments
to the unaudited pro forma condensed consolidated statements of operations for
the nine months ended March 31, 1997 and the year ended June 30, 1996 includes
adjustments to reflect the operations of the Company as though the Company
operated as a publicly traded company separate from WMS and reflects adjustments
resulting from changes in ownership of certain subsidiaries of the Company and
include (i) an estimate of public company costs which are expected to be
incurred; (ii) the elimination of the dividend on Condado Plaza Preferred Stock;
(iii) the purchase of the minority interest in PPRA; (iv) the elimination of
income tax benefits; and (v) additional Puerto Rico income taxes on WHGI
dividends.
The unaudited pro forma financial information is presented for
informational purposes and does not purport to represent the consolidated
financial position and consolidated results of operations of the Company had the
Distribution actually occurred on the dates indicated; nor does it purport to be
indicative of results that will be attained in the future.
The unaudited pro forma financial information is based on and should be
read in conjunction with the historical consolidated financial statements and
notes thereto of the Company (formerly Williams Hotel Corporation) and separate
financial statements of nonconsolidated affiliates and 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' contained
elsewhere in this Prospectus.
21
<PAGE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
WILLIAMS
HOTEL PRO FORMA
CORPORATION ADJUSTMENTS
HISTORICAL INCREASE/(DECREASE) PRO FORMA
----------- ------------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents -- the
Company........................... $ -- $ 6,000(b) $ 10,206
2,050(d)
246(e)
3,410(f)
(1,500)(g)
Cash and cash
equivalents -- subsidiaries....... 10,870 (2,050)(d) 3,074
(246)(e)
(5,500)(f)
----------- -------- ---------
Total cash and cash
equivalents............. 10,870 2,410 13,280
Receivables, net.................... 5,248 5,248
Receivables from nonconsolidated
affiliates........................ 702 702
Intercompany with WMS:
WMS El Con Corp. (now known as
WHG El Con Corp.) and the
Company payable to WMS....... (4,518) 94(c) --
4,424(c)
ESJ receivable from WMS........ 4,357 (4,357)(b) --
----------- -------- ---------
Net payable to WMS........ (161) 161 --
Other current assets................ 1,425 1,425
----------- -------- ---------
Total current assets...... 18,084 2,571 20,655
Investments in, receivables and advances
to nonconsolidated affiliates......... 28,099 28,099
Property and equipment, net............. 43,153 920(g) 44,073
Excess of purchase cost over amount
assigned to net assets acquired,
net................................... 8,809 8,809
Other assets............................ 11,540 11,540
----------- -------- ---------
$ 109,685 $ 3,491 $113,176
----------- -------- ---------
----------- -------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals....... $ 9,879 $ 9,879
Dividend payable on Condado Plaza
Preferred Stock................... 246 $ (246)(e) --
Notes payable....................... 1,000 1,000
Current maturities of long-term
debt.............................. 3,482 3,482
----------- -------- ---------
Total current
liabilities............. 14,607 (246) 14,361
Long-term debt, less current
maturities............................ 20,310 20,310
Deferred income taxes................... 2,156 2,156
Other noncurrent liabilities............ 4,926 4,926
Minority interests...................... 21,590 (2,090)(f) 18,920
(580)(g)
Condado Plaza Preferred Stock held by
WMS................................... 4,100 (4,100)(a) --
Shareholders' equity:
Preferred stock, 2,000,000 shares
authorized........................ --
Common stock, Class A, $.01 par
value, non-voting, 3,000,000
shares authorized................. --
Common stock, no par value, 1,000
shares authorized, 100 shares
outstanding, historical, and
12,000,000 shares, $.01 par value,
authorized, 6,050,200 shares
outstanding, pro forma............ 1 60(h) 61
Additional paid-in capital.......... 3,849 4,100(a) 14,296
1,643(b)
4,518(c)
246(e)
(60)(h)
Retained earnings................... 38,146 (3,410)(f) 38,146
3,410(f)
----------- -------- ---------
Total shareholders'
equity.................. 41,996 10,507 52,503
----------- -------- ---------
$ 109,685 $ 3,491 $113,176
----------- -------- ---------
----------- -------- ---------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
22
<PAGE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 1997
---------------------------------------
WILLIAMS
HOTEL
CORPORATION PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
WHGI management fees from
nonconsolidated affiliates............ $10,440 $ $10,440
Condado Plaza hotel and casino
revenues.............................. 41,206 41,206
----------- ----------- ---------
Total revenues..................... 51,646 51,646
Costs and expenses:
WHGI operating expenses (excl.
depreciation)......................... 2,828 2,828
Condado Plaza operating expenses (excl.
depreciation)......................... 24,438 24,438
Selling and administrative.............. 6,940 649(i) 7,589
Depreciation and amortization........... 4,223 48(k) 4,271
----------- ----------- ---------
Total costs and expenses........... 38,429 697 39,126
----------- ----------- ---------
Income from operations....................... 13,217 (697) 12,520
Interest income, primarily from
nonconsolidated affiliates, and other
income..................................... 1,643 1,643
Interest expense............................. (2,489) (2,489)
Equity in loss of nonconsolidated
affiliates................................. (2,395) (2,395)
----------- ----------- ---------
Income before tax provision and minority
interests.................................. 9,976 (697) 9,279
Provision for income taxes................... (2,302) (1,382)(l) (3,684)
Minority interests in income................. (2,932) 110(k) (2,822)
Dividend on Condado Plaza Preferred Stock.... (246) 246(j) --
----------- ----------- ---------
Net income................................... $ 4,496 $(1,723) $ 2,773
----------- ----------- ---------
----------- ----------- ---------
Pro forma net income per share of common
stock...................................... $.46
------
------
Shares used in calculating per share
amounts.................................... 6,050
------
------
<CAPTION>
YEAR ENDED JUNE 30, 1996
-------------------------------------
WILLIAMS
HOTEL
CORPORATION PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
WHGI management fees from
nonconsolidated affiliates............ $ 13,372 $ $13,372
Condado Plaza hotel and casino
revenues.............................. 55,322 55,322
---------- ----------- ---------
Total revenues..................... 68,694 68,694
Costs and expenses:
WHGI operating expenses (excl.
depreciation)......................... 3,882 3,882
Condado Plaza operating expenses (excl.
depreciation)......................... 36,337 36,337
Selling and administrative.............. 9,487 1,300(i) 10,787
Depreciation and amortization........... 5,430 64(k) 5,494
---------- ----------- ---------
Total costs and expenses........... 55,136 1,364 56,500
---------- ----------- ---------
Income from operations....................... 13,558 (1,364) 12,194
Interest income, primarily from
nonconsolidated affiliates, and other
income..................................... 1,830 1,830
Interest expense............................. (3,689) (3,689)
Equity in loss of nonconsolidated
affiliates................................. (3,465) (3,465)
---------- ----------- ---------
Income before tax provision and minority
interests.................................. 8,234 (1,364) 6,870
Provision for income taxes................... (1,645) (976)(l) (2,621)
Minority interests in income................. (3,636) (48)(k) (3,684)
Dividend on Condado Plaza Preferred Stock.... (516) 516(j) --
---------- ----------- ---------
Net income................................... $ 2,437 $(1,872) $ 565
---------- ----------- ---------
---------- ----------- ---------
Pro forma net income per share of common
stock...................................... $0.09
-------
-------
Shares used in calculating per share
amounts.................................... 6,050
-------
-------
</TABLE>
Pro forma net income per share of the Company was calculated using the
distribution of one share of Common Stock for every four of the 24,200,800
outstanding shares of WMS Common Stock.
See notes to unaudited pro forma condensed consolidated financial statements.
23
<PAGE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following pro forma adjustments, debit (credit), are based on estimates
which are subject to change. The Company does not expect that there are any
estimates as to which the potential change could result in a material change to
the Pro Forma Condensed Consolidated Balance Sheet or the Pro Forma Condensed
Consolidated Statements of Operations.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March
31, 1997 gives effect to the following pro forma adjustments:
(a) To reflect the contribution to the Company of $4,100,000 of
Condado Plaza Preferred Stock held by WMS.
<TABLE>
<S> <C>
Condado Plaza Preferred Stock.................................................. $ 4,100,000
Additional paid-in capital..................................................... (4,100,000)
</TABLE>
(b) To reflect the payment of $4,357,000 by WMS to ESJ to pay the
intercompany balance in full and the subsequent loan of the $4,357,000 cash
to the Company and payment by WMS of $1,643,000 to the Company as a
contribution to capital.
<TABLE>
<S> <C>
Cash and cash equivalents -- the Company....................................... $ 6,000,000
ESJ receivable from WMS........................................................ (4,357,000)
Additional paid-in capital..................................................... (1,643,000)
</TABLE>
(c) To reflect the contribution by WMS of the following intercompany
accounts to the Company additional paid-in capital.
<TABLE>
<S> <C>
Intercompany payable from WMS El Con Corp. (now known as WHG El Con Corp.) to
WMS.......................................................................... $ 94,000
Intercompany payable from the Company to WMS................................... 4,424,000
Additional paid-in capital..................................................... (4,518,000)
</TABLE>
(d) To reflect the redemption by PPRA of $2,050,000 of Condado Plaza
Preferred Stock from the Company.
<TABLE>
<S> <C>
Cash and cash equivalents -- the Company....................................... $ 2,050,000
Cash and cash equivalents -- subsidiaries...................................... (2,050,000)
</TABLE>
(e) To reflect the payment of the accumulated dividend on the Condado
Plaza Preferred Stock.
<TABLE>
<S> <C>
Cash and cash equivalents -- subsidiaries........................................ $(246,000)
Dividend payable on Condado Plaza Preferred Stock................................ 246,000
Cash and cash equivalents -- the Company......................................... $ 246,000
Additional paid-in capital....................................................... (246,000)
</TABLE>
(f) To reflect the payment of a dividend by WHGI of $5,500,000 of
which $2,090,000 is shown as a reduction in minority interests for the 38%
minority ownership and $3,410,000 is received by the Company.
<TABLE>
<S> <C>
Cash and cash equivalents -- subsidiaries...................................... $(5,500,000)
Minority interests............................................................. 2,090,000
Retained earnings.............................................................. 3,410,000
Cash and cash equivalents -- the Company....................................... $ 3,410,000
Retained earnings.............................................................. (3,410,000)
</TABLE>
(g) To reflect the purchase of the 5% minority interest in PPRA for
$1,500,000 and the allocation of purchase cost in excess of minority
interest to property and equipment.
<TABLE>
<S> <C>
Cash and cash equivalents -- the Company....................................... $(1,500,000)
Minority interests............................................................. 580,000
Property and equipment, net.................................................... 920,000
</TABLE>
24
<PAGE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(h) To reflect the issuance of 6,050,200 shares of Common Stock in the
Distribution and transfer of par value from additional paid-in capital to
common stock.
<TABLE>
<S> <C>
Additional paid-in capital........................................................ $ 60,000
Common stock...................................................................... (60,000)
</TABLE>
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the Nine Months Ended March 31, 1997 and the Year Ended June 30, 1996 gives
effect to the following pro forma adjustments:
(i) To reflect the estimated additional costs which will be incurred
as a result of operating as a public company.
<TABLE>
<CAPTION>
MARCH 31, 1997 JUNE 30, 1996
-------------- -------------
<S> <C> <C>
Administrative expenses....................................... $649,000 $ 1,300,000
</TABLE>
The estimated additional annual public company costs include: executive
compensation $735,000; legal, audit and directors fees $140,000; travel,
entertainment and communications $135,000; New York Stock Exchange fees and
stock transfers, public reporting and annual meeting expenses $167,000;
franchise tax and other expenses $123,000. The historical results of operations
of the Company for the nine months ended March 31, 1997 include approximately
$326,000 of these costs, therefore, the pro forma amount of $649,000 is required
to result in $975,000 of estimated public company costs.
(j) To eliminate the dividend on Condado Plaza Preferred Stock as a
result of the contribution of the Condado Plaza Preferred Stock from WMS to
the Company.
<TABLE>
<CAPTION>
MARCH 31, 1997 JUNE 30, 1996
-------------- -------------
<S> <C> <C>
Dividend on Condado Plaza Preferred Stock..................... $ (246,000) $(516,000)
</TABLE>
(k) To eliminate the 5% minority interest in the earnings (loss) of
PPRA because of the purchase of the 5% minority interest in PPRA and to
record additional depreciation resulting from the allocation of purchase
price on the remaining 16 year useful life of the building.
<TABLE>
<CAPTION>
MARCH 31, 1997 JUNE 30, 1996
-------------- -------------
<S> <C> <C>
Minority interest in PPRA..................................... $ (110,000) $48,000
Depreciation and amortization................................. 48,000 64,000
</TABLE>
(l) To eliminate Federal income tax benefits allocated to the Company
by WMS primarily from the utilization of equity in loss of nonconsolidated
affiliates in the WMS consolidated income tax return. The Company is not
presently expected to be able to utilize these losses on a separate return
basis and receive a tax benefit. Also, to reflect the Puerto Rico income
taxes on WHGI dividends which would have been incurred under the ownership
structure resulting from the Distribution.
<TABLE>
<CAPTION>
MARCH 31, 1997 JUNE 30, 1996
-------------- -------------
<S> <C> <C>
Eliminate Federal income tax credit for equity in loss of
nonconsolidated affiliates.................................. $1,239,000 $ 900,000
Add Puerto Rico income tax provision on WHGI dividend......... 143,000 76,000
-------------- -------------
$1,382,000 $ 976,000
-------------- -------------
-------------- -------------
</TABLE>
25
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years ended June
30, 1996, 1995, 1994, 1993 and 1992 have been derived from the audited
consolidated financial statements of the Company (formerly Williams Hotel
Corporation) for such periods. The selected financial data set forth below for
the nine months ended March 31, 1997 and 1996 have been derived from the
unaudited consolidated financial statements of the Company (formerly Williams
Hotel Corporation), but, in the opinion of management, reflect all adjustments,
consisting only of normal recurring accruals, considered necessary for a fair
presentation of the results for such periods. The data should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations,' the Consolidated Financial Statements of the Company
(formerly Williams Hotel Corporation) and related notes thereto, separate
statements of nonconsolidated affiliates and other financial information
included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Selected Statement of Income Data:
Revenues........................... $ 51,646 $ 52,306
--------- --------
--------- --------
Operating income................... $ 13,217 $ 11,091
Interest expense, net.............. (846) (1,448)
Equity in income (loss) of
nonconsolidated affiliates....... (2,395) (3,915)
--------- --------
Income (loss) before tax provision
and minority interests........... 9,976 5,728
Credit (provision) for income
taxes............................ (2,302) (710)
Minority interests in (income)
loss............................. (2,932) (2,779)
Dividend on preferred stock of
Condado Plaza.................... (246) (422)
--------- --------
Net income (loss).................. $ 4,496 $ 1,817
--------- --------
--------- --------
Pro forma net income (loss)
reflecting income taxes on a
separate return basis
(unaudited)(2)................... $ 3,881 $ 451
--------- --------
--------- --------
Selected Balance Sheet Data:
Investments in, receivables and
advances to nonconsolidated
affiliates....................... $ 28,801 $ 27,613
Property and equipment, net........ 43,153 45,820
Total assets....................... 109,846 106,640
Long-term debt, including current
maturities....................... 23,792 27,071
Minority interests................. 21,590 18,457
Shareholder's equity............... 41,996 36,880
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------
1996 1995 1994 1993 1992(1)
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selected Statement of Income Data:
Revenues...........................$68,694 $ 70,878 $ 75,480 $ 70,680 $ 62,352
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Operating income...................$13,558 $ 7,624 $ 13,892 $ 14,162 $ 6,909
Interest expense, net.............. (1,859) (1,752) (3,551) (3,873) (4,074)
Equity in income (loss) of
nonconsolidated affiliates....... (3,465) (7,003) (3,534) (135) 2,992
------- -------- -------- -------- --------
Income (loss) before tax provision
and minority interests........... 8,234 (1,131) 6,807 10,154 5,827
Credit (provision) for income
taxes............................ (1,645) 234 7 (1,050) (1,881)
Minority interests in (income)
loss............................. (3,636) (2,910) (4,597) (3,332) 1,383
Dividend on preferred stock of
Condado Plaza.................... (516) (557) -- -- --
------- -------- -------- -------- --------
Net income (loss)..................$ 2,437 $ (4,364) $ 2,217 $ 5,772 $ 5,329
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Pro forma net income (loss)
reflecting income taxes on a
separate return basis
(unaudited)(2)...................$ 1,537 $ (6,500) $ 1,257 $ 5,579 $ 2,407
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Selected Balance Sheet Data:
Investments in, receivables and
advances to nonconsolidated
affiliates.......................$27,734 $ 29,696 $ 31,367 $ 28,018 $ 37,813
Property and equipment, net........ 44,919 48,660 51,627 45,454 44,204
Total assets.......................104,734 111,306 116,144 103,276 108,070
Long-term debt, including current
maturities....................... 26,854 30,741 30,309 36,069 45,191
Minority interests................. 18,810 16,363 16,387 14,229 15,032
Shareholder's equity............... 37,500 35,063 39,427 37,210 31,438
</TABLE>
- ------------
(1) 1992 includes the operations of WHGI on a consolidated basis for the period
subsequent to the Company's April 30, 1992 purchase of an additional 5%
interest in WHGI which increased the Company's ownership to 55%. Prior to
April 30, 1992, the operations of WHGI were included in the consolidated
financial statements by the equity method.
(2) Pro forma net income (loss) reflecting income taxes on a separate return
basis (unaudited) reflects the provision for income taxes without the tax
benefits allocated to the Company from WMS primarily for utilization of
partnership losses in the WMS consolidated Federal income tax return.
26
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis relates to the consolidated financial statements of
the Company (formerly Williams Hotel Corporation) -- see basis of presentation
in Note 1 to the Consolidated Financial Statements included elsewhere herein.
GENERAL
The Company through its subsidiaries owns interests in and manages three of
the leading hotels and casinos located in Puerto Rico: the Condado Plaza, the El
San Juan and the El Conquistador. The Condado Plaza and El San Juan hotels are
located in San Juan and include 957 suites and rooms, 10 restaurants, 19
cocktail and entertainment lounges and bars, 16 shops, and 56,000 square feet of
convention and meeting space with a seating capacity of 4,000. The casinos
occupy 26,300 square feet, have 87 gaming tables, 667 slot machines, and account
for over 50% of all table and slot play in Puerto Rico where there are currently
16 casinos operating. The El Conquistador opened for business in November 1993
and includes 751 guest rooms, 90,000 square feet of meeting space, 12
restaurants, six lounges and nightclubs, 25 retail shops, a 13,000 square foot
casino, a fitness center, five pool areas, a marina, seven tennis courts and an
18-hole championship golf course. The El Conquistador also has available 90
adjacent condominium units that provide another 167 luxury rooms to the resort.
The Company's results of operations are divided into two industry segments:
the Condado Plaza, 95% of which was owned by the Company as of March 31, 1997,
and WHGI, 62% of which is owned by the Company. Also included in the Company's
results is the Company's equity in two nonconsolidated affiliates: the El San
Juan, 50% of which is owned by the Company and the El Conquistador,
approximately 23.3% of which is effectively owned by the Company.
The Company's results of operations are highly seasonal with the highest
revenues occurring from December through April. During the months of May through
November efforts are made by the Company to actively market its hotels and
casinos in order to minimize the adverse effects of seasonality. See
' -- Seasonality' and 'Risk Factors -- Seasonality.' The Company's cash needs
during this period are provided from cash generated at each of the hotels and
casinos and WHGI and from short-term borrowings by the individual hotels.
Accordingly, results for any single quarter are not necessarily indicative of
the results for any other quarter or for the full fiscal year. Results can also
be affected by circumstances beyond the Company's control such as hurricanes,
airlines strikes, droughts and the like, the impact of which will depend, in
part, upon the time of year when such events occur. See 'Risk
Factors -- Reliance on a Single Market.'
The Company began experiencing a decline in casino net revenues during
fiscal 1994 as a result, among other things, of increased competition from other
gaming jurisdictions. Since the beginning of fiscal 1996, in an effort to
improve casino results, the Company has revised its casino credit and
promotional allowance policies and implemented programs to increase casino
revenues. The Company has also taken steps to improve the operating performance
of the hotels and casinos in which it has an interest by strengthening its hotel
and casino managers and reducing operating costs, primarily through
implementation of better cost controls and more efficient staffing.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
The following summarizes the unaudited condensed consolidated statements of
operations of the Company included elsewhere herein for the periods shown in the
format presented as segment
27
<PAGE>
<PAGE>
information in the notes to the year-end audited consolidated financial
statements included elsewhere herein:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Condado Plaza................................................................ $41,206 $42,129
WHGI......................................................................... 13,575 12,944
Intersegment revenue elimination-WHGI fees charged to Condado Plaza.......... (3,135) (2,767)
-------- --------
Total revenues.......................................................... $51,646 $52,306
-------- --------
-------- --------
Segment operating income:
Condado Plaza................................................................ $ 4,624 $ 2,800
WHGI......................................................................... 9,003 8,371
General corporate administrative expenses.................................... (410) (80)
-------- --------
Total operating income.................................................. $13,217 $11,091
-------- --------
-------- --------
</TABLE>
Consolidated revenues decreased by $660,000 or 1.3% in the nine months
ended March 31, 1997 to $51,646,000 from $52,306,000 in the nine months ended
March 31, 1996. The decrease was primarily attributable to the Condado Plaza.
Operating income in the Condado Plaza segment increased by $1,824,000 to
$4,624,000 in the nine months ended March 31, 1997 from $2,800,000 in the nine
months ended March 31, 1996. The increase was primarily due to reductions in
costs and expenses in all departments resulting from cost reduction efforts of
management and reduced provision for doubtful accounts receivable.
Operating income in the WHGI segment increased by $632,000 to $9,003,000 in
the nine months ended March 31, 1997 from $8,371,000 in the nine months ended
March 31, 1996 primarily due to increased El San Juan and Condado Plaza
management fees because of their improved results.
The equity in loss of nonconsolidated affiliates was ($2,395,000) for the
nine months ended March 31, 1997 compared with ($3,915,000) for the nine months
ended March 31, 1996. The decrease in the loss was from the El San Juan
primarily due to higher casino revenues resulting from a higher win percentage
and lower costs and expenses resulting from cost reduction efforts by management
and reduced provision for doubtful accounts receivable. The 50% equity in income
in the El San Juan was $1,052,000 in the nine months ended March 31, 1997
compared with equity in loss of ($282,000) in the nine months ended March 31,
1996. The 23.3% equity in loss of the El Conquistador was ($3,447,000) in the
nine months ended March 31, 1997 compared with ($3,633,000) in the nine months
ended March 31, 1996.
The income tax provision of $2,302,000 in the nine months ended March 31,
1997 and the income tax provision of $710,000 in the nine months ended March 31,
1996 results from Puerto Rico and Federal income tax provisions for WHGI
exceeding the tax benefit allocated from WMS on the equity in the loss of
nonconsolidated affiliates.
Net income in the nine months ended March 31, 1997 was $4,496,000 compared
with $1,817,000 in the nine months March 31, 1996. The net income increased by
approximately 147% due primarily to higher casino revenues at the El San Juan
and cost reductions and reduced provision for doubtful accounts receivable at
all the hotels and casinos in which the Company owns interests notwithstanding
the higher income taxes.
FISCAL 1996 COMPARED TO FISCAL 1995
Segment data discussed below is taken or derived from segment disclosure in
Note 15 to the Consolidated Financial Statements of the Company (formerly
Williams Hotel Corporation) included elsewhere herein.
28
<PAGE>
<PAGE>
Consolidated revenues were $68,694,000 in fiscal 1996 representing a 3.1%
decrease from fiscal 1995 consolidated revenues of $70,878,000. The decrease was
due primarily to a reduction in net casino revenues (casino revenues minus
casino promotional allowances) at Condado Plaza from $17,712,000 in fiscal 1995
to $15,452,000 in fiscal 1996. The decrease in Condado Plaza net casino revenues
was due primarily to a lower win percentage resulting in reduced revenues when
casino promotional allowances remained constant.
Consolidated operating income increased by 78% in fiscal 1996 to
$13,558,000 from $7,624,000 in fiscal 1995 due primarily to cost reductions and
lower expenses at the Condado Plaza and increased management fee revenues at
WHGI primarily from the El Conquistador.
Operating income of the Condado Plaza segment was $2,830,000 in fiscal 1996
compared with an operating loss of ($1,465,000) in fiscal 1995. This improvement
in operating results was achieved by cost reductions initiated by management and
reduced provision for doubtful accounts receivable and insurance expense and the
incurrence in fiscal 1995 of approximately $450,000 of additional expenses
related to emergency water costs associated with the drought experienced in
Puerto Rico during that fiscal year.
Operating income of the WHGI segment increased to $10,837,000 or 18% in
fiscal 1996 compared with $9,174,000 in fiscal 1995. In fiscal 1996 revenues
from central services declined by $2,151,000, and management fee revenues
increased by $1,739,000 in comparison to fiscal 1995. Operating income resulting
from lower revenue from central services is negligible in comparison to
increased operating income from incremental management fees.
Consolidated selling and administrative expenses decreased to $9,487,000 in
fiscal 1996 from $12,301,000 in fiscal 1995 primarily at the Condado Plaza due
to cost reductions initiated by management and reduced provision for doubtful
accounts receivable and insurance expense.
The equity in loss of nonconsolidated affiliates was ($3,465,000) in fiscal
1996 compared with ($7,003,000) in fiscal 1995, representing a 50.5% improvement
in 1996 over 1995. The decrease in equity in loss was primarily due to lower
costs and expenses at the El Conquistador resulting from cost reduction
activities during the second full year of operation after opening in November
1993 and from increased revenues from hotel operations at the El San Juan with
only minor increases in hotel operating expenses. The 50% equity in loss of the
El San Juan was ($679,000) in fiscal 1996 compared with ($1,200,000) in fiscal
1995. The 23.3% equity in loss of the El Conquistador was ($2,786,000) in fiscal
1996 compared with ($5,803,000) in fiscal 1995.
The provision for income taxes in fiscal 1996 of $1,645,000 represents
Federal and Puerto Rico income taxes on WHGI reduced by the tax benefit
allocated from WMS on the equity in loss of nonconsolidated affiliates. A net
income tax credit of $234,000 occurred in fiscal 1995 because the allocated tax
benefit from WMS, due to the size of the equity in loss, exceeded the tax
provision for WHGI.
Consolidated net income was $2,437,000 in fiscal 1996 compared with the net
loss of ($4,364,000) in fiscal 1995. The improved results were attributable
primarily to cost reductions at the Condado Plaza increasing operating income
and decreased equity in loss of nonconsolidated affiliates partially offset by
the change in the provision for income taxes, as described above.
FISCAL 1995 COMPARED TO FISCAL 1994
Consolidated revenues were $70,878,000 in fiscal 1995, representing a 6.1%
decrease from consolidated revenues in fiscal 1995 of $75,480,000.
Condado Plaza segment revenues were $57,530,000 in fiscal 1995 compared to
$62,600,000 in fiscal 1994. Net casino revenue (casino revenues minus casino
promotional allowances) decreased by $3,469,000 or 16.4% due to a reduced casino
handle and a lower win percentage. Hotel revenues were slightly below fiscal
1994 due primarily to a $973,000 decrease in room revenues because of a lower
average room rate.
The Condado Plaza segment had an operating loss of ($1,465,000) in fiscal
1995 compared with operating income of $4,473,000 in fiscal 1994. The change
resulted primarily from lower net casino
29
<PAGE>
<PAGE>
revenues and lower hotel revenues; and increased expenses, including higher
insurance expense, increased provision for doubtful accounts receivable and
emergency water costs of approximately $450,000 attributable to the drought
experienced by Puerto Rico during that fiscal year.
WHGI segment operating income decreased to $9,174,000 in fiscal 1995 from
$9,472,000 in fiscal 1994. The decrease was primarily due to increased
administrative and amortization expense more than offsetting $468,000 of
increased revenues in fiscal 1995 resulting from primarily the inclusion of a
full year of management fees from El Conquistador.
Consolidated selling and administrative expense increased 13.1% to
$12,301,000 in fiscal 1995 from $10,877,000 in fiscal 1994, attributable
primarily to increased provision for doubtful accounts receivable and insurance
expense at the Condado Plaza.
Consolidated interest and other income in fiscal 1995 includes
approximately $900,000 received as a result of a claim made by PPRA for damages
sustained from oil released in the harbor near the hotel from a barge, which ran
aground in the harbor in the vicinity of the hotel.
Consolidated income from operations was $7,624,000 in fiscal 1995 compared
with $13,892,000 in fiscal 1994. The decrease was primarily due to an operating
loss at the Condado Plaza in fiscal 1995 compared with operating income in
fiscal 1994 as discussed above.
The equity in loss of nonconsolidated affiliates was ($7,003,000) in fiscal
1995 as compared with ($3,534,000) in fiscal 1994. The increased loss was
primarily due to an increase in the Company's equity in net loss from the newly
opened El Conquistador that was ($5,803,000) in fiscal 1995 compared with
($2,311,000) in fiscal 1994, representing only five months of operations. Like
most newly opened resort properties, El Conquistador is expected to report
losses in its early years, but the Company's 23.3% equity in the losses are
expected to be partially offset by the Company's 62% interest in the management
fees earned during the year by WHGI from El Conquistador. The 50% equity in the
loss of the El San Juan was ($1,200,000) in fiscal 1995 compared to equity in
the loss of ($1,223,000) in fiscal 1994. The El San Juan's results were
relatively flat, notwithstanding a 21.6% decline in casino net revenues and a
small decline in hotel revenues, due to decreased operating expenses resulting
from cost reduction activities.
The credit for income taxes in fiscal 1995 and 1994 represents Puerto Rico
income taxes (fiscal 1995 includes Federal income taxes) incurred on WHGI more
than offset by the tax benefit allocated from WMS on the equity in loss of
nonconsolidated affiliates.
Minority interests decreased primarily due to lower net income of WHGI and
the increase in the Company's ownership percentage in WHGI from 57% to 62% in
July 1994.
Consolidated net loss was ($4,364,000) in fiscal 1995 compared with net
income of $2,217,000 in fiscal 1994. The change was primarily due to the
operating loss at the Condado Plaza, the preferred stock dividend of $557,000
paid by PPRA to WMS, and the increased loss of nonconsolidated affiliates, all
as described above.
FINANCIAL CONDITION
Cash flows from the consolidated operating, investing and financing
activities of the Company during fiscal 1996 resulted in net cash provided of
$2,989,000 compared with net cash used of $218,000 during fiscal 1995.
Cash provided by operating activities before changes in operating assets
and liabilities was $19,664,000 in fiscal 1996 compared with $11,759,000 in
fiscal 1995. The increase was primarily due to the change from a net loss of
$4,364,000 in fiscal 1995 to net income of $2,437,000 in fiscal 1996.
The changes in operating assets and liabilities, as shown in the
consolidated statements of cash flows, resulted in $1,760,000 of cash outflow
during fiscal 1996 and $6,910,000 during fiscal 1995, due in both cases to the
increase in net amounts due from nonconsolidated affiliates.
Cash used by investing activities was $164,000 in fiscal 1996 and
$5,341,000 in fiscal 1995. Cash used for the purchase of property and equipment
was $1,149,000 in fiscal 1996 and $2,066,000 in fiscal 1995. Cash of $3,925,000
was used in fiscal 1995 to purchase additional shares of WHGI and PPRA.
30
<PAGE>
<PAGE>
Cash used by financing activities during fiscal 1996 was $14,751,000
compared with cash provided of $274,000 during fiscal 1995. Payment of long-term
debt was $3,887,000 in fiscal 1996 and $4,568,000 in fiscal 1995. Net
intercompany transactions with WMS in fiscal 1996 resulted in cash used of
$6,275,000 to repay advances. Net intercompany transactions with WMS in fiscal
1995 resulted in cash advances received of $3,125,000. During fiscal 1996 PPRA
redeemed $3,400,000 of Condado Plaza Preferred Stock owned by WMS. During fiscal
1995 PPRA sold $2,500,000 of Condado Plaza Preferred Stock to WMS.
See the consolidated statements of cash flows of the Company (formerly
Williams Hotel Corporation) on page F-5 for further details on cash flow items.
Also see the statements of cash flows of the nonconsolidated affiliates on pages
F-22, F-31, and F-38.
The three hotels and casinos and WHGI provide for their off-season cash
needs through their own cash and from individual short-term note arrangements.
Annual capital expenditures are provided for each year as part of the annual
budgeting process. Capital expenditures are approved taking into account
available cash and available financing, if necessary. For further discussion
with respect to the Company's capital expenditure requirements, see 'Risk
Factors -- Capital Requirements' and 'Business -- The Condado Plaza,' ' -- El
San Juan' and ' -- El Conquistador.' Cash advances from WMS have been made to
the Company and are primarily related to additional investments and advances to
WKA, purchase of additional shares of subsidiaries and the 1994 purchase of the
approximately 150 acres of land held as an investment.
The Condado Plaza has a $2,000,000 bank line of credit available of which
$1,000,000 was utilized at March 31, 1997. The El San Juan has a $1,000,000 bank
line of credit available of which $700,000 was used at March 31, 1997. The El
Conquistador has a $6,000,000 bank revolving credit facility of which $1,500,000
was utilized at March 31, 1997. El San Juan and El Conquistador long-term debt
agreements provide that advances and other payments to the owners are to be
based on defined levels of cash flow from the respective hotels and casinos
which based on historical results limits and prohibits, respectively, such
transactions. The long-term debt agreements and other agreements permit the
payment to WHGI of certain management fees and intercompany charges from the
three hotels and casinos. There are no agreements restricting WHGI from paying
dividends or otherwise making advances and the Company expects to receive
dividends from WHGI cash flow to provide for its operating expenses. Management
believes that cash flow from the operations of Condado Plaza and El San Juan
will be adequate to pay or refinance its long-term debt as it becomes due and
provide for its normal planned capital additions for the ensuing year. See
'Hotel Financings and Certain Contingent Obligations -- The El Conquistador' for
a discussion of its long-term debt. The Company is also subject to certain
contingent obligations which the Company believes would not, if they occur, have
a material adverse effect on the Company as a whole. For a discussion on such
contingent obligations, see 'Risk Factors -- Financial Leverage of El
Conquistador; Ownership Interest in El Conquistador' and 'Hotel Financings and
Certain Contingent Obligations.'
INFLATION
During the past three years, the level of inflation affecting the Company
has been relatively low. The ability of the Company to pass on future cost
increases in the form of higher room rates and other price increases will
continue to be dependent on the prevailing competitive environment and the
acceptance of the Company's services in the market place.
SEASONALITY
The hotel and casino business in Puerto Rico is highly seasonal. From
December through April the occupancies of the hotels are greater than other
months and the average room rates are higher than other months resulting in
higher revenues and net income primarily in the third quarter of the June 30
fiscal year. The first quarter of the June 30 fiscal year normally has a net
loss. See 'Risk Factors -- Seasonality.'
31
<PAGE>
<PAGE>
INDUSTRY OVERVIEW
Globally, tourism and travel is the world's largest industry producing $3.6
trillion of gross output in 1996, accounting for more than 10.7% of global gross
domestic product. The tourism industry includes 15 interrelated segments,
including lodging, restaurants, airlines, cruise lines, car rental firms, travel
agents and tour operators. More than one billion people are expected to be
traveling worldwide and international tourism receipts are expected to increase
to $7.1 trillion by 2006. In the United States, the tourism industry is
currently third behind only auto sales and food retail sales. The tourism
industry in Puerto Rico directly and indirectly accounts for approximately
55,000 jobs and generates approximately 7% of the island's gross national
product. According to government statistics, approximately 3,130,000 tourists
(not including cruise ship visitors) visited the island in fiscal 1996 (July 1,
1995 to June 30, 1996) an increase of 2.9% from the previous fiscal year. Such
tourists spent an estimated $1.76 billion in fiscal 1996, up 5.6% from $1.67
billion in fiscal 1995. Total visitor expenditures in fiscal 1996 reached $1.83
billion, representing a 5.8% increase over 1995.
Segments within the lodging industry are principally based on levels of
price, value, service, guest amenities, room size, room configuration and
accessibility. Segments include, among others, full service, limited service and
extended stay. Within each segment are large and small chains as well as
independent operators. All of the hotels and casinos in which the Company has an
interest are considered full-service hotels. Full service hotels typically
include swimming pools, meeting and banquet facilities, gift shops, restaurants,
cocktail lounges, room service, parking facilities and numerous other services.
The casino gaming industry is highly fragmented and characterized by a high
degree of competition among a large number of participants, including land-based
casinos, cruise ships, riverboats, dockside, Indian gaming, video lottery
terminals and other forms of gaming. The Company believes that the expansion of
gaming during the last several years reflects the increasing popularity and
acceptability of gaming activities in the United States. Generally, land-based
casinos compete based on the type of games available, level of stakes, location,
accessibility and guest amenities.
The Commonwealth of Puerto Rico offers some competitive advantages over
other destinations including Caribbean destinations due to its central location
within the Caribbean Basin, surrounded to the north by the Atlantic Ocean and to
the south by the Caribbean Sea. The 3,434 square mile island has 272 miles of
coastline, and is located approximately 1,000 miles southeast of the southern
tip of Florida. Frequent, scheduled passenger air services connects Puerto Rico
to the mainland U.S., Europe and South America. Flying time is 3 1/4 hours to
New York, 2 1/4 hours to Miami, 1 1/2 hours to Caracas and 8 hours to Europe.
The Luis Munoz Marin International Airport is the island's principal airport and
it is generally acknowledged to be the largest and most advanced aviation
facility in the Caribbean. The airport serves 50 commercial airlines and can
accommodate all types of aircraft. San Juan, with a metropolitan area population
of approximately 1,300,000, is the capital city as well as the political,
economic and social center of the Commonwealth. Other major cities are Ponce,
Bayamon, Mayaguez and Arecibo. Puerto Rico is an attractive destination for
incentive groups and is cited by multinational companies as an efficient meeting
location for executives arriving from several locations. It is also an
attractive warm weather vacation spot within easy flying distance of many cold
weather cities and offers legalized gambling which many other warm weather
destinations do not. Due to the size of the island and its extensive business
economy, it also draws many business travelers which many other Caribbean
islands do not.
Puerto Rico ranks as the number one cruise ship port in the Caribbean.
Currently 20 cruise ships include San Juan as a port of call while 17 ships have
made San Juan their home base, thus creating a new market, that of Land/Sea
packaging (attracting cruise passengers to stay in San Juan a few days before
and/or after their cruise).
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BUSINESS
The Company owns interests in three of the leading hotels and casinos in
Puerto Rico -- the Condado Plaza, the El San Juan and the El Conquistador. These
three hotels are managed by WHGI, which is 62% owned by the Company. In all, the
Company owns interests in and manages 1,875 suites and hotel rooms, 39,300
square feet of casino floor space containing 120 gaming tables and 940 slot
machines and approximately 146,000 square feet of convention and meeting space.
These properties also include a total of 22 restaurants, 41 shops, one showroom,
three health and fitness centers, 12 tennis courts, an 18-hole championship golf
course, a marina and 25 cocktail and entertainment lounges.
The Company's hotels are each focused on different market segments: the
Condado Plaza primarily services the business traveler, the El San Juan caters
to individual vacation travelers, as well as to small groups and conferences and
corporate executives and the El Conquistador offers extensive group and
conference facilities and also attracts the individual leisure traveler.
In April 1993, WKA became a limited partner in Las Casitas Development
Company I, S en C (S.E.) which acquired certain land from El Conquistador for
the purpose of developing and selling approximately 90 condominiums known as Las
Casitas. The project was substantially completed in or about January 1997. Most
of the owners of the condominiums have entered into rental arrangements with the
El Conquistador which now provide the El Conquistador with 163 additional luxury
rooms.
Each of the three hotel properties in which the Company has an ownership
interest was substantially renovated after its acquisition and, in the case of
the El Conquistador, was substantially expanded. The Company continues to
improve such properties on an on-going basis.
In a survey of its readers conducted in 1996 by Conde Nast Traveler
magazine, the El Conquistador was rated among the top 100 resorts in the world
and both the El Conquistador and El San Juan were rated among the top 50
tropical resorts. The Company's casinos are among the largest and most
successful in Puerto Rico. In fiscal 1996 the Condado Plaza casino achieved the
highest table game play and the highest slot machine play in Puerto Rico while
the El San Juan casino achieved the second highest table game play and the third
highest slot machine play. The Company is a market share leader in Puerto Rico
maintaining average occupancy at the same or higher levels than reported by its
competitors.
The Company's business strategy is to maximize the economic potential of
its existing properties while building on its hotel and casino expertise by
seeking other opportunities to manage and own hotels and casinos in Puerto Rico,
the Caribbean and elsewhere. The Company believes that its strengths make it an
attractive candidate to other hotel and casino owners seeking third-party
managers as well as an attractive joint venture partner for other hotel and
casino developers and owners. The Company continues to explore potential
opportunities but is not currently engaged in any negotiations, agreements or
understandings with respect to any acquisition, management agreement or joint
venture.
The Company is constantly seeking new ways to reduce operating costs as
well as upgrade or add amenities to its hotel and casino properties to enhance
the overall experience of its guests. The lobby of the Condado Plaza was fully
renovated during the current fiscal year and restaurants, a nightclub and shops
were added. The El San Juan recently completed a major renovation and
refurbishment which included all of its guest rooms, guest room corridors, an
additional restaurant and public areas. The El Conquistador recently opened
three new restaurants, a nightclub and nine new retail shops.
The Company's key strengths which have contributed to its success include:
Marketing -- The Company has extensive experience in marketing to three
distinct hotel guest types -- the corporate-executive traveler, the
individual leisure traveler and the group and convention traveler. Through
its 40 person U.S. mainland exclusive marketing service, numerous sales
professionals at each property, general sales agents in South America and
Europe as well as excellent strategic relationships with major airlines,
cruise ship operators and travel industry partners, the Company is able to
maintain its market share leadership in Puerto Rico. With this structure
in place, the Company is equipped to market additional properties.
Management -- The Company employs approximately 400 managers in its three
hotels and casinos. These managers provide a pool of experienced talent to
the Company for purposes of
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operating its existing properties as well as for future training and
expansion. The Company has a proven track record of successful management
of hotels and casinos due to its long-term management philosophy and
commitment to excellence and service.
Centralized Reservations System -- The Company maintains a centralized
reservation system staffed by trained personnel who handle over 500,000
telephone inquiries per year. This centralized system provides the Company
the opportunity to cross-sell its properties depending on supply and
demand, guest type and various other factors.
Centralized Purchasing -- Through the centralized purchasing system
established during fiscal 1996 for the three hotels and casinos it owns
and manages, the Company is able to reduce operating costs and achieve
certain economies of scale so that it can more effectively compete with
larger hotel chains as well as provide its guests first-class amenities at
lower incremental costs.
The Company is the sole owner of the Condado Plaza. The El San Juan and
WHGI are owned in part by the Company and in part by the Other Owners. The
Company was formed in 1983 and in that same year, together with the Other
Owners, formed PPRA and WHGI for the purpose of acquiring and managing the hotel
and casino property now known as the Condado Plaza. A year later, the Company,
together with the Other Owners, caused the formation of Posadas de San Juan
Associates for the purpose of acquiring and managing, through WHGI, the hotel
and casino property now known as the El San Juan. Since 1993, the Company has
increased its ownership interests in PPRA and WHGI so that the Company currently
owns 100% of PPRA, a 50% interest in the El San Juan and 62% of WHGI. In 1990
the Company, together with the Other Owners, caused the formation of WKA for the
purpose of becoming a general and limited partner of El Conquistador Partnership
L.P. El Conquistador Partnership L.P. was formed by WKA and Kumagai, a
subsidiary of Kumagai Gumi Co., Ltd., a large Japanese construction company, for
the purpose of acquiring and renovating the hotel and casino property now known
as the El Conquistador. The Company's interest in WKA represents a 23.3%
effective ownership interest in the El Conquistador. The El Conquistador is also
managed by WHGI. See 'Relationship Between the Company and Its Subsidiaries and
Affiliates.'
The Company directs its marketing to three distinct hotel guest
customers -- the corporate-executive traveler, the individual vacation and
leisure traveler and the group and convention traveler. The Company has also
directed its efforts toward local business people and residents of Puerto Rico
for its casino, convention, restaurant, nightclub and bar facilities.
The Company believes the Condado Plaza and the El San Juan are attractive
to the corporate-executive traveler because they are easily accessible from the
Luis Munoz Marin International Airport and from Hato Rey, San Juan's business
and commercial center and include an aggregate of 56,000 square feet of
convention and meeting space. The individual vacation traveler is attracted to
all facilities by the Caribbean climate and resort amenities including casinos,
swimming pools, whirlpools and spas, tennis, golf and water sports facilities,
health clubs and entertainment lounges. The group and convention traveler is
attracted by the combination of business and resort amenities at all facilities.
Because of its emphasis on business-related services and facilities, the Condado
Plaza attracts groups and conventions meeting to conduct business in Puerto
Rico. The El San Juan, a luxury resort hotel, attracts small groups and
conferences interested in a combination of business, recreational and social
activities while in Puerto Rico. 'Blue Chip' corporate and incentive groups
comprise a significant portion of the El Conquistador's clientele in addition to
appealing to the upscale leisure traveler.
The Company's marketing strategy includes attracting to its hotel and
casino facilities members of the local business community, residents of Puerto
Rico and vacation travelers who are staying at other hotel and lodging
accommodations. The Company believes a substantial percentage of the casino,
restaurant, nightclub and bar revenues at all facilities are from local
clientele. Local business people entertain in the hotels' restaurants and
lounges on a regular basis. Residents of Puerto Rico frequently utilize the
casinos, shops and recreational facilities. Many local social events and
receptions are held in the ballrooms and banquet facilities of the Company's
properties.
The Company's hotel and casino facilities are marketed primarily in the
United States, as well as in Canada, Mexico, Europe and South America. In
addition to its in-house marketing staff of 35
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employees, the Company has a U.S. mainland exclusive marketing service with 40
employees located primarily in Miami and New York which promotes sales for the
Company's hotels and casinos. This combined marketing effort promotes the hotels
and casinos to tour operators, meeting planners, corporate incentive groups,
wholesale and retail travel agencies and airlines, as well as to individuals. In
addition, the marketing staff solicits casino business by identifying and
contacting individual players and through the efforts of commissioned sales
representatives. The activities of the sales force include direct sales
promotions, telephone and direct mail solicitations, participation in trade
shows and public relations.
The Company's operations are divided into two industry segments: the
Condado Plaza and WHGI. The Company's investments in the El San Juan and El
Conquistador are accounted for in the Consolidated Financial Statements on the
equity method. See Note 15 to the Consolidated Financial Statements of the
Company (formerly Williams Hotel Corporation) included elsewhere in this
Prospectus for information concerning revenues and operating income attributable
to the Company's two industry segments which is incorporated herein by
reference.
THE CONDADO PLAZA
The Condado Plaza is owned by PPRA, which is owned 100% by the Company.
Such ownership interest was increased from 92.5% to 95% effective July 13, 1994
and was increased to 100% effective April 21, 1997. The main building of the
Condado Plaza fronting the ocean was originally constructed in 1962. The Laguna
Wing was built in 1959. Acquired by the Company in 1983, the Condado Plaza has
since become one of the leading hotels in the Caribbean. Located on the Atlantic
Ocean in the Condado area of San Juan, the Condado Plaza is a ten-minute drive
from Hato Rey, the city's business and commercial center. The Condado Plaza has
569 rooms and consists of two separate structures on a five-acre site -- the
13-story main building, which is owned by PPRA, and the 11-story Laguna Wing,
which is leased from the prior owners of the minority interest in the hotel. The
Laguna Wing lease expires March 31, 2004 and is renewable through September 30,
2008. See ' -- Properties.' In fiscal 1996, the American Automobile Association
awarded the Condado Plaza a 'Four Diamond' rating for the ninth consecutive
year.
During the fiscal years ended June 30, 1996, 1995 and 1994, the Condado
Plaza's capital expenditures for the purchase of property, plant and equipment
were $1,285,000, $2,487,000 and $7,745,000, respectively. The Condado Plaza
expects to spend approximately $4,700,000 in capital expenditures during fiscal
1997 primarily to refurbish the hotel lobby, casino, restaurants and nightclub.
Upon completion of this major refurbishment, the Company expects capital
expenditures to return to annual levels more consistent with those of fiscal
1995.
The Condado Plaza guest accommodations are geared to the needs of traveling
executives and include 'The Plaza Club,' a hotel-within-a-hotel with 72 deluxe
guest rooms and suites, private lounges and a specially-trained staff providing
concierge services. The Condado Plaza has an executive service center which
offers all necessary business-related services and facilities, conference
facilities which can accommodate groups of up to 1,000, five restaurants, three
retail shops, a health and fitness center, three tennis courts and dual pools
with spas.
Most restaurants and all of the shops located in the Condado Plaza are
owned and operated by unaffiliated concessionaires which pay the Company rentals
based primarily on a percentage of their revenues. In addition, the water sports
and valet parking are operated as concessions.
The Condado Plaza maintained an average occupancy during the fiscal year
ended June 30, 1996 of 87.4% compared with 84.5% for the fiscal year ended June
30, 1995 and 85.4% for the fiscal year ended June 30, 1994. The 87.4% occupancy
was achieved notwithstanding the opening of several new hotels in the greater
San Juan area during recent years. Occupancy is based upon available rooms
excluding immaterial numbers of rooms under renovation or otherwise unavailable
for occupancy from time to time. Average daily room rates at the Condado Plaza
were $138.68, $143.73 and $148.26, during the fiscal years ended June 30, 1996,
1995 and 1994, respectively.
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THE EL SAN JUAN
The El San Juan is owned by Posadas de San Juan Associates, a partnership
which is 50% owned by a subsidiary of the Company and the balance owned by the
Other Owners. The El San Juan was originally constructed in 1958 and acquired
and substantially renovated by the Company in 1984. The El San Juan is located
in the Isla Verde area of metropolitan San Juan on a 13-acre oceanfront site
twenty-five minutes from the shopping and historic sights of Old San Juan. The
hotel now consists of four structures of from one to nine stories and contains
388 guest rooms and suites and conference and meeting space of 36,000 square
feet with a seating capacity of 3,000. With its marble floors, elaborate
chandeliers and carved mahogany ceilings and walls, the El San Juan was awarded
a 'Four Diamond' rating by the American Automobile Association for the tenth
year in a row.
During the fiscal years ended June 30, 1996, 1995 and 1994, the El San
Juan's capital expenditures for the purchase of property, plant and equipment
were $3,105,000, $3,310,000 and $2,737,000, respectively. For the year ending
June 30, 1997, the Company has budgeted $4,300,000 for capital expenditures at
the El San Juan.
The El San Juan caters to individual vacation travelers, as well as to
small groups and conferences and corporate-executive travelers. El San Juan
guest rooms and suites have luxury appointments and amenities and, in many of
the guest rooms, private balconies, whirlpools and spas. The Roof Top Health
Spa, two swimming pools, three tennis courts and beach area contribute to the
attractiveness of this property.
The El San Juan maintained an average occupancy during the fiscal year
ended June 30, 1996 of 82.3% compared with 82.4% for the fiscal year ended June
30, 1995 and 84.6% for the fiscal year ended June 30, 1994. Average daily room
rates at the El San Juan during the fiscal years ended June 30, 1996, 1995 and
1994 were $185.30, $184.41 and $179.98, respectively.
The El San Juan also features an indoor shopping arcade designed to
resemble a European village, which features 12 fashionable stores serving resort
guests and community residents. All of the stores in the El San Juan and all of
the restaurants except 'La Veranda' and 'Tequila Bar & Grill' are owned and
operated by unaffiliated concessionaires which pay the El San Juan rentals based
primarily on a percentage of their revenues. In addition, the watersports and
valet parking are operated as concessions.
THE EL CONQUISTADOR
On January 12, 1990, WHGI entered into an agreement with the El
Conquistador Partnership L.P. for the management of the El Conquistador. The El
Conquistador is approximately 23.3% owned by the Company, approximately 26.7%
owned by certain of the Other Owners and 50% owned by Kumagai. The hotel was
originally built as a 388 room hotel in 1962. The El Conquistador was
substantially renovated and expanded during 1991 and 1992 with Kumagai acting as
construction manager and WHGI rendering technical development services during
the construction phase. The completed resort opened for business in November
1993.
The El Conquistador, a world class destination resort complex, is located
at the old El Conquistador site in Las Croabas. The resort has 751 guest rooms,
an 18-hole championship golf course, a marina, seven tennis courts, 90,000
square feet of convention and meeting facilities, six lounges and nightclubs, 12
restaurants, a 13,000 square foot casino, 25 retail shops, a fitness center and
five pool areas, all situated on a bluff overlooking the convergence of the
Atlantic Ocean and the Caribbean Sea. The El Conquistador also features a
secluded beach located on a private island three miles offshore. In addition,
the El Conquistador has available 90 condominium units known as the Las Casitas.
The Las Casitas provide another 167 rooms to the inventory of luxury rooms
available to the El Conquistador bringing the total available rooms at the
resort to 918. In less than two years the resort has received the prestigious
Gold Key Award by Meetings and Conventions Magazine and the Paragon Award by
Corporate Meetings and Incentives Magazine for excellence in meeting and
conventions. For the third consecutive year, the American Automobile Association
awarded the resort a 'Four Diamond' rating and it has recently awarded its
prestigious 'Five Diamond' rating to Las Casitas.
During the fiscal years ended March 31, 1997, 1996 and 1995, the El
Conquistador's capital expenditures for the purchase of property and equipment
were $1,306,000, $864,000 and $3,002,000,
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respectively. Capital expenditures for 1996 and 1997 have been relatively low
due to the age of the resort. Capital expenditures for fiscal 1998 are expected
to be approximately $2,800,000.
The El Conquistador finished its third full fiscal year ended March 31,
1997 with an average occupancy of 71.9% and gross revenues of $94,224,000. This
compares to an average occupancy of 70.9% and 73.3% and gross revenues of
$90,351,000 and $85,948,000 for the fiscal years ended March 31, 1996 and 1995,
respectively. The average daily room rate at the El Conquistador for the fiscal
years ended March 31, 1997, 1996 and 1995 were $202.86, $198.99 and $188.87,
respectively.
WHGI
WHGI is owned 62% by the Company and 38% by the Other Owners. The Company
increased its interest in WHGI from 57% to 62% effective July 13, 1994. WHGI,
the Company's subsidiary which provides hotel and casino management services,
has managed the Condado Plaza since 1983, the El San Juan since 1985 and the El
Conquistador since its opening in 1993. WHGI has management contracts with all
such facilities expiring in 2003 (Condado Plaza), 2005 (El San Juan) and 2013
(El Conquistador). It earns basic management fees based on gross revenues and
incentive management fees based on gross operating profits. In fiscal 1996, WHGI
earned $7,150,000 in basic management fees and $4,354,000 in incentive
management fees from the three properties. WHGI is reimbursed for certain
administrative expenses incurred in connection with its management of such
properties and receives fees with respect to certain centralized services being
rendered for all hotel and casino properties. In addition to supervising the
daily operations of each of the properties it manages, WHGI supervises
marketing, sales and promotions and recommends long-term policies for the three
hotels and casinos.
CASINO CREDIT POLICY
All of the Company's casinos extend credit to qualified players who satisfy
its credit review procedures. The procedures include external credit
verification and internal management level approvals.
Credit play at the Condado Plaza for the fiscal years ended June 30, 1996,
1995 and 1994 represented 36%, 32% and 46%, respectively, of total play at the
casino. Casino credit receivables, net of allowance for doubtful accounts, at
the Condado Plaza at each of the fiscal years ended June 30, 1996, 1995 and 1994
were $464,000, $1,330,000 and $1,956,000, respectively, representing 1.2%, 3.9%
and 3.4% of annual credit play.
Credit play at the El San Juan for the fiscal years ended June 30, 1996,
1995 and 1994 represented 55%, 60% and 72%, respectively, of total play at the
casino. Casino credit receivables, net of allowance for doubtful accounts, at
the El San Juan at each of the fiscal years ended June 30, 1996, 1995 and 1994
were $473,000, $2,265,000 and $5,859,000, respectively, representing 0.8%, 2.9%
and 4.5% of annual credit play.
Credit play at the El Conquistador has not been significant since its
opening in November 1993.
The credit players represent a significant portion of total play at the El
San Juan and Condado Plaza casinos and the Company believes that collection
losses have not been unusual or material to the results of operations, except
for the El San Juan casino, where the losses for fiscal 1995 were $3.7 million
compared with $4.2 million in fiscal 1994 and $2.6 million in fiscal 1993.
Gaming debts are enforceable in Puerto Rico and the majority of States in the
United States. Those States that do not enforce gaming debts will nonetheless
generally allow enforcement of a judgment obtained in a jurisdiction such as
Puerto Rico. Due to the unenforceability generally of gaming debts in Latin
America, where a significant number of the Company's players reside, procedures
have been established to obtain promissory notes from most Latin American credit
casino clients.
GOVERNMENT REGULATION AND LICENSING
In 1948, Puerto Rico legalized gambling. The Office of the Commissioner of
Banks and Financial Institutions of the Commonwealth of Puerto Rico is
responsible for investigating and licensing casino owners. The Gaming Division
of the Tourism Development Company of Puerto Rico (the 'Gaming
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Division') regulates and supervises casino operations. A government inspector
must be on-site whenever a casino is open. Among its responsibilities, the
Gaming Division licenses all casino employees and enforces regulations relating
to method of play and hours of operation (a maximum of 16 hours per day).
The casinos at the Condado Plaza, the El San Juan and the El Conquistador
are subject to strict internal controls imposed by the Company over all facets
of their operations, including the handling of cash and security measures. All
slot machines at these and all other casinos on the island are owned and
maintained by the Commonwealth of Puerto Rico. Of the profits from the slot
machines, 34% is received by the casino and the remaining 66% is allocated to
Puerto Rico government agencies and educational institutions. Each casino pays
the Government a franchise fee depending on total play or drop in the casino,
which ranges from $50,000 to $200,000. The Condado Plaza and the El San Juan
each pay an annual franchise fee of $200,000 and the El Conquistador pays an
annual franchise fee of $150,000 in quarterly installments. Each casino is
required to renew its franchise quarterly; and, unless a change of ownership of
the franchisee has occurred or the gaming authorities have reason to believe
that reinvestigation of the franchisee is necessary, renewal is generally
automatic.
The hotels and casinos are also subject to various local laws and
regulations affecting their business, including provisions relating to fire
safety, sanitation, health and the sale of alcoholic beverages.
The Gaming Reform Bill of 1996 was approved by the Legislature in Puerto
Rico and enacted into law on September 3, 1996. The Bill provides the following
improvements to existing casino operations in Puerto Rico:
1. New permitted table games: Caribbean Stud Poker, Let It Ride
(poker), Pai Gow Poker and Big Six (Wheel).
2. New permitted table maximum bets: Blackjack - $10,000, previously
$2,000; Craps - $10,000, previously $2,000; Mini-Baccarat - $10,000,
previously $2,000; Roulette - $1,000, previously $100 (Straight); and
Baccarat - $25,000, previously $4,000.
3. Flexibility to acquire other new table games.
4. Flexibility to change procedures and regulations on existing table
games (e.g., 'odds' in Craps and 'hole card' in Blackjack).
5. New Slot Machines: approximately 1,600 new slot machines to replace
all slot machines that were manufactured prior to 1992 and those slot
machines that subsequently reach five years of age will be replaced on an
annual basis.
6. Slot Machine Ratio to Table Game positions changed from 1:1 up to
1.5:1, permitting more slot machines in each casino.
The Company's casinos expect to take full advantage of these changes, which
will enable it to be much more competitive with other gaming jurisdictions in
the Caribbean as well as the new casinos opening in Puerto Rico.
The Commonwealth of Puerto Rico is scheduled to add 44 new slot machines
and replace 270 of the existing slot machines in the casinos in which the
Company has an interest with new machines. The Condado Plaza and El San Juan
have increased their table maximums in order to entice higher stakes gamblers
who previously were not attracted to Puerto Rico. Caribbean Stud Poker, Let It
Ride and Big Six (Wheel) games have also been added at the casinos.
SEASONALITY
Tourism in Puerto Rico is at its peak during the months of December through
April. Most hotels, in spite of reducing their room rates during the off-season
months, experience decreased occupancy and lower revenues. By attracting
business travelers and residents of Puerto Rico on a year-round basis, the
Condado Plaza has reduced, to some extent, the seasonality of its operations.
The El San Juan and the El Conquistador expect that group business developed
during the off- and shoulder-seasons will reduce the effect of seasonality.
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Seasonal fluctuations in the tourism industry do not have as much of an
effect on the Condado Plaza as they have on other Caribbean hotels since
approximately 40% of the Condado Plaza's accommodations are booked by business
travelers. As a result, the Condado Plaza's monthly occupancy for the fiscal
year ended June 30, 1996 ranged from 78.9% to 96.0%, with an average occupancy
of 87.4%. The in-season average occupancy figure for December 1995 to April 1996
was 88.6% compared to 87.6% and 87.2% for such period in the fiscal years 1995
and 1994, respectively. The Condado Plaza, like other Caribbean hotels, reduces
its rates during the off-season months but, unlike many other Caribbean hotels,
occupancy remains at relatively high levels.
During the fiscal year ended June 30, 1996, the El San Juan's monthly
occupancy ranged from 62.2% to 94.9%, with an average occupancy of 82.3%. The
in-season average occupancy figure for December 1995 to April 1996 was 85.8%
compared to 88.3% and 87.7% for such period in the fiscal years 1995 and 1994,
respectively.
The El Conquistador's monthly occupancy during its fiscal year ended March
31, 1997 ranged from 47.1% to 88.2%, with an average occupancy of 71.9%. The
monthly occupancy during its fiscal year ended March 31, 1996 ranged from 50.1%
to 88.8%, with an average occupancy of 70.9%.
COMPETITION
The hotel and casino business in the Caribbean region is highly
competitive. The Company's facilities compete with each other and with numerous
hotels and resorts on the island of Puerto Rico (including 16 other hotels and
resorts with casinos) and on other Caribbean islands and in the southeastern
United States and Mexico. The Company competes with such chains as Hyatt,
Marriott, Hilton, Holiday Inn and Westin as well as numerous other hotel and
resort chains and local hotel and motel operators. The Company also competes for
hotel and casino customers to a lesser extent with the Nevada and New Jersey
hotels and casinos as well as other casinos now operating in the United States.
The principal methods of competition for casino players include maintaining
promotional allowance packages that are comparable to other casinos and
providing outstanding service to players in the hotel and casino. The
promotional allowance package will vary depending upon the size of the play and
may include reduced or complimentary hotel and restaurant charges and air fares.
Some of these competing properties are owned or managed by hotel chains
possessing substantially greater financial and marketing resources than those of
the Company. See 'Risk Factors -- Competition.'
At December 31, 1996, there were 25 hotels in the San Juan area designated
as 'tourist hotels' by the Tourism Company of Puerto Rico offering a total of
approximately 5,205 rooms, of which only 10 hotels offered more than 200 rooms;
approximately 3,210 additional rooms were offered in 21 tourist hotels elsewhere
on the island of Puerto Rico. The island also has numerous commercial hotels and
guest houses. Approximately 31 cruise ships operate out of Puerto Rico in the
winter. Currently, 20 ships include San Juan as a port of call while 17 ships
have made San Juan their home base.
The Company believes that Puerto Rico offers many advantages over
geographical areas in which competing properties are located. Unlike most other
Caribbean islands, Puerto Rico is served by many direct air flights from the
continental United States and has a highly developed economy and a well-educated
population. Moreover, Puerto Rico is a Commonwealth of the United States,
freeing mainland visitors from concerns about foreign currencies or customs and
immigration laws. Unlike resort areas in the southeastern United States, Puerto
Rico enjoys a mild subtropical climate throughout the year and offers legalized
gambling.
EMPLOYEES
At March 31, 1997, the Condado Plaza employed approximately 989 persons,
600 of whom are represented by two labor unions (450 employees belong to the
hotel union and 150 employees belong to the casino union). The Condado Plaza's
contract with the Hotel and Restaurant Employees International Union expires
August 31, 1997. The Condado Plaza's contract with the Puerto Rico Association
of Casino Employees expires May 31, 1999.
The El San Juan employs approximately 860 persons of which 237 are casino
employees. The Teamsters Union was certified by the National Labor Relations
Board on May 12, 1995 to represent the
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115 non-managerial casino employees and a contract was signed on February 26,
1996 and expires May 31, 1999.
The El Conquistador employs approximately 1,574 persons of which 115 are
casino employees. WHGI employs approximately 62 persons, including the executive
office staff and the reservation staffs for all operations. None of the
Company's employees at the El Conquistador or WHGI are represented by a labor
union.
The number of persons employed by the Company varies from season to season
and is at its highest during the high season when occupancy is at its highest.
The Company considers its current relationships with all employees, union and
non-union, to be satisfactory.
PROPERTIES
The Company owns interests in and manages 1,875 suites and hotel rooms,
39,300 square feet of casino floor space containing 120 gaming tables and 940
slot machines and approximately 146,000 square feet of convention and meeting
space. These properties also include a total of 22 restaurants, 41 shops, one
showroom, three health and fitness centers, 12 tennis courts, 25 cocktail and
entertainment lounges, an 18-hole championship golf course and a marina.
The following table sets forth, with respect to the Company's principal
properties, the location, principal use, approximate floor space, the annual
rental and lease expiration date, where leased, and encumbrances at March 31,
1997.
Management believes that all of the facilities listed in the following
table are in good repair and are adequate for their respective purposes. The
Company owns substantially all of the machinery, equipment, furnishings, goods
and fixtures used in its businesses, all of which are well maintained and
satisfactory for the purposes intended. The Company's personal property utilized
in the Condado Plaza, the El San Juan and the El Conquistador operations is
subject to security interests.
<TABLE>
<CAPTION>
APPROXIMATE LEASE
LOCATION PRINCIPAL USE SQUARE FEET ANNUAL RENT EXP. DATE ENCUMBRANCES
- ------------------ ------------------ ------------ -------------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Las Croabas, PR El Conquistador 854,000 23.3% Owned by -- (1)
Resort Company
San Juan, PR Condado Plaza 136,081 Owned by Company -- (2)
Hotel/Casino
San Juan, PR Condado Plaza 60,500 $684,000(3) 03/31/04 (2)
Laguna Wing
San Juan, PR Condado Plaza 28,611 Owned by Company -- (4)
Parking Lots
San Juan, PR Condado Plaza 8,343 Owned by Company -- (4)
Parking Lot
San Juan, PR El San Juan 162,500 50% Owned by Company -- (5)
Hotel/Casino
San Juan, PR El San Juan 10,663 62% Owned by Company -- (4)
Parking Lot
San Juan, PR El San Juan 210,000 $150,000 11/16/97 --
Parking Lot
San Juan, PR WHGI Admin. 10,000 62% Owned by Company -- (6)
Offices
</TABLE>
- ------------
(1) Subject to a first mortgage lien in the amount of $146,612,000 securing: (i)
a $120,000,000 loan from the Puerto Rico Industrial, Medical Educational and
Environmental Pollution Control Facilities Financing Authority; (ii) a
$120,000,000 letter of credit issued by The Mitsubishi Bank, Limited, now
known as The Bank of Tokyo-Mitsubishi, Ltd., which serves as collateral for
the loan referred to in (i) above; and (iii) termination liability up to
$20,000,000 under an Interest Rate Swap Agreement with respect to interest
due on the loan referred to in (i) above; subject to a second mortgage lien
securing a $25,000,000 loan from the GDB; subject to a third mortgage lien
securing a $6,000,000 revolving credit facility from the GDB; and subject to
a fourth mortgage lien in the amount of
(footnotes continued on next page)
40
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<PAGE>
(footnotes continued from previous page)
$6,000,000 securing interest due under an $8,000,000 loan from the GDB to
the partners of the El Conquistador, the proceeds of which were loaned to
the El Conquistador.
(2) Subject to mortgage liens to secure a loan in the original principal amount
of $35,500,000 from Scotiabank de Puerto Rico under the terms of an
Operating Credit and Term Loan Agreement dated August 30, 1988, as amended.
(3) Annual rent of $684,000 is fixed through September 30, 1998; thereafter,
$752,000 to September 30, 2003 and $827,000 to March 31, 2004. The Company
has an option to renew the lease for an additional four and one half years,
expiring on September 30, 2008. See 'Business -- The Condado Plaza.'
(4) Subject to a mortgage in favor of the GDB to secure a $4,000,000 loan to
WKA, the proceeds of which were loaned to the El Conquistador.
(5) Subject to a first mortgage lien to secure a loan in the original principal
amount of $34,000,000 from The Bank of Nova Scotia under the terms of a
Credit Agreement dated as of January 20, 1993.
(6) Subject to a first mortgage lien to secure a loan in the original principal
amount of $800,000 from Scotiabank de Puerto Rico.
------------------------
The El Conquistador is situated on approximately 220 acres in Las Croabas,
Puerto Rico. The Company owns approximately 42 additional acres of land in the
vicinity of the El Conquistador which have various uses including employee
parking facilities for the El Conquistador. The Company, through ESJ, also owns
approximately 150 acres of vacant land adjacent to the El Conquistador.
Currently, the Company has no specific plans with respect to the development of
the vacant land.
LEGAL PROCEEDINGS
In July 1993, Chung Lung, Inc. ('Chung Lung'), which operated the Lotus
Flower Restaurant at the Condado Plaza, instituted a declaratory judgment action
against PPRA and WHGI before the Puerto Rico Superior Court, San Juan Part. The
action sought a declaration as to the rights and obligations of the parties
under the concession agreement pursuant to which the restaurant was operating.
In a related case, Chung Lung claimed damages in the amount of $87,858.50, plus
interest, costs and attorney's fees. WHGI and PPRA have filed a counterclaim in
this case seeking damages of $1,000 per day from October 1, 1993. All parties
base their claims for damages on alleged breaches of the concession agreement.
Both cases were consolidated with PPRA's case for eviction of Chung Lung from
the Condado Plaza premises. On May 15, 1995, the parties agreed to a temporary
settlement, endorsed by the Court, in which they would maintain the prevailing
working conditions until January 15, 1996, at which time Chung Lung would either
continue the relationship with the Condado Plaza for a new term of 10 years, or
proceed with the litigation. On January 10, 1996, Chung Lung informed the Court
that it had decided to continue with the litigation and was ceasing operations
at the Condado Plaza. Both parties amended their respective pleadings in the
case to increase their claims for damages. Chung Lung is now claiming
$3,250,000, and PPRA is claiming in excess of $1,000,000. The Court divided the
case into two parts. The first involves the issue of whether Chung Lung had the
right to remain in the premises after the contract term had expired. If the
Court decides that Chung Lung had such right, the case will enter a second phase
for the determination of damages in favor of Chung Lung. The parties are
presently awaiting the Court's decision with respect to the first phase.
On November 8, 1996, Gaucho Tourism Adventure S.E. ('Gaucho'), a restaurant
concessionaire at the El Conquistador, instituted an action before the Fajardo
Superior Court in Humacao, Puerto Rico against El Conquistador Partnership L.P.
and WHGI, alleging that defendants deceived Gaucho prior to entering into the
concession agreement by making representations which were not later honored.
Gaucho also alleges that the El Conquistador sought to eliminate Gaucho's
competition with restaurants operated by the El Conquistador in violation of
Federal and local antitrust laws. Gaucho claims damages of $3,000,000, as well
as injunctive relief. The defendants have answered the complaint
41
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<PAGE>
and filed an opposition to Gaucho's request for equitable relief and has
commenced eviction proceedings against Gaucho. The Court has denied Gaucho's
request for preliminary injunction.
In May 1997, Homero San Antonio Mendoza, Magda Rosario Diaz and Eduardo
Bidot Gonzalez filed an action in the United States District Court for the
District of Puerto Rico against WMS Industries, WHGI, PPRA, Stuart C. Levene,
Louis Nicastro and Brian Gamache. The plaintiffs, former employees at the
Condado Plaza, allege age discrimination, infringement of Puerto Rico's Minimum
Wage Act and defamation and libel and seek actual damages of $6,000,000; their
back pay and benefits in excess of $341,737; loss of income of not less than
$3,696,645; emotional and mental suffering of $200,000 arising from the alleged
libel and defamation of plaintiffs and reinstatement. Plaintiffs claim they are
entitled to double the foregoing damages under Puerto Rico's Antidiscrimination
Statute. None of the defendants have as yet been served with the Complaint.
Other than set forth above, the Company currently and from time to time is
involved in litigation incidental to the conduct of its business. The Company is
not currently a party to any lawsuit or proceeding which, in the opinion of the
Company, is likely to have a material adverse effect on the Company including
those described above.
42
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<PAGE>
MANAGEMENT
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board is comprised of six directors. The members serve for terms
expiring at the Company's 1998, 1999 and 2000 Annual Meetings. Set forth below
is certain information concerning the individual Directors of the Company:
CLASS I DIRECTORS: Initial term expiring at the Company's 2000 Annual
Meeting.
Louis J. Nicastro, 68, has been Chairman of the Board and Chief
Executive Officer of the Company since 1983. Mr. Nicastro has also been a
Director and has held various executive positions at the Company's
subsidiaries since their respective formations. Mr. Nicastro serves as
Chairman of the Board of Directors of WMS and has done so since its
incorporation in 1974. He served as Co-Chief Executive Officer of WMS from
1994 until as of July 1, 1996, having served as Chief Executive Officer
(1974-1994), President (1985-1988 and 1990-1991) and Chief Operating
Officer (1985-1986) of WMS. Mr. Nicastro also serves as a Director of
Midway Games Inc., approximately 87% of which is owned by WMS.
George R. Baker, 67, has been the Vice Chairman of the Board of the
Company since April 1997. Mr. Baker served as Secretary of the Company from
April 1997 until June 16, 1997. Mr. Baker has also been a Director of WHGI
since 1983. He has served as a private consultant and director of WMS since
1983 but resigned as a director of WMS on April 21, 1997. He was a general
partner of Barrington Limited Partners (private investment partnership)
(1985-1986), as a special limited partner of Bear, Stearns & Co., Inc.
(investment banking) (1983-1985) and an Executive Vice President of
Continental Bank N.A. (1951-1982). Mr. Baker is also a director of the
Midland Co., Reliance Group Holdings, Inc., Reliance Insurance Co. and W.W.
Grainger, Inc.
CLASS II DIRECTORS: Initial term expiring at the Company's 1999 Annual
Meeting.
Brian R. Gamache, 40, has been the President and Chief Operating
Officer of the Company since April 1997. Mr. Gamache has also been
President and Chief Operating Officer of WHGI since March 1996 and
President of the El Conquistador since May 1995. He has also served the
Company as Vice President Sales and Marketing of WHGI (September 1990-May
1995). Prior to joining the Company, Mr. Gamache held various positions for
Hyatt Hotels Corp. (1983-1990), including Corporate Director of Sales and
Marketing -- Resorts (1987-1990) and he held various positions for Marriott
Hotels Corporation (1980-1983), including Director of Sales at the Marriott
Camelback Resort and Country Club in Scottsdale, Arizona.
David M. Satz, Jr., 71, has been a Director of the Company since April
1997 and has been a member of the law firm of Saiber Schlesinger Satz &
Goldstein, Newark, New Jersey, for in excess of five years. Mr. Satz is
also a director of the Atlantic City Racing Association.
CLASS III DIRECTORS: Initial term expiring at the Company's 1998
Annual Meeting.
Joseph A. Lamendella, 60, has been a Director of the Company since
April 1997 and has been a member of the law firm of Lamendella & Daniel,
P.C., Chicago, Illinois, for in excess of five years.
Barbara M. Norman, 59, has been a Director, Vice President, Secretary
and General Counsel of the Company since June 16, 1997. Ms. Norman had
served as Vice President, Secretary and General Counsel of WMS and Midway
Games Inc. since June 1992, but resigned from her positions at WMS and
Midway Games Inc. and their various subsidiaries as of June 16, 1997. Prior
to June 1992, Ms. Norman was associated with the law firm Whitman & Ransom,
New York, New York (1990-1992) and served WMS and Midway Games Inc. as Vice
President, Secretary and General Counsel during the period 1986-1990 and
1988-1990, respectively. During the years she had been associated with WMS
and its subsidiaries, Ms. Norman also served as Vice President and
Secretary of the Company and many of WMS' other subsidiaries, including the
Company's subsidiaries.
The business of the Company is managed under the direction of its Board.
The Board has two standing committees: an audit committee and a compensation
committee.
The Audit Committee is comprised of certain directors who are not employees
of the Company or any of its subsidiaries. The Audit Committee will meet at
least twice a year with the Company's
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<PAGE>
independent auditors, management representatives and internal auditors. The
Audit Committee will recommend to the Board the appointment of independent
auditors, approve the scope of audits and other services to be performed by the
independent and internal auditors, consider whether the performance of any
professional services by the independent auditors other than services provided
in connection with the audit function could impair the independence of the
independent auditors and review the results of internal and external audits and
the accounting principles applied in financial reporting and financial and
operational controls. The independent auditors and internal auditors will have
unrestricted access to the Audit Committee and vice versa. The members of the
Audit Committee are Messrs. Satz (Chairman) and Lamendella.
The Compensation Committee is comprised of certain directors who are not
employees of the Company or any of its subsidiaries. The Compensation
Committee's functions include recommendations on policies and procedures
relating to senior executive officers' compensation and various employee stock
option and other benefit plans as well as approval of individual salary
adjustments and stock awards in those areas. The members of the Compensation
Committee are Messrs. Lamendella (Chairman) and Satz.
The Company's designees on the Board of Directors of WHGI are Messrs.
Nicastro, Baker, Gamache, Satz and Lamendella. The Company's designees on the
Venturers Committee of the El San Juan are Messrs. Nicastro, Baker and Satz. The
Company's designees on the Venturers Committee of WKA are Messrs. Nicastro,
Baker and Lamendella.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers of the Company. Each such person was elected to the indicated office in
April 1997, except for Ms. Norman, who was elected in June 1997, and serves at
the pleasure of the Board.
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY
- ---------------------- ------------------------------------------------------------------
<S> <C>
Louis J. Nicastro..... Chairman of the Board and Chief Executive Officer
George R. Baker....... Vice Chairman of the Board
Brian R. Gamache...... President and Chief Operating Officer
Richard F. Johnson.... Chief Financial Officer and Treasurer
Barbara M. Norman..... Vice President, Secretary and General Counsel
</TABLE>
Louis J. Nicastro, 68, See ' -- Board of Directors and Committees of the
Board' for a description of Mr. Nicastro's business experience.
George R. Baker, 66, See ' -- Board of Directors and Committees of the
Board' for a description of Mr. Baker's business experience.
Brian R. Gamache, 40, See ' -- Board of Directors and Committees of the
Board' for a description of Mr. Gamache's business experience.
Richard F. Johnson, 51, has been Senior Vice President and Chief Financial
Officer of WHGI since March 1, 1997 and has been Chief Financial Officer and
Treasurer of the Company since April 21, 1997. Prior to joining the Company, Mr.
Johnson was Chief Financial Officer of Millamax, Inc. (October 1995-February
1997), Chief Financial Officer of Sun International Bahamas Limited (March
1994-September 1995), Vice President-Finance of Great Bay Hotel & Casino
Corporation (June 1993-March 1994), Vice President-Finance of Loews Hotels, Inc.
(February 1983-May 1992) and he held various positions for Caesars World, Inc.
(February 1975-February 1983), including Vice President-Finance for Caesars
Tahoe, Inc. (February 1980-February 1983). From May 1992 until June 1993 Mr.
Johnson was a private hotel consultant. He also was associated with KPMG Peat
Marwick for approximately seven years and is a certified public accountant.
Barbara M. Norman, 59, See ' -- Board of Directors and Committees of the
Board' for a description of Ms. Norman's business experience.
44
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<PAGE>
OTHER SIGNIFICANT EMPLOYEES
Set forth below is a listing of the general managers of the Condado Plaza,
the El San Juan and the El Conquistador and a description of their business
experience for the past five years.
Ronald DiNola, 45, has been Vice President and General Manager of the
Condado Plaza since January 29, 1996. Prior to joining the Company, Mr. DiNola
was employed by Carnival Hotels & Casinos as the General Manager of the Omni
International Hotel in Miami, Florida (June 1993-January 1996) and the General
Manager of the Sheraton Grand in Tampa, Florida. (September 1988-June 1993).
David Kurland, 44, has been Vice President and General Manager of the El
San Juan since April 1, 1994. From 1990 until joining the Company, Mr. Kurland
was General Manager of the Grand Bay Hotel in Miami, Florida.
Olivier Masson, 42, has been Vice President of the El Conquistador since
April 1996. From April 1993 until his promotion to Vice President, Mr. Masson
was the General Manager of the El Conquistador. Prior to joining the Company,
Mr. Masson was Food & Beverage Director of the Ritz Carlton Buckhead in Atlanta,
Georgia (August 1992-April 1993), Food & Beverage Director of the Grand Hyatt in
Waileh, Hawaii (1989-1992) and Regional Food & Beverage Director for Hyatt Hotel
Corp. (1985-1989).
EXECUTIVE OFFICER COMPENSATION
Prior to the Distribution, the Company's business functioned as separate
subsidiaries of WMS and, with the exception of the advice and guidance of the
Board of Directors of WMS and in particular Mr. Louis J. Nicastro, its
management had been employed by the separate entities comprising the business.
The following Summary Compensation Table sets forth a summary of the
compensation paid during the past three fiscal years by WMS and/or its
subsidiaries to the individuals who serve as the Company's Chief Executive
Officer and three of the four next most highly-compensated executive officers of
the Company. Mr. Richard F. Johnson, Chief Financial Officer and Treasurer of
the Company, commenced his employment with the Company as of March 1, 1997 and,
therefore, is not included in the Summary Compensation Table set forth below.
The compensation in the following table represents all compensation paid to each
such individual in connection with his or her position at WMS and/or its
subsidiaries. For a description of the compensation arrangements of certain of
these individuals by the Company, see ' -- Employment Agreements.'
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION (WMS)
NAME AND PRINCIPAL ---------------------------------------------- SECURITIES
POSITION WITH THE OTHER ANNUAL UNDERLYING ALL OTHER
COMPANY YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ------------------------- ---- --------- -------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Louis J. Nicastro, ...... 1996 832,500 -- 6,127(1) -- 629,971(2)
Chairman of the Board 1995 682,500 300,000 4,775(1) -- 409,784(2)
and Chief Executive 1994 682,500 600,000 4,173(1) 500,000 327,252(2)
Officer
George R. Baker, ........ 1996 67,500(3) -- -- -- --
Vice Chairman of the 1995 67,500(3) -- -- -- --
Board 1994 83,500(4) -- -- 50,000 --
Brian R. Gamache, ....... 1996 290,000 75,000 -- -- --
President and Chief 1995 280,000 50,000 -- -- --
Operating Officer 1994 280,000 50,000 -- -- --
Barbara M. Norman ....... 1996 157,500 27,200 -- -- --
Vice President, 1995 150,000 27,200 -- -- --
Secretary & General 1994 150,000 40,000 -- 75,000 --
Counsel
</TABLE>
(footnotes on following page)
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(footnotes from previous page)
(1) Amounts shown for tax gross up payments.
(2) Amounts shown include accrual for contractual retirement for Mr. Nicastro.
(3) Includes Directors fees for services as a Director of WMS and WHGI.
(4) Includes Directors fees for services as a Director of WMS and WHGI and fees
for special consulting services.
OPTION GRANTS
Neither the Company nor WMS granted stock options to the persons listed on
the Summary Compensation Table during fiscal year 1996. Since the Distribution
Date, options to purchase an aggregate of 897,000 shares of Common Stock have
been granted under the Company's stock option plan of which options to purchase
an aggregate of 412,000 shares were granted to persons listed in the Summary
Compensation Table. 857,000 of such options have an exercise price of $8.375 per
share and 40,000 of such opitons have an exercise price of $11.00 per share,
representing the closing price of the Common Stock on the NYSE on the date of
grant.
AGGREGATED STOCK OPTION EXERCISES AND YEAR-END VALUES
The table below sets forth, on an aggregated basis, information regarding
the exercise during the 1996 fiscal year of options to purchase WMS Common Stock
by each of the persons listed on the Summary Compensation Table above and the
value on June 30, 1996 of all unexercised options held by such individuals.
AGGREGATED STOCK OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR OPTIONS AT FISCAL
SHARES YEAR-END (#) YEAR-END ($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(S) ESTIMATED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------- ----------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Louis J. Nicastro................. -- -- 500,000(U) --
George R. Baker................... -- -- 50,000(U) --
Brian R. Gamache.................. -- -- -- --
Barbara M. Norman................. -- -- 75,000(U) --
</TABLE>
COMPENSATION OF DIRECTORS
The Company will pay a fee of $25,000 per annum to each Director who is not
an employee of the Company or any of its subsidiaries. Each such Director who
serves as the Chairman of any committee of the Board will receive a further fee
of $5,000 per annum for his services in such capacity. Individuals who serve as
Directors of WHGI and who are not employees of WHGI are paid an annual fee of
$22,500.
EMPLOYMENT AGREEMENTS
Louis J. Nicastro. Mr. Nicastro has entered into an employment agreement
with the Company pursuant to which he serves as Chairman of the Board and Chief
Executive Officer of the Company for a term of five years with an annual base
salary of not less than $400,000 per annum, plus bonus compensation in an amount
equal to two percent of the pre-tax income of the Company. Mr. Nicastro is also
entitled to participate in the Company's employee benefit plans for which he is
eligible and which are made available to other executive officers of the
Company. Mr. Nicastro has agreed not to engage in any competitive business with
the Company during the term of the agreement and for one year thereafter. The
employment agreement is terminable at the election of Mr. Nicastro upon the
46
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<PAGE>
occurrence without his consent or acquiescence of any one or more of the
following events: (i) the placement of Mr. Nicastro in a position of lesser
stature or the assignment to Mr. Nicastro of duties, performance requirements or
working conditions significantly different from or at a variance with those
presently in effect; (ii) the treatment of Mr. Nicastro in a manner which is in
derogation of his status as a senior executive; (iii) the cessation of service
of Mr. Nicastro as a member of the Board; (iv) the discontinuance or reduction
of amounts payable or personal benefits available to Mr. Nicastro pursuant to
such agreement; or (v) the requirement that Mr. Nicastro work outside his
agreed-upon metropolitan area. In any such event, and in the event the Company
is deemed to have wrongfully terminated Mr. Nicastro's employment agreement
under the terms thereof, the Company is obligated (a) to make a lump sum payment
to Mr. Nicastro equal in amount to the sum of the aggregate base salary during
the remaining term of his employment agreement and the bonus (assuming pre-tax
income of the Company during the remainder of the term of the employment
agreement is earned at the highest level achieved in either of the last two full
fiscal years prior to such termination) and (b) to purchase at the election of
Mr. Nicastro all stock options held by him with respect to Common Stock at a
price equal to the spread between the option price and the fair market price of
such stock as defined in the agreement. The employment agreement is also
terminable at the election of Mr. Nicastro if individuals constituting the
Board, or successors approved by such Board members, cease for any reason to
constitute at least a majority of the Board. Upon such an event, the Company may
be required to purchase the stock options held by Mr. Nicastro and make payments
similar to those described above.
Mr. Nicastro also receives additional compensation of $22,500 per annum for
his services as a Director of WHGI. See ' -- Compensation of Directors.'
George R. Baker. Mr. George R. Baker serves as a Director and Vice Chairman
of the Company and as a Director of WHGI. Mr. Baker has entered into a three
year employment agreement with the Company providing for an annual base salary
of not less than $100,000. The Company has agreed that Mr. Baker may engage in
other activities which may command his full-time and attention and that it is
anticipated that he will not be required to render services for more than 20
hours per month. Mr. Baker is also entitled to participate in the Company's
employee benefit plans for which he is eligible and which are made available to
other executive officers of the Company. The employment agreement is terminable
at the election of Mr. Baker upon the occurrence without his consent or
acquiescence of any one or more of the following events: (i) the placement of
Mr. Baker in a position of lesser stature or the assignment to Mr. Baker of
duties, performance requirements or working conditions significantly different
from or at a variance with those presently in effect; (ii) the treatment of Mr.
Baker in a manner which is in derogation of his status as a senior executive;
(iii) the cessation of service of Mr. Baker as a member of the Board; or (iv)
the discontinuance or reduction of amounts payable or personal benefits
available to Mr. Baker pursuant to such agreement. In any such event, and in the
event the Company is deemed to have wrongfully terminated Mr. Baker's employment
agreement under the terms thereof, the Company is obligated (a) to make a lump
sum payment to Mr. Baker equal in amount to the sum of the aggregate base salary
during the remaining term of his employment agreement and (b) to purchase at the
election of Mr. Baker all stock options held by him with respect to Common Stock
at a price equal to the spread between the option price and the fair market
price of such stock as defined in the agreement. The employment agreement is
also terminable at the election of Mr. Baker if individuals constituting the
Board, or successors approved by such Board members, cease for any reason to
constitute at least a majority of the Board. Upon such an event, the Company may
be required to purchase the stock options held by Mr. Baker and make payments
similar to those described above. Mr. Baker will also continue to receive
additional compensation of $22,500 per annum for his services as a Director of
WHGI. See ' -- Compensation of Directors.'
Brian R. Gamache. Mr. Brian R. Gamache is employed as the President and
Chief Operating Officer of WHGI pursuant to an employment agreement with a two
year term ending October 27, 1998, which term is automatically extended from
year to year. The agreement provides for a minimum annual base salary of
$300,000, as well as a minimum bonus of $50,000 for the 1997 fiscal year.
Additionally, Mr. Gamache is also entitled to bonus compensation at the
discretion of the Board, as well as participation, to the extent eligible, in
any health and life insurance plans generally available to executive officers of
the Company; provided that the Company is obligated, to the extent available at
normal rates, to provide Mr. Gamache with $500,000 of term life insurance and
additional whole life insurance in a face
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<PAGE>
amount equal to the lesser of $500,000 or such amount of whole life insurance as
may be obtained for annual premiums of $5,000. Mr. Gamache is also entitled to
any cash surrender value with respect to the aforementioned whole life insurance
policy. WHGI may terminate the agreement without cause upon at least 90 days'
prior written notice. In such event, Mr. Gamache will receive an amount equal to
two years' base salary, payable one-half on the termination date and the balance
a year later. Mr. Gamache has the right to terminate his employment agreement by
providing the Company at least 90 days' notice. Upon receipt of such notice, the
Company has the right to terminate Mr. Gamache's employment at an earlier date
by providing Mr. Gamache notice thereof. In such event, Mr. Gamache will receive
one year's base salary, payable 25% upon termination and the balance to be paid
in equal installments commencing on the first customary payment date of the
Company occurring three months after the termination date. Mr. Gamache has
agreed not to engage in any competitive business with the Company in Puerto Rico
and the Caribbean during the term of his agreement and for one year thereafter.
Mr. Gamache has entered into an employment agreement with the Company
pursuant to which he will serve as President and Chief Operating Officer. The
term of this agreement coincides with the term of Mr. Gamache's employment
agreement with WHGI. Mr. Gamache is paid an annual salary of $50,000 for his
service to the Company. The agreement provides that Mr. Gamache will devote such
time to the business of the Company that is reasonable to perform his duties
thereunder.
Richard F. Johnson. Mr. Richard F. Johnson is employed as Senior Vice
President and Chief Financial Officer of WHGI pursuant to an employment
agreement which commenced March 1, 1997 and terminates February 28, 1999, which
term may be extended by mutual agreement on a year-to-year basis. The agreement
provides for a minimum annual base salary of $185,000. Additionally, Mr. Johnson
is entitled to participate in any bonus, incentive and salary deferment plans
generally available to senior executives of WHGI. He is also entitled to
participate, to the extent he is eligible, in any health, medical, disability
and life insurance plans generally available to executives of WHGI. Upon 10
days' notice, WHGI may terminate Mr. Johnson for cause (as defined in the
agreement). In the event the current owners of WHGI cease to own 50% of WHGI,
Mr. Johnson may terminate his employment and WHGI will be obligated to pay his
base salary and to provide health and life insurance benefits from the date of
termination until the earlier of: (i) the expiration of the term of the
agreement; (ii) one year after the date of the change of ownership; or (iii) the
date Mr. Johnson begins other employment, provided that if Mr. Johnson's
compensation level at such new employment is less than his base salary at WHGI,
then WHGI will pay Mr. Johnson the difference thereof until the earlier to occur
of (i) or (ii) above. If a change in ownership occurs, WHGI may terminate Mr.
Johnson's employment and pay him severance equal to one year's base salary.
Under certain other circumstances, WHGI will be obligated to pay Mr. Johnson
severance equal to six month's base salary. WHGI also paid Mr. Johnson certain
other amounts in connection with his relocation to Puerto Rico. Mr. Johnson is
also Chief Financial Officer and Treasurer of the Company.
STOCK OPTION PLAN
In March 1997, the Company adopted a Stock Option Plan (the 'Plan'). The
summary of the Plan set forth below is qualified in its entirety by reference to
the full text of the Plan.
The Plan provides for the grant of options to purchase up to 900,000 shares
of Common Stock, subject to the terms and conditions of the Plan. The Plan is
intended to provide a method pursuant to which officers, directors, employees
and certain consultants and advisers to the Company and its subsidiaries may be
encouraged to acquire a proprietary interest in the Company and potentially
realize benefits from an increase in the value of Common Stock, to encourage and
provide such persons with greater incentive for their continued service to the
Company and generally to promote the interests of the Company and its
stockholders. Each of the persons identified in the Summary Compensation Table
above and all executive officers and directors of the Company are eligible to
participate in the Plan. The principal terms and conditions of the Plan are
summarized below.
Administration of the Plan. The Plan is administered by the Compensation
Committee (the 'Committee') of the Board consisting of two or more persons who
are appointed by, and serve at the pleasure of, the Board and each of whom is a
'non-employee director' as that term is defined in Rule 16b-3 of the General
Rules and Regulations under the Exchange Act. Subject to the express provisions
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of the Plan, the Committee has the sole discretion to determine to whom among
those eligible, and the time or times at which, options will be granted, the
number of shares to be subject to each option, the manner in and price at which
options may be exercised and whether stock appreciation rights are associated
with such options. In making such determinations, the Committee may take into
account the nature and period of service of eligible employees, their level of
compensation, their past, present and potential contributions to the Company and
such other factors as the Committee in its discretion deems relevant. Options
are designated at the time of grant as either 'incentive stock options' intended
to qualify under of the Code or 'non-qualified stock options' which do not so
qualify.
The Committee may amend, suspend or terminate the Plan at any time, except
that no amendment may be adopted without the approval of stockholders which
would: (i) materially increase the maximum number of shares which may be issued
pursuant to the exercise of options granted under the Plan; (ii) materially
modify the eligibility requirements for participation in the Plan; or (iii)
materially increase the benefits provided under the Plan to the extent that
stockholder approval would then be required pursuant to Rule 16b-3 under the
Exchange Act.
Unless the Plan is terminated earlier by the Board, the Plan will terminate
on March 19, 2007.
Shares Subject to the Plan. Subject to adjustments resulting from changes
in capitalization, no more than 900,000 shares of Common Stock may be issued
pursuant to the exercise of options granted under the Plan. If any option
expires or terminates for any reason, without having been exercised in full, the
unpurchased shares subject to such option will be available again for purposes
of the Plan. No employee may receive options in any calendar year to purchase
more than 500,000 shares.
The total number of shares of Common Stock that may be allocated pursuant
to options granted under the Plan or that may be allocated to any one employee,
the number of shares subject to outstanding options and stock appreciation
rights, the exercise price for such options and other terms and conditions of
options may be equitably adjusted by the Committee in the event of changes in
the Company's capital structure resulting from certain corporate transactions,
including a dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares or other securities of the Company
or other corporate transaction, including a change of control or similar event.
In addition, if the Company is involved in a merger, consolidation, acquisition,
separation, reorganization, liquidation or other similar corporate transaction,
the options granted under the Plan will be adjusted, assumed, or, under certain
conditions, will terminate, subject to the right of the option holder to
exercise his option or a comparable option substituted at the discretion of the
Company prior to such event. An incentive stock option may not be transferred
other than by will or by laws of descent and distribution, and during the
lifetime of the option holder may be exercised only by such holder. The
Committee may permit non-qualified stock options to be transferrable under
certain circumstances.
Participation. The Committee is authorized to grant incentive stock options
from time to time to such employees of the Company or its subsidiaries, as the
Committee, in its sole discretion, may determine. Employees and directors of the
Company or its subsidiaries and consultants and advisers providing services to
the Company or its subsidiaries are eligible to receive non-qualified stock
options under the Plan.
Option Price. The exercise price of each option is determined by the
Committee, but may not, in any case, be less than 85% of the fair market value
of the shares of Common Stock on the date of grant or, in the case of incentive
stock options, be less than 100% of the fair market value of the shares of
Common Stock on the date of grant. If an incentive stock option is to be granted
to an employee who owns over 10% of the total combined voting power of all
classes of the Company's stock, then the exercise price may not be less than
110% of the fair market value of the Common Stock covered by the incentive stock
option on the date the option is granted.
Acquisition of Shares. In order to assist an optionee in the acquisition of
shares of Common Stock pursuant to the exercise of an option granted under the
Plan, the Committee may authorize (i) the extension of a loan to the optionee by
the Company, (ii) the payment by the optionee of the purchase price of Common
Stock in installments or (iii) the guarantee by the Company of a loan obtained
by the optionee from a third party. Such loans, installment payments or
guarantees may be authorized without
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security and, in the case of incentive stock options, the rate of interest may
not be less than the higher of the prime rate of a commercial bank of recognized
standing or the rate of interest imputed under Section 483 of the Code.
Terms of Options. The Committee has the discretion to fix the term of each
option granted under the Plan, except that the maximum length of the term of
each option is 10 years, subject to earlier termination as provided in the Plan
(five years in the case of incentive stock options granted to an employee who
owns over 10% of the total combined voting power of all classes of the Company's
stock).
Federal Income Tax Consequences of Non-Qualified Stock Options. An
individual who is a United States taxpayer who is granted a non-qualified stock
option under the Plan will not realize any income for Federal income tax
purposes on the grant of an option. An option holder will realize ordinary
income for Federal income tax purposes on the exercise of an option, provided
the shares are not then subject to a substantial risk of forfeiture within the
meaning of Section 83 of the Code ('Risk of Forfeiture'), in an amount equal to
the excess, if any, of the fair market value of the shares of Common Stock on
the date of exercise over the exercise price thereof. If the shares are subject
to a Risk of Forfeiture on the date of exercise, the option holder will realize
ordinary income for the year in which the shares cease to be subject to a Risk
of Forfeiture in an amount equal to the excess, if any, of the fair market value
of the shares at the date they cease to be subject to a Risk of Forfeiture over
the exercise price, unless the option holder shall have made a timely election
under Section 83(b) of the Code to include in his income for the year of
exercise an amount equal to the excess of the fair market value of the shares of
Common Stock on the date of exercise over the exercise price. The amount
realized for tax purposes by an option holder by reason of the exercise of a
non-qualified stock option granted under the Plan is subject to withholding by
the Company and the Company is entitled to a deduction in an amount equal to the
income so realized by an option holder.
Provided that an individual who is a United States taxpayer satisfies
certain holding period requirements provided by the Code, such individual will
realize long-term capital gain or loss, as the case may be, if the shares issued
upon exercise of a non-qualified stock option are disposed of more than one year
after (i) the shares are transferred to the individual or (ii) if the shares
were subject to a Risk of Forfeiture on the date of exercise and a valid
election under Section 83(b) of the Code shall not have been made, the date as
of which the shares cease to be subject to a Risk of Forfeiture. The amount
recognized upon such disposition will be the difference between the option
holder's basis in such shares and the amount realized upon such disposition.
Generally, an option holder's basis in the shares will be equal to the exercise
price plus the amount of income recognized upon exercise of the option.
Puerto Rico Income Tax Consequences of Non-Qualified Stock Options. Similar
to the situation in the United States, an individual who is a Puerto Rico
taxpayer who is granted a non-qualified stock option under the Plan will not
realize any income for Puerto Rico income tax purposes on the grant of an
option. An option holder will realize ordinary income for Puerto Rico income tax
purposes on the exercise of an option, provided the shares are not then subject
to a substantial risk of forfeiture, an amount equal to the excess, if any, of
the fair market value of the shares of Common Stock on the date of exercise over
the exercise price of the option. If the shares are subject to a substantial
risk of forfeiture on the date of exercise, the option holder will realize as
ordinary income for Puerto Rico tax purposes for the year in which the shares
cease to be subject to the risk of an amount equal to the excess of the fair
market value of the shares on the date they cease to be subject to such risk
over the option's exercise price. The Puerto Rico Internal Revenue Code of 1994
(the 'PR-Code') does not provide for an election similar to that provided under
Section 83(b) of the Code. The ordinary income realized by an option holder by
reason of the exercise of the option is subject to Puerto Rico income tax
withholding by the Company and the Company is entitled to a deduction in an
amount equal to the income realized by the option holder.
Upon disposition of the shares, an individual who is a Puerto Rico taxpayer
will be taxed on the excess, if any, of the amount received for the shares over
the option's exercise price plus the ordinary income realized by reason of the
exercise of the option. If the shares were held for more than six months, the
gain will be characterized as a long-term capital gain, which will be taxed at a
maximum
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rate of 20%. The gain on the sale of shares held for less than six months will
be taxed as ordinary income.
If the shares are disposed of at a loss, such loss may be used to offset
current capital gains plus up to $1,000 of ordinary income. The balance not
deducted in the year of the loss may be carried forward to the next five years.
Federal Income Tax Consequences of Incentive Stock Options. An incentive
stock option holder who meets the eligibility requirements of Section 422 of the
Code will not realize income for Federal income tax purposes, and the Company
will not be entitled to a deduction, on either the grant or the exercise of an
incentive stock option. If the incentive stock option holder does not dispose of
the shares acquired within two years after the date the incentive stock option
was granted to him or within one year after the transfer of the shares to him,
(i) any proceeds realized on a sale of such shares in excess of the option price
will be treated as long-term capital gain and (ii) the Company will not be
entitled to any deduction for Federal income tax purposes with respect to such
shares.
If an incentive stock option holder disposes of shares during the two-year
or one-year periods referred to above (a 'Disqualifying Disposition'), the
incentive stock option holder will not be entitled to the favorable tax
treatment afforded to incentive stock options under the Code. Instead, the
incentive stock option holder will realize ordinary income for Federal income
tax purposes in the year the Disqualifying Disposition is made, in an amount
equal to the excess, if any, of the fair market value of the shares of Common
Stock on the date of exercise over the exercise price.
An incentive stock option holder generally will recognize a long-term
capital gain or loss, as the case may be, if the Disqualifying Disposition is
made more than one year after the shares are transferred to the incentive stock
option holder. The amount of any such gain or loss will be equal to the
difference between the amount realized on the Disqualifying Disposition and the
sum of (x) the exercise price and (y) the ordinary income realized by the
incentive stock option holder as the result of the Disqualifying Disposition.
The Company will be allowed in the taxable year of a Disqualifying
Disposition a deduction in the same amount as the ordinary income recognized by
the incentive stock option holder.
Notwithstanding the foregoing, if the Disqualifying Disposition is made in
a transaction with respect to which a loss (if sustained) would be recognized to
the incentive stock option holder, then the amount of ordinary income required
to be recognized upon the Disqualifying Disposition will not exceed the amount
by which the amount realized from the disposition exceeds the exercise price.
Generally, a loss may be recognized if the transaction is not a 'wash' sale, a
gift or a sale between certain persons or entities classified under the Code as
'related persons'.
Puerto Rico Income Tax Consequences of Incentive Stock Options. An
incentive stock option holder who meets the eligibility requirements of Section
1046 of the PR-Code will not realize income for Puerto Rico income tax purposes,
and the Company will not be entitled to a deduction, on either the grant or the
exercise of an incentive stock option. Contrary to the Code, under the PR-Code
the exercise of an incentive stock option has no alternative minimum tax
considerations and there are no Disqualifying Disposition rules.
Upon disposition of the shares, the incentive stock option holder will be
taxed on the excess of the amount received for the shares over the option's
exercise price. Such gain will be considered as either a long-term capital gain
(subject to a 20% maximum Puerto Rico income tax rate) or a short-term capital
gain (subject to the ordinary income tax rates), depending on the holding period
of the shares.
If the shares are disposed of at a loss, such loss may be used to offset
current capital gains plus up to $1,000 of ordinary income. The balance not
deducted in the year of the loss may be carried forward to the next five years.
Alternative Minimum Tax. For purposes of computing the Federal alternative
minimum tax with respect to shares acquired pursuant to the exercise of
incentive stock options, the difference between the fair market value of the
shares on the date of exercise over the exercise price will be includible in
alternative minimum taxable income in the year of exercise if the shares are not
subject to a Risk of Forfeiture; if the shares are subject to a Risk of
Forfeiture, the amount includible in alternative
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minimum taxable income will be taken into account in the year the Risk of
Forfeiture ceases and will be the excess of the fair market value of the shares
at the date they cease to be subject to a Risk of Forfeiture over the exercise
price. The basis of the shares for alternative minimum tax purposes, generally,
will be an amount equal to the exercise price, increased by the amount of the
tax preference taken into account in computing the alternative minimum taxable
income. In general, the alternative minimum tax is the excess of 26% of
alternative minimum taxable income up to $175,000 and 28% of such income above
$175,000 over the regular income tax, in each case subject to various
adjustments and exemptions.
Deductions for Federal Income Tax Purposes. Pursuant to the Omnibus Budget
Reconciliation Act of 1993, the Company is not able to deduct compensation to
certain employees to the extent compensation exceeds $1.0 million per tax year.
Covered employees include the chief executive officer and the four other highest
paid senior executive officers of the Company for the tax year. Certain
performance-based compensation, including stock options, is exempt provided that
(i) the stock options are granted by a committee of the Board which is comprised
solely of two or more outside directors, (ii) the plan under which the options
are granted is approved by stockholders, and (iii) the plan states the maximum
number of shares with respect to which options may be granted during a specified
period to any employee. The Company believes that compensation related to
options granted under the Plan during the first 12 months following the
Distribution or after approval of the Plan by the Company's stockholders after
the Distribution Date will qualify for the exemption. The Company has made no
determination as to whether it will seek stockholder approval of the Plan.
Currently the Company does not have any employees earning in excess of $1.0
million.
RELATED PARTY TRANSACTIONS
On the Distribution Date, the Company entered into an agreement (the 'Put
and Call Agreement') with Mr. Louis J. Nicastro which provides that at any time
prior to December 31, 1999, the Company shall have the right to require (the
'Put Option') Mr. Nicastro to purchase 300,000 shares of Series B Preferred
Stock for an aggregate purchase price of $3,000,000. Mr. Nicastro will also have
the right to purchase (the 'Call Option') such 300,000 shares of Series B
Preferred Stock for an aggregate purchase price of $3,300,000 which right may
also be exercised prior to December 31, 1999 but only in the event that any
non-exempt person or entity or group of persons or entities acting in concert,
hereafter acquires or announces the intention to acquire beneficial ownership of
10% or more of the Common Stock. The Put and Call Agreement also provides that
so long as the Put Option and Call Option remain outstanding the Company will
not increase the number of or change, alter or otherwise impair the relative
rights, preferences or other provisions of the Series B Preferred Stock nor will
the Company except with the consent of two-thirds of the Board authorize the
issuance of or become bound to issue any shares of capital stock having voting
rights, other than the 12,000,000 authorized shares of Common Stock and such
limited voting rights as may be required by law. The Series B Preferred Stock
entitles the holder to five votes for each share of Series B Preferred Stock on
all matters to be voted upon by the holders of Common Stock including the
election of the Board, prohibits the issuance of any capital stock having voting
rights other than the 12,000,000 authorized shares of Common Stock (or such
greater number of shares of Common Stock or other voting stock as may have been
actually issued or which the Company may be bound to issue as of the date of
first issuance of shares of Series B Preferred Stock) and such limited voting
rights as may be required by law without the affirmative vote of holders of 70%
of the outstanding Series B Preferred Stock voting separately as a single class,
provides for cumulative quarterly dividends at the rate of prime plus one half
percent on the liquidation value of $3,000,000, is redeemable at the option of
the holder at any time commencing three years following the date of issuance or
earlier at any time that there shall exist two unpaid quarterly dividends and is
convertible into shares of Common Stock at a conversion price equal to the lower
of the closing price of Common Stock on the first day of trading of such Common
Stock (on a when-issued basis or otherwise) on the NYSE (which was $9.00) or the
closing price on the NYSE (or other recognized trading market for the Common
Stock) on the date immediately prior to the conversion date. Mr. Nicastro also
has registration rights with respect to any shares of Common Stock issued upon
conversion of the Series B Preferred Stock. See 'Description of the Company's
Capital Stock -- Series B Preferred Stock.' The Put Option and Call Option are
not transferable and terminate
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on the earlier to occur of December 31, 1999 or the death of Mr. Nicastro. The
Company believes that the Put Option will enable the Company to raise additional
capital quickly and inexpensively should such capital be needed. In addition,
the Call Option is intended to provide Mr. Nicastro a sufficient equity interest
in the Company to induce Mr. Nicastro to continue as Chairman and Chief
Executive Officer of WHGI following the Distribution so as to prevent the
premature imposition of super majority voting requirements at WHGI. See
'Relationship Between the Company and Its Subsidiaries and Affiliates.'
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by each person known by the Company to beneficially
own more than 5% of the outstanding Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP COMMON STOCK
- ------------------------------------------------------------------ ------------ -------------------
<S> <C> <C>
Sumner M. Redstone and ........................................... 1,729,425(1) 28.58%
National Amusements, Inc.
200 Elm Street
Dedham, MA 02026
FMR Corp. ........................................................ 698,163(2) 11.54%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ------------
(1) The number of shares reported is based upon information contained in the
Schedule 13D dated April 30, 1997 filed by the NAI Group with the
Commission. Pursuant to such Schedule, NAI and Mr. Redstone reported
beneficial ownership of and sole investment power with respect to 870,975
and 1,729,425 (including the 870,975 shares owned by NAI) shares,
respectively, of Common Stock and that Mr. Redstone is the beneficial owner
of 75% of the issued and outstanding shares of the capital stock of NAI.
(2) The number of shares reported is based upon information with respect to
ownership of WMS Common Stock contained in a Schedule 13G/A dated February
14, 1997 filed with the Commission by FMR Corp. Such information assumes
that no shares of Common Stock have been acquired or disposed of after the
Distribution. Pursuant to such Schedule, FMR Corp. reported that Fidelity
Management & Research Company, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, as amended, is the beneficial owner of 2,740,754 shares or
11.3% of WMS Common Stock (685,188 shares of Common Stock) as a result of
acting as investment adviser to various investment companies registered
under Section 8 of the Investment Company Act of 1940, as amended.
Additionally, pursuant to such Schedule, FMR Corp. reported that Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR Corp. and a bank
as defined in Section 3(a)(6) of the Exchange Act, is the beneficial owner
of 51,900 share or 0.2% of WMS Common Stock (12,975 shares of Common Stock)
as a result of its serving as investment manager of the institutional
account(s). FMR Corp. reported it has sole power to dispose of or direct the
disposition of all such shares and sole power to vote 51,900 of shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership as of June 13, 1997 of Common Stock by (i) each of the Company's
Directors and the Executive Officers including those identified on the Summary
Compensation Table above, and (ii) all of the Company's Directors and Executives
Officers as a group:
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF OUTSTANDING
BENEFICIAL OWNERSHIP COMPANY
NAME OF BENEFICIAL OWNER OF COMMON STOCK(1) COMMON STOCK(2)
- ------------------------------------------------------------ -------------------- ------------------
<S> <C> <C>
Louis J. Nicastro........................................... 151,158(3) 2.3%
George R. Baker............................................. 87,200(4) 1.3%
Brian R. Gamache............................................ 150,000(3) 2.3%
David M. Satz, Jr........................................... 21,000(5) *
Joseph A. Lamendella........................................ 20,025(5) *
Richard F. Johnson.......................................... 0 *
Barbara M. Norman........................................... 28,775(6) *
Directors and Executive Officers as a group (seven
persons).................................................. 458,158(7) 7.0%
</TABLE>
- ------------
* Less than one percent
(1) Pursuant to Rule 13d-3(d)(1) of the Exchange Act, shares underlying options
are deemed to be beneficially owned if the holder of the option has the
right to acquire beneficial ownership of such shares within 60 days.
(2) For purposes of calculating the percentage of shares of Common Stock owned
by each director or officer, shares beneficially owned and issuable upon the
exercise of his or her options exercisable within 60 days have been deemed
to be outstanding.
(3) Includes 150,000 shares which the reporting person has the right to acquire
pursuant to currently exercisable stock options.
(4) Includes 87,000 shares which the reporting person has the right to acquire
pursuant to currently exercisable stock options.
(5) Includes 20,000 shares which the reporting person has the right to acquire
pursuant to currently exercisable stock options.
(6) Includes 25,000 shares which the reporting person has the right to acquire
pursuant to currently exercisable stock options.
(7) Includes 452,000 shares which the reporting persons have the right to
acquire pursuant to currently exercisable stock options.
PURPOSES AND ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
The Certificate contains several provisions that will make difficult an
acquisition of control of the Company by means of a tender offer, open market
purchase, proxy fight or otherwise, that is not approved by the Board. The
Bylaws also contain provisions that could have an anti-takeover effect.
The purposes of the relevant provisions of the Certificate and Bylaws are
to discourage certain types of transactions, described below, which may involve
an actual or threatened change of control of the Company and to encourage
persons seeking to acquire control of the Company to consult first with the
Board to negotiate the terms of any proposed business combination or offer. The
provisions are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a take over that does not contemplate the acquisition
of all outstanding shares or is otherwise unfair to stockholders of the Company
or an unsolicited proposal for the restructuring or sale of all or part of the
Company. The Company believes that, as a general rule, such proposals would not
be in the best interests of the Company and its stockholders.
Certain provisions of the Certificate and Bylaws, in the view of the
Company, will help ensure that the Board, if confronted by a surprise proposal
from a third-party which has acquired a block of Common Stock, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interests of the
stockholders. In addition, certain other provisions of the Certificate are
designed to prevent a purchaser from utilizing two-tier pricing and similar
inequitable tactics in the event of an attempt to take over the Company.
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These provisions, individually and collectively, will make difficult and
may discourage a merger, tender offer or proxy fight, even if such transaction
or occurrence may be favorable to the interests of the stockholders, and may
delay or frustrate the assumption of control by a holder of a large block of
Common Stock and the removal of incumbent management, even if such removal might
be beneficial to the stockholders. Furthermore, these provisions could be
utilized to frustrate a future takeover attempt which is not approved by the
incumbent Board, but which the holders of a majority of the shares of Common
Stock may deem to be in their best interests or in which stockholders may
receive a substantial premium for their Common Stock over the then prevailing
market prices of such stock. By discouraging takeover attempts, these provisions
might have the incidental effect of inhibiting certain changes in management
(some or all of the members of which might be replaced in the course of a change
of control) and also the temporary fluctuations in the market price of the stock
which often result from actual or rumored takeover attempts.
Set forth below is a description of such provisions in the Certificate and
Bylaws. Such description is intended as a summary only and is qualified in its
entirety by reference to the Certificate and Bylaws.
THE CERTIFICATE AND BYLAWS
In general, the provisions of the Certificate (i) provide for a classified
board of directors from which directors may only be removed by the stockholders
for cause, (ii) limit the right of stockholders to amend the Bylaws, (iii) limit
the right of stockholders to call a special meeting of stockholders and
eliminate the right of stockholders to take action without a meeting, (iv)
establish an advance notice procedure regarding the nomination of directors by
stockholders and stockholder proposals to be brought before an annual meeting
and (v) authorize a class of preferred stock for which the Board has the power
to fix the voting powers, designations, preferences and relative, optional or
other special rights.
Classified Board of Directors. The Certificate provides for the Board to be
divided into three classes serving staggered terms so that directors' initial
terms will expire either at the 1998, 1999 or 2000 annual meeting of
stockholders. Starting with the 1998 annual meeting of Company stockholders, one
class of directors will be elected each year for three-year terms. See
'Management -- Board of Directors and Committees of the Board.' The
classification of directors makes it more difficult for a significant
stockholder to change the composition of the Board in a relatively short period
of time and, accordingly, provides the Board and stockholders time to review any
proposal that a significant stockholder may make and to pursue alternative
courses of action which are fair to all the stockholders of the Company. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board.
The classified board provisions could have the effect of discouraging a
third-party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its stockholders. The classified board provisions could thus increase the
likelihood that incumbent directors will retain their positions. In addition,
since the classified board provisions are designed to discourage accumulations
of large blocks of Common Stock by purchasers whose objective is to have such
stock repurchased by the Company at a premium, the classified board provisions
could tend to reduce the temporary fluctuations in the market price of Common
Stock that could be caused by accumulations of large blocks of such stock.
Accordingly, stockholders could be deprived of certain opportunities to sell
their stock at a temporarily higher market price.
Removal; Filling Vacancies. The Certificate provides that, subject to the
rights of holders of any series of preferred stock, only a majority of the Board
then in office or the sole remaining director shall have the authority to fill
any vacancies on the Board, including vacancies created by an increase in the
number of directors. Moreover, because the Certificate provides for a classified
board, the DGCL provides that the stockholders may remove a member of the Board
only for cause. The Certificate defines cause as being convicted of a felony by
a court of competent jurisdiction and such conviction is no longer subject to
direct appeal, or being adjudged to be liable for negligence or misconduct
in the performance of a director's duty to the Company by a court and such
adjudication is no longer subject to direct appeal. In addition, the Certificate
requires the affirmative vote of 80% of the outstanding
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Common Stock to remove a director for cause. These provisions relating to
removal and filling of vacancies on the Board will make it difficult for
stockholders to enlarge the Board or remove incumbent directors and filling the
vacancies with their own nominees.
Limitations on Stockholder Action by Written Consent; Special Meeting. The
Certificate provides that stockholder action can be taken only at an annual or
special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The Certificate and Bylaws provide that, subject
to the rights of holders of any series of preferred stock, special meetings of
stockholders can be called only by a majority of the entire Board or by the
President or Chairman of the Board. Stockholders are not permitted to call a
special meeting or to require that the Board call a special meeting of
stockholders. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting by
or at the direction of the Board. These provisions prohibit a significant
stockholder from proposing a stockholder vote at a special meeting on issues not
approved by the Board or from authorizing stockholder action without a meeting
at which all stockholders would be entitled to participate.
Nominations of Directors and Stockholder Proposals. The Bylaws and
Certificate establish an advance notice procedure with regard to the nomination
other than by or at the direction of the Board of candidates for election as
directors (the 'Nomination Procedure') and with regard to stockholder proposals
to be brought before an annual meeting of stockholders (the 'Business
Procedure'). The Nomination Procedure provides that only persons who are
nominated by or at the direction of the Board, or by a stockholder who has given
timely prior written notice to the Corporate Secretary of the Company prior to
the meeting at which directors are to be elected, will be eligible for election
as directors. The Business Procedure provides that stockholder proposals must be
submitted in writing in a timely manner in order to be considered at any annual
meeting. To be timely, notice for nominations or stockholder proposals must be
received by the Company not less than 60 days nor more than 90 days prior to the
annual meeting; provided, however, that in the event that less than 70 days
notice or prior public disclosure of the date of the annual meeting is given or
made to stockholders, notice by a stockholder, to be timely, must be received no
later than the close of business on the tenth day following the date on which
such notice of the date of the annual meeting was made or such public disclosure
was made, whichever first occurs.
Under the Nomination Procedure, notice to the Company from a stockholder
who proposes to nominate a person at a meeting for election as a director must
contain certain information about that person, including age, business and
residence addresses, principal occupation, the class and number of shares of
Common Stock beneficially owned, the consent of such person to be nominated and
such other information as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee, and certain
information about the stockholder proposing to nominate that person. Under the
Business Procedure, notice relating to a stockholder proposal must contain
certain information about such proposal and about the stockholder who proposes
to bring the proposal before the meeting.
The purpose of the Nomination Procedure is, by requiring advance notice of
nominations by stockholders, to afford the Board a meaningful opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board, to inform stockholders about such
qualifications. The purpose of the Business Procedure is, by requiring advance
notice of stockholder proposals, to provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Board, to provide the Board with a meaningful opportunity to
inform stockholders, prior to such meetings, of any proposal to be introduced at
such meetings, together with any recommendation or the Board's position or
belief as to action to be taken with respect to such proposal, so as to enable
stockholders better to determine whether they desire to attend such meeting or
grant a proxy to the Board as to the disposition of any such proposal. Although
the Bylaws do not give the Board any power to approve or disapprove stockholder
nominations for the election of directors or of any other proposal submitted by
stockholders, the Bylaws may have the effect of precluding a nomination for the
election of directors or precluding the conducting of business at a particular
stockholders meeting if the proper procedures are not followed, and may
discourage a third-party from conducting a solicitation of proxies to elect its
own
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slate of directors or otherwise attempting to obtain control of the Company,
even if the conduct of such solicitation or such attempt might be beneficial to
the Company and its stockholders.
The Certificate authorizes the issuance of up to 2,000,000 shares of
preferred stock, par value $.01 per share (the 'Preferred Stock'), and gives the
Board (without action by stockholders) the power to designate the number of
shares constituting any series, and to fix the voting powers, designations,
preferences and relative, optional or other special rights thereof, including
liquidation preferences and the dividend, conversion and redemption rights of
each such series. If the resolutions establishing the series so provide, holders
of any series of Preferred Stock may have the right to receive a liquidating
distribution before any distribution is made to holders of Common Stock upon
liquidation, and holders of Preferred Stock may be entitled to receive all
dividends to which they are entitled before any dividends may be paid to holders
of Common Stock. Holders of each series of Preferred Stock will have such voting
rights (which may include special rights regarding election of directors) as may
be provided in the resolutions establishing such series. The proposed Preferred
Stock will not be set aside for any specified purpose, but will be subject to
issuance at the discretion of the Board from time to time for any proper
corporate purposes and without any further stockholder approval. Any Preferred
Stock which is issued will rank senior to Common Stock.
In addition, a new class of Preferred Stock can be used to make more
difficult a change in control of the Company. Under certain circumstances the
Board could create impediments to, or frustrate persons seeking to effect, a
takeover or transfer of control of the Company by causing such shares to be
issued to a holder or holders who might side with the Board in opposing a
takeover bid that the Board determines is not in the best interests of the
Company and its stockholders. Such action may have an adverse impact on
stockholders who may want to accept such takeover bid. In this connection, the
Board could, publicly or privately, issue shares of Preferred Stock with full
voting rights to a holder that would thereby have sufficient voting power to
ensure that certain types of proposals (including any proposal to remove
directors, to accomplish certain business combinations opposed by the Board, or
to alter, amend or repeal provisions in the Certificate or Bylaws relating to
any such action) would not receive the requisite stockholder vote. Furthermore,
the existence of such shares might have the effect of discouraging any attempt
by a person or entity to acquire control of the Company since the issuance of
such shares could dilute the ownership of such person or entity. Other than the
Preferred Stock issuable pursuant to the Rights Agreement and the Series B
Preferred Stock, the Company is not contemplating the issuance of any Preferred
Stock which may make more difficult a change in control of the Company, nor is
the Company aware of any proposals to a possible change in control of the
Company.
STOCKHOLDER RIGHTS AGREEMENT
The following description of the Company's Rights Agreement is qualified in
its entirety by reference to the Rights Agreement.
The Rights Agreement provides that one Right will be issued with each share
of Common Stock issued (whether originally issued or from the Company's
treasury) prior to the Rights Distribution Date (as defined). The Rights are not
exercisable until the Rights Distribution Date and will expire at the close of
business on December 31, 2007 (the 'Final Expiration Date') unless previously
redeemed by the Company as described below. When exercisable, each right
entitles the owner to purchase from the Company one one-hundredth (.01) of a
share of the Company's Series A Preferred Stock at an exercise price of $100.00,
subject to certain antidilution adjustments. The Rights will not, however, be
exercisable, transferable separately or trade separately from the shares of
Common Stock, until (a) the tenth business day after the 'Stock Acquisition
Date' (i.e., the date of a public announcement that a person or group is an
'Acquiring Person') or (b) the tenth business day (or such later day as the
Board, with the concurrence of a majority of Continuing Directors, determines)
after a person or group announces a tender or exchange offer, which, if
consummated, would result in such person or group beneficially owning 15% or
more of the Common Stock (the earlier of such dates being the 'Rights
Distribution Date').
In general, any person or group of affiliated persons (other than the
Company, any of its subsidiaries, any person who as of the Distribution Date
beneficially owns 15% or more of the Common
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Stock, certain of the Company's benefit plans and any person or group of
affiliated persons whose acquisition of 15% or more is approved by the Board in
advance) who, after the date of adoption of the Rights Agreement, acquires
beneficial ownership of 15% or more of the Common Stock will be considered an
'Acquiring Person.'
If a person or group of affiliated persons becomes an Acquiring Person,
then each Right (other than Rights owned by such Acquiring Person and its
affiliates and associates, which will be null and void) will entitle the holder
thereof to purchase, for the exercise price, a number of shares of Common Stock
having a then current market value of twice the exercise price. Accordingly, at
the original exercise price, each Right would entitle its registered holder to
purchase $200.00 worth of Common Stock for $100.00.
If at any time after the Stock Acquisition Date, (a) the Company merges
into another entity, (b) an acquiring entity merges into the Company and the
Common Stock is changed into or exchanged for other securities or assets of the
acquiring entity or (c) the Company sells more than 50% of its assets or earning
power, then each Right will entitle the holder thereof to purchase, for the
exercise price, the number of shares of common stock of such other entity having
a current market value of twice the exercise price. The foregoing will not apply
to (i) a transaction approved by a majority of the Board (or from and after the
Stock Acquisition Date, a majority of the Continuing Directors) or (ii) a merger
which follows a cash tender offer approved by the Board (or after the Stock
Acquisition Date, a majority of the Continuing Directors) for all outstanding
shares of Common Stock so long as the consideration payable in the merger is the
same in form and not less than the amount as was paid in the tender offer. A
Continuing Director is a director in office prior to the distribution of the
Rights and any director recommended or approved for election by such directors
but does not include any representative of an Acquiring Person.
Subject to the limitations summarized below, the Rights are redeemable at
the Company's option, at any time prior to the earlier of the Stock Acquisition
Date or the Final Expiration Date, for $.01 per Right, payable in cash or shares
of Common Stock. Under certain circumstances, the decision to redeem requires
the concurrence of a majority of the Continuing Directors. In the event a
majority of the Board is changed by vote of the Company's stockholders, the
Rights shall not be redeemable for a period of 10 business days after the date
that the new directors so elected take office and it shall be a condition to
such redemption that any tender or exchange offer then outstanding be kept open
within such 10 business day period. At any time after any person becomes an
Acquiring Person, the Board may exchange the Rights (other than Rights owned by
the Acquiring Person and associates, which will be null and void), in whole or
in part, for Common Stock on the basis of an exchange ratio of one share of
Common Stock for each Right (subject to adjustment).
As long as the Rights are attached to the Common Stock, each share of
Common Stock issued by the Company will also evidence one Right. Until the
Rights Distribution Date, the Rights will be represented by Common Stock
certificates and will be transferred only with Common Stock certificates;
separate certificates representing the Rights will be mailed, however, to
holders of Common Stock as of the Rights Distribution Date. The holders of
Rights will not have any voting rights or be entitled to dividends until the
Rights are exercised.
The purchase price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution in the event of
certain stock dividends on, or subdivisions, combinations or reclassifications
of, the shares of Common Stock prior to the Rights Distribution Date, and in
certain other events.
The Board may amend the Rights Agreement prior to the Rights Distribution
Date. After the Rights Distribution Date, the Board may amend the Rights
Agreement only to cure ambiguities, to shorten or lengthen any time period
(subject to certain limitations) or if such amendment does not
adversely affect the interests of the Rights Holders and does not relate to any
principal economic term of the Rights.
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SERIES B PREFERRED STOCK
The Company is party to the Put and Call Agreement which provides that at
any time prior to December 31, 1999, the Company shall have the right to require
Mr. Nicastro to purchase 300,000 shares of Series B Preferred Stock for an
aggregate purchase price of $3,000,000. Mr. Nicastro will also have the right to
purchase such 300,000 shares of Series B Preferred Stock for an aggregate
purchase price of $3,300,000 which right may also be exercised prior to December
31, 1999 but only in the event that any non-exempt person or entity or group of
persons or entities acting in concert, hereafter acquires or announces the
intention to acquire beneficial ownership of 10% or more of the Common Stock.
The Put and Call Agreement also provides that the Company will not increase the
number of or change, alter or otherwise impair the relative rights, preferences
or other provisions of the Series B Preferred Stock so long as the Put Option
and Call Option remain outstanding. The Series B Preferred Stock entitles the
holder to five votes for each share of Series B Preferred Stock on all matters
to be voted upon by the holders of Common Stock including the election of the
Board, requires that the issuance of any capital stock having voting rights,
other than the 12,000,000 authorized shares of Common Stock (or such greater
number of shares of Common Stock or other voting stock as may have been actually
issued or which the Company may be bound to issue as of the date of first
issuance of shares of Series B Preferred Stock) and such limited voting rights
as may be required by law, be approved by the affirmative vote of the holders of
70% of the outstanding shares of Series B Preferred Stock, provides for
cumulative quarterly dividends at the rate of prime plus one half percent on the
liquidation value of $3,000,000, is redeemable at the liquidation value plus
accrued and unpaid dividends at the option of the holder at any time commencing
three years following the date of issuance or earlier at any time that there
shall be two unpaid quarterly dividends and is convertible into shares of Common
Stock at a conversion price equal to the lower of the closing price of Common
Stock on the first day of official trading of such Common Stock (on a
when-issued basis or otherwise) on the NYSE or the closing price on the date
immediately prior to the conversion date. The Put Option and Call Option are not
transferable and terminate on the earlier to occur of December 31, 1999 or the
death of Mr. Nicastro. The Company believes that the Put Option will enable the
Company to raise additional capital quickly and inexpensively should such
capital be needed. In addition, the Call Option is intended to provide Mr.
Nicastro a sufficient equity interest in the Company to induce Mr. Nicastro to
continue as Chairman and Chief Executive Officer of WHGI following the
Distribution so as to prevent the premature imposition of super majority voting
requirements at WHGI. See 'Relationship Between the Company and Its Subsidiaries
and Affiliates.'
The existence of the Call Option and the features of the Series B Preferred
Stock have the effect, based upon the number of outstanding shares of Common
Stock as of June 1, 1997, of permitting Mr. Nicastro to acquire approximately
19.9% of the outstanding voting rights of the Company in the event a person or
entity seeks to acquire 10% or more of the outstanding Common Stock. These
enhanced voting rights might render it more difficult for a person to seek
control of the Company even with the consent of the Board.
CERTAIN PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the DGCL prohibits a publicly-held Delaware
corporation from engaging in a broad range of 'business combinations' with an
'interested stockholder' (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) for three years following the time such
person became an interested stockholder unless: (i) before the person becomes an
interested stockholder, the transaction resulting in such person becoming an
interested stockholder or the business combination is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock of the corporation
(excluding shares owned by directors who are also officers of the corporation or
shares held by employee stock plans that do not provide employees with the right
to determine confidentially whether shares held subject to the
plan will be tendered in a tender offer or exchange offer); or (iii) at or
subsequent to such time the business combination is approved by the board of
directors and authorized at an annual or special
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meeting of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds of the outstanding voting stock excluding shares owned by
the interested stockholders.
Section 203 of the DGCL may discourage persons from making a tender offer
for or acquisitions of substantial amounts of Common Stock. This could have the
effect of inhibiting changes in management and may also prevent temporary
fluctuations in the market price of Common Stock that often result from takeover
attempts.
Section 228 of the DGCL allows any action which is required to be or may be
taken at a special or annual meeting of the stockholders of a corporation to be
taken without a meeting with the written consent of holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, provided that the certificate of incorporation
of such corporation does not contain a provision to the contrary. The
Certificate contains a provision eliminating this authority.
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 17,000,000 shares of
which (i) 12,000,000 shares are Common Stock, of which 6,050,200 shares,
constituting approximately 40% of the authorized Common Stock, are issued and
outstanding, (ii) 3,000,000 shares are Class A non-voting common stock, par
value $.01 per share (the 'Class A Common Stock'), none of which are outstanding
and (iii) 2,000,000 shares are Preferred Stock, none of which are outstanding,
although (a) a series of Series A Preferred Stock will be designated for
issuance in connection with the Rights Agreement between the Company and The
Bank of New York and (b) 300,000 shares have been designated for issuance as
Series B Preferred Stock in connection with the Put and Call Agreement.
PREFERRED STOCK
The Certificate provides that the Board is authorized to provide for the
issuance of shares of Preferred Stock, from time to time, in one or more series,
and to fix any voting powers, full or limited or none, and the designations,
preferences and relative, participating, optional or other special rights
applicable to the shares to be included in any such series and any
qualifications, limitations or restrictions thereon. No shares of Preferred
Stock of the Company are outstanding although a series of Series A Preferred
Stock will be designated for issuance in connection with the Rights Agreement
and a series of Series B Preferred Stock has been designated in connection with
the Put and Call Agreement. See 'Purposes and Anti-Takeover Effects of Certain
Provisions -- The Company Certificate and Bylaws' and ' -- Stockholder Rights
Agreement' and ' -- Series B Preferred Stock.'
SERIES B PREFERRED STOCK
The Company has designated 300,000 shares of Series B Preferred Stock
pursuant to the Put and Call Agreement. When issued, the Series B Preferred
Stock will have the following rights, preferences and designations:
Voting Rights. Each holder of Series B Preferred Stock will be
entitled to five votes for each share registered in his name on the books
of the Company on all matters submitted to a vote of stockholders and
except as otherwise provided by law or as further set forth herein, the
holders of Series B Preferred Stock will vote collectively with the holders
of Common Stock as one class. In addition, no shares of any class or series
of capital stock having any voting rights, other than the 12,000,000
authorized shares of Common Stock and as such voting rights may be
otherwise required by law, may be authorized or issued by the Company
without the affirmative vote of the holders of 70% of the outstanding
shares of Series B Preferred Stock voting separately as a single class and
the par value and the powers, preferences or special rights of the Series B
Preferred Stock may not be changed so as to adversely affect the Series B
Preferred Stock without the affirmative vote of the holders of 70% of the
outstanding shares of Series B Preferred Stock. See 'Purpose s and
Anti-Takeover Effects of Certain Provisions -- Series B Preferred Stock.'
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Dividend Rights. The Series B Preferred Stock shall be senior as to
dividends over the Common Stock, Class A Common Stock and Series A
Preferred Stock. Subject to the rights of the holders of any other shares
of the Preferred Stock which may at the time be outstanding and subject to
certain contractual restrictions on the payment of dividends contained in
any of the Company's future debt agreements, holders of Series B Preferred
Stock shall be entitled to cumulative quarterly dividends on the
liquidation value of the Series B Preferred Stock ($10.00 per share) at the
annual prime rate of Chase Bank plus one half percent. Unpaid dividends
shall also accrue dividends at the same rate. Dividends shall be paid on
the first day of January, April, July and October. At any time that there
shall exist two unpaid quarterly dividends, the holders of the Series B
Preferred Stock shall have the right to require the Company to redeem such
shares at the liquidation value plus all accrued and unpaid dividends. See
' -- Redemption Rights.'
Conversion Rights. Each share of Series B Preferred Stock may, at the
option of the holder, be converted into such number of shares of Common
Stock determined by dividing the sum of the liquidation value of such
shares and the cumulative unpaid dividends by the conversion price. The
conversion price shall be the lower of the closing price of the Common
Stock on its first day of official trading (on a when-issued basis or
otherwise) on the NYSE (which was $9.00) and the closing price on the NYSE
(or other recognized trading market for the Common Stock) at the close of
business on the business day immediately prior to the conversion date.
Redemption Rights. The holders of the Series B Preferred Stock shall
have the right to require the Company to redeem the shares of Series B
Preferred Stock at any time after the expiration of three years from the
date of issuance or earlier at any time that there shall exist two unpaid
quarterly dividends. The Series B Preferred Stock is to be redeemed at the
liquidation value plus all accrued and unpaid dividends.
Liquidation Rights. Subject to the prior rights of creditors and
holders of any shares of stock having senior rights on liquidation, but
before any amounts are paid to the holders of the Series A Preferred Stock,
the Common Stock or the Class A Common Stock, the holders of the Series B
Preferred Stock shall be entitled in the event of a liquidation,
dissolution or winding-up of the Company to a preference of $10.00 per
share of Series B Preferred Stock plus all accrued and unpaid dividends.
COMMON STOCK
Voting Rights. Each holder of Common Stock is entitled to one vote for each
share registered in his name on the books of the Company on all matters
submitted to a vote of stockholders. The holders of Common Stock vote as one
class, subject to the right of the holders of Series B Preferred Stock to vote
together with the holders of Common Stock and except as otherwise required by
law. The shares of Common Stock do not have cumulative voting rights. As a
result, the holders of Common Stock entitled to exercise more than 50% of the
voting rights in an election of directors are able to elect 100% of the
directors to be elected if they choose to do so. In such event, the holders of
the remaining shares of Common Stock voting for the election of directors will
not be able to elect any persons to the Board.
Dividend Rights. Subject to the rights of the holders of any shares of the
Preferred Stock which may at the time be outstanding and subject to certain
contractual restrictions on the payment of dividends contained in any of the
Company's future debt agreements, holders of Common Stock will be entitled to
such dividends as the Board may declare out of funds legally available therefor.
Because virtually all of the operations of the Company are conducted through
subsidiaries, some of which are wholly-owned, the Company's cash flow and
consequent ability to pay dividends on Common Stock are dependent to a
substantial degree upon the earnings of such subsidiaries and on dividends and
other payments therefrom. See 'Hotel Financings and Certain Contingent
Obligations.'
Liquidation Rights and Other Provisions. Subject to the prior rights of
creditors and the holders of any Preferred Stock which may be outstanding from
time to time, the holders of Common Stock are entitled in the event of
liquidation, dissolution or winding up to share pro rata in the distribution
of all remaining assets.
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Holders of Common Stock are not liable for any calls or assessments and the
Common Stock is not convertible into any other security. The Certificate
provides that the private property of the stockholders shall not be subject to
the payment of corporate debts. There are no redemption or sinking fund
provisions applicable to the Common Stock, and the Certificate provides that
there shall be no preemptive rights.
The transfer agent and registrar for Common Stock is The Bank of New York,
with an address at 101 Barclay Street, 12W, New York, New York 10286.
CLASS A COMMON STOCK
The Certificate provides that the Board is authorized to provide for the
issuance of shares of Class A Common Stock, from time to time, in one or more
series, and to fix the designations, conversion and redemption rights applicable
to the shares to be included in any such series and any qualifications,
limitations or restrictions thereon. No shares of Class A Common Stock are
outstanding and the Company currently has no plans to designate for issuance any
series of Class A Common Stock. When issued, the Class A Common Stock will have
equal rights to dividends and on liquidation with the Common Stock but will not
have voting rights, except as otherwise required by the DGCL.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 6,050,200 shares of Common Stock including the
1,729,425 Shares. Except for the Shares, substantially all of the Company's
outstanding Common Stock are freely tradeable without restriction under the Act.
The Shares, when sold by the NAI Group pursuant to this Prospectus, will also be
freely tradeable under the Act, unless purchased by 'affiliates' of the Company
as that term is defined in Rule 144 promulgated under the Act.
There are 900,000 shares of Common Stock reserved for issuance under the
Plan of which, as of June 10, 1997, 897,000 shares are subject to outstanding
options. Options with respect to 472,000 shares are currently exercisable and
the balance of the options covering 425,000 shares become exercisable in
installments commencing April 21, 1999. The Company intends to register the
shares subject to such options under the Act and such shares, when the options
are exercised, may be sold in the public market at any time thereafter, subject
to certain restrictions under Rule 144 with respect to shares held by affiliates
of the Company.
In the event that the 300,000 shares of Series B Preferred Stock are issued
as a result of the Put and Call Agreement, such shares of Series B Preferred
Stock may be converted into a minimum of 333,333 shares of Common Stock. Mr.
Nicastro has the right to have such shares registered under the Act in which
event such shares would be freely tradeable.
LEGAL MATTERS
The legality of the Common Stock covered by this Prospectus has been passed
upon for the Company by Shack & Siegel, P.C., New York, New York, counsel to the
Company. Stockholders of Shack & Siegel, P.C. hold options to purchase 20,000
shares of Common Stock under the Plan at an exercise price of $8.375 per share.
EXPERTS
The consolidated financial statements of the Company at June 30, 1996 and
1995, and for each of the three years in the period ended June 30, 1996, and the
financial statements of Posadas de San Juan Associates, WKA El Con Associates
and El Conquistador Partnership L.P., appearing in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
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WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WHG Resorts & Casinos Inc.
(formerly Williams Hotel Corporation)
<S> <C>
Report of Independent Auditors........................................................................ F-2
Consolidated Balance Sheets at March 31, 1997 and at June 30, 1996 and 1995........................... F-3
Consolidated Statements of Operations for Nine Months Ended March 31, 1997 and 1996 and for Years
Ended June 30, 1996, 1995 and 1994................................................................... F-4
Consolidated Statements of Cash Flows for Nine Months Ended March 31, 1997 and 1996 and for Years
Ended June 30, 1996, 1995 and 1994................................................................... F-5
Consolidated Statements of Changes in Shareholder's Equity for Years Ended June 30, 1996, 1995 and
1994................................................................................................. F-6
Notes to Consolidated Financial Statements............................................................ F-7
Posadas de San Juan Associates, a significant nonconsolidated affiliate of registrant
Report of Independent Auditors........................................................................ F-19
Balance Sheets at March 31, 1997 and at June 30, 1996 and 1995........................................ F-20
Statements of Operations and Deficit for Nine Months Ended March 31, 1997 and 1996 and for Years Ended
June 30, 1996, 1995 and 1994......................................................................... F-21
Statements of Cash Flows for Nine Months Ended March 31, 1997 and 1996 and for Years Ended June 30,
1996, 1995 and 1994.................................................................................. F-22
Notes to Financial Statements......................................................................... F-23
WKA El Con Associates, a significant nonconsolidated affiliate of registrant
Report of Independent Auditors........................................................................ F-28
Balance Sheets at March 31, 1997 and at June 30, 1996 and 1995........................................ F-29
Statements of Operations and Deficit for Nine Months Ended March 31, 1997 and 1996 and for Years Ended
June 30, 1996, 1995 and 1994......................................................................... F-30
Statements of Cash Flows for Nine Months Ended March 31, 1997 and 1996 and for Years Ended June 30,
1996, 1995 and 1994.................................................................................. F-31
Notes to Financial Statements......................................................................... F-32
El Conquistador Partnership L.P., a significant nonconsolidated affiliate of registrant
Report of Independent Auditors........................................................................ F-35
Balance Sheets at December 31, 1996 and at March 31, 1996 and 1995.................................... F-36
Statements of Operations and (Deficiency in) Partners' Capital for Nine Months Ended December 31, 1996
and 1995 and for Years Ended March 31, 1996, 1995 and 1994........................................... F-37
Statements of Cash Flows for Nine Months Ended December 31, 1996 and 1995 and for Years Ended March
31, 1996, 1995 and 1994.............................................................................. F-38
Notes to Financial Statements......................................................................... F-39
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholder and Board of Directors
WHG RESORTS & CASINOS INC.
We have audited the accompanying consolidated balance sheets of WHG Resorts
& Casinos Inc., formerly Williams Hotel Corporation, and subsidiaries as of June
30, 1996 and 1995, and the related consolidated statements of operations, cash
flows and shareholder's equity for each of the three years in the period ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
WHG Resorts & Casinos Inc. and subsidiaries at June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 21, 1997
F-2
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
--------- --------------------
1997 1996 1995
--------- -------- --------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 10,870 $ 6,616 $ 3,627
Receivables, net of allowances of $548, $475 in 1996 and $399 in 1995... 5,248 2,534 4,333
Receivables from nonconsolidated affiliates............................. 702 608 3,376
Inventories............................................................. 574 651 804
Other current assets.................................................... 851 689 946
--------- -------- --------
Total current assets............................................... 18,245 11,098 13,086
Investments in, receivables and advances to nonconsolidated affiliates....... 28,099 27,126 26,320
Property and equipment, net.................................................. 43,153 44,919 48,660
Land held as investment...................................................... 5,095 5,095 5,095
Excess of purchase cost over amount assigned to net assets acquired, net of
accumulated amortization of $3,640, $3,340 in 1996 and $2,939 in 1995...... 8,809 9,109 9,510
Deferred income taxes........................................................ -- -- 948
Other assets................................................................. 6,445 7,387 7,687
--------- -------- --------
$ 109,846 $104,734 $111,306
--------- -------- --------
--------- -------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................................ $ 3,785 $ 3,297 $ 3,581
Accrued compensation and related benefits............................... 2,536 2,128 1,833
Other accrued liabilities............................................... 3,558 2,721 2,744
Dividend payable on preferred stock of Condado Plaza.................... 246 94 557
Notes payable........................................................... 1,000 2,000 2,000
Current maturities of long-term debt.................................... 3,482 3,299 3,813
--------- -------- --------
Total current liabilities.......................................... 14,607 13,539 14,528
Long-term debt, less current maturities...................................... 20,310 23,555 26,928
Deferred income taxes........................................................ 2,156 2,291 --
Other noncurrent liabilities................................................. 4,926 4,542 4,252
Payable to WMS Industries Inc. .............................................. 161 397 6,672
Minority interests........................................................... 21,590 18,810 16,363
Preferred stock of Condado Plaza held by WMS Industries Inc. ................ 4,100 4,100 7,500
Shareholder's equity:
Common stock............................................................ 1 1 1
Additional paid-in capital.............................................. 3,849 3,849 3,849
Retained earnings....................................................... 38,146 33,650 31,213
--------- -------- --------
Total shareholder's equity.................................... 41,996 37,500 35,063
--------- -------- --------
$ 109,846 $104,734 $111,306
--------- -------- --------
--------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEARS ENDED JUNE 30,
-------------------- -----------------------------
1997 1996 1996 1995 1994
-------- -------- ------- ------- -------
(UNAUDITED)(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Williams Hospitality management fees from
nonconsolidated affiliates......................... $10,440 $10,177 $13,372 $13,348 $12,880
Condado Plaza hotel/casino:
Casino.......................................... 17,196 17,485 22,438 24,584 29,560
Casino promotional allowances................... (5,773) (5,655) (6,986) (6,872) (8,379)
Rooms........................................... 19,472 19,614 25,477 25,210 26,183
Food and beverages.............................. 8,121 8,469 11,478 11,412 11,713
Other........................................... 2,190 2,216 2,915 3,196 3,523
-------- -------- ------- ------- -------
41,206 42,129 55,322 57,530 62,600
-------- -------- ------- ------- -------
Total revenues............................. 51,646 52,306 68,694 70,878 75,480
Costs and expenses:
Williams Hospitality operating expenses (excl.
depreciation)...................................... 2,828 2,903 3,882 5,175 5,724
Condado Plaza operating expenses (excl.
depreciation):
Casino.......................................... 8,332 9,011 12,375 13,737 14,612
Rooms........................................... 5,708 6,599 8,593 9,081 8,969
Food and beverages.............................. 6,760 7,528 10,088 10,503 10,153
Other........................................... 3,638 4,025 5,281 6,463 5,909
-------- -------- ------- ------- -------
24,438 27,163 36,337 39,784 39,643
Selling and administrative........................... 6,940 7,115 9,487 12,301 10,877
Depreciation and amortization........................ 4,223 4,034 5,430 5,994 5,344
-------- -------- ------- ------- -------
Total costs and expenses................... 38,429 41,215 55,136 63,254 61,588
-------- -------- ------- ------- -------
Operating income.......................................... 13,217 11,091 13,558 7,624 13,892
Interest income, primarily from nonconsolidated
affiliates, and other income............................ 1,643 1,367 1,830 2,548 1,171
Interest expense.......................................... (2,489) (2,815) (3,689) (4,300) (4,722)
Equity in loss of nonconsolidated affiliates.............. (2,395) (3,915) (3,465) (7,003) (3,534)
-------- -------- ------- ------- -------
Income (loss) before tax provision and minority
interests............................................... 9,976 5,728 8,234 (1,131) 6,807
Credit (provision) for income taxes....................... (2,302) (710) (1,645) 234 7
Minority interests in income.............................. (2,932) (2,779) (3,636) (2,910) (4,597)
Dividend on preferred stock of Condado Plaza.............. (246) (422) (516) (557) --
-------- -------- ------- ------- -------
Net income (loss)......................................... $ 4,496 $ 1,817 $ 2,437 $(4,364) $ 2,217
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
Pro forma information reflecting income taxes on a
separate return basis (unaudited):
Income (loss) before tax provision and minority
interests.......................................... $ 9,976 $ 5,728 $ 8,234 $(1,131) $ 6,807
Provision for income taxes........................... (2,917) (2,076) (2,545) (1,902) (953)
Minority interests in income......................... (2,932) (2,779) (3,636) (2,910) (4,597)
Dividend on preferred stock of Condado Plaza......... (246) (422) (516) (557) --
-------- -------- ------- ------- -------
Net income (loss).................................... $ 3,881 $ 451 $ 1,537 $(6,500) $ 1,257
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEARS ENDED JUNE 30,
-------------------- -------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- ------- --------
(UNAUDITED) (THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)...................................... $ 4,496 $ 1,817 $ 2,437 $(4,364) $ 2,217
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................ 4,223 4,034 5,430 5,994 5,344
Provision for loss on receivables............ 141 970 1,457 1,842 1,840
Undistributed loss of nonconsolidated
affiliates................................ 2,395 3,915 3,465 7,003 3,534
Deferred income taxes........................ -- -- 3,239 (1,626) (963)
Minority interests........................... 2,932 2,779 3,636 2,910 4,597
Increase (decrease) resulting from changes in
operating assets and liabilities:
Receivables............................. (2,855) (961) 342 (541) (1,252)
Other current assets.................... 79 (174) 459 471 (283)
Accounts payable and accruals........... 1,732 848 (12) (1,152) 220
Net amounts due from nonconsolidated
affiliates........................... (3,291) (2,432) (1,931) (5,906) (5,526)
Other assets and liabilites not
reflected elsewhere.................. 348 575 (618) 218 (2,971)
-------- -------- -------- ------- --------
Net cash provided by operating activities.............. 10,200 11,371 17,904 4,849 6,757
Investing activities:
Purchase of property and equipment..................... (2,024) (808) (1,149) (2,066) (10,971)
Purchase of additional shares of subsidiaries.......... -- -- -- (3,925) (660)
Investments in and advances to nonconsolidated
affiliates.......................................... (186) -- -- (1,360) (3,473)
Collections from nonconsolidated affiliates............ -- 535 985 2,010 1,973
Purchase of land held for investment................... -- -- -- -- (5,095)
Other investing........................................ 712 -- -- -- (1,712)
-------- -------- -------- ------- --------
Net cash used by investing activities.................. (1,498) (273) (164) (5,341) (19,938)
Financing activities:
Payment of long-term debt and notes payable............ (4,062) (3,670) (3,887) (4,568) (4,674)
Proceeds from long-term debt........................... -- -- -- -- 4,664
Net intercompany transactions with WMS Industries
Inc................................................. (235) (3,311) (6,275) 3,125 6,973
Purchase of preferred stock of Condado Plaza by WMS
Industries Inc...................................... -- -- -- 2,500 5,000
Redemption of preferred stock of Condado Plaza from WMS
Industries Inc...................................... -- (2,450) (3,400) -- --
Dividends paid to minority shareholders of
subsidiary.......................................... (151) (684) (1,189) (783) (2,108)
-------- -------- -------- ------- --------
Net cash (used) provided by financing activities....... (4,448) (10,115) (14,751) 274 9,855
-------- -------- -------- ------- --------
Increase (decrease) in cash and cash equivalents......... 4,254 983 2,989 (218) (3,326)
Cash and cash equivalents at beginning of period......... 6,616 3,627 3,627 3,845 7,171
-------- -------- -------- ------- --------
Cash and cash equivalents at end of period............... $10,870 $ 4,610 $ 6,616 $ 3,627 $ 3,845
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL RETAINED SHAREHOLDER'S
STOCK PAID-IN CAPITAL EARNINGS EQUITY
------ --------------- --------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Balance as of June 30, 1993................................. $ 1 $ 3,849 $33,360 $37,210
Net income.................................................. -- -- 2,217 2,217
------ ------- -------- --------
Balance as of June 30, 1994................................. 1 3,849 35,577 39,427
Net loss.................................................... -- -- (4,364) (4,364)
------ ------- -------- --------
Balance as of June 30, 1995................................. 1 3,849 31,213 35,063
Net income.................................................. -- -- 2,437 2,437
------ ------- -------- --------
Balance as of June 30, 1996................................. $ 1 $ 3,849 $33,650 $37,500
------ ------- -------- --------
------ ------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION AND COMPANY OPERATIONS
BASIS OF PRESENTATION
WMS Hotel Corporation is a wholly-owned subsidiary of Williams Hotel
Corporation ('WHC') which is a wholly-owned subsidiary of WMS Industries Inc.
('WMS'). WMS intends to merge WHC into WMS Hotel Corporation at which time the
predecessor financial statements of WMS Hotel Corporation will be those
appearing herein as WHC.
The consolidated financial statements of WHC reflect results of operations,
cash flows, financial position and changes in shareholder's equity and have been
prepared using the historical basis in the assets and liabilities and historical
results of operations of WHC and subsidiaries and affiliates.
The pro forma information reflecting income taxes on a separate return
basis (unaudited), included with the consolidated statements of operations,
reflects the provision for income taxes without the tax benefits allocated to
WHC from WMS for utilization of partnership losses in the WMS consolidated
Federal income tax return, see Note 6 -- Income Taxes. WHC presently does not
have income subject to Federal income tax that can be included in its
consolidated Federal income tax return along with the partnership losses to be
able to realize the tax benefits.
COMPANY OPERATIONS
WHC through its subsidiaries and affiliate owns, operates and manages two
of the leading hotels and casinos located in San Juan, Puerto Rico, and through
a second affiliate, the El Conquistador Hotel & Casino, a destination resort
complex in Las Croabas, Puerto Rico. WHC's holdings include: a 95% interest in
Posadas de Puerto Rico Associates, Incorporated, the owner of the Condado Plaza
Hotel & Casino ('Condado Plaza'); a 50% interest in Posadas de San Juan
Associates, a partnership which owns the El San Juan Hotel & Casino ('El San
Juan'); a 23.3% indirect interest in El Conquistador Partnership L.P. which owns
the El Conquistador Hotel and Casino; and a 62% interest in Williams Hospitality
Group Inc. ('Williams Hospitality'), the management company for the above hotels
and casinos.
WHC is a wholly owned subsidiary of WMS. On June 27, 1996, WMS announced
restructuring initiatives which include a planned spin-off of 100% of WMS Hotel
Corporation as the surviving corporation of the merger of WHC into WMS Hotel
Corporation that will create a new independent public corporation. WMS plans to
distribute all of its interest in WHC (the 'Distribution') to its shareholders,
subject to certain conditions.
INTERIM INFORMATION (UNAUDITED)
The consolidated interim financial statements as of and for the nine months
ended March 31, 1997 and 1996 included herein are unaudited. Such information
reflects all adjustments, consisting solely of normal recurring adjustments,
which are in the opinion of management necessary for a fair presentation of the
consolidated balance sheet as of March 31, 1997 and the consolidated results of
operations and cash flows for the nine months ended March 31, 1997 and 1996. Due
to the seasonality of the businesses, operating results for the nine month
period ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ended June 30, 1997. Certain information and
disclosures normally included in annual financial statements in accordance with
generally accepted accounting principles have been excluded or omitted in
presentation of the consolidated interim financial statements.
F-7
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: PRINCIPAL ACCOUNTING POLICIES
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of WHC and its
majority-owned subsidiaries (the 'Company'). All significant intercompany
accounts and transactions have been eliminated. Investments in companies that
are 20% to 50% owned are accounted for by the equity method. WHC records its
equity in the results of operations of El Conquistador Partnership L.P. on that
partnership's fiscal year end of March 31.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
INVENTORIES
Inventories, which consist mainly of food, beverages and supplies, are
valued at the lower of cost (determined by the first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated by the
straight-line method over their estimated useful lives.
EXCESS OF PURCHASE COST OVER AMOUNT ASSIGNED TO NET ASSETS ACQUIRED (GOODWILL)
Goodwill arising from acquisitions is being amortized by the straight-line
method over 20 to 40 years.
CASINO REVENUES
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
CASINO PROMOTIONAL ALLOWANCES
Casino promotional allowances represent the retail value of complimentary
food, beverages and hotel services furnished to patrons, commissions and
transportation costs.
ADVERTISING EXPENSE
The cost of advertising is charged to earnings as incurred and for fiscal
1996, 1995 and 1994 was $988,000, $1,103,000 and $922,000, respectively.
F-8
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board ('FASB') issued Statement
on Financial Accounting Standards ('SFAS') No. 121, 'Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of'
which the Company must adopt in fiscal 1997. SFAS 121 standardizes the
accounting practices for recognition and measurement of impairment losses on
certain long-lived assets. The Company anticipates the adoption of this standard
will have no material impact on the consolidated financial statements.
NOTE 3: ACQUISITIONS
In January 1994, the Company acquired 1% of Williams Hospitality increasing
its interest from 56% to 57%. In July 1994 the Company acquired 5% of Williams
Hospitality increasing its interest from 57% to 62%. In July 1994 the Company
acquired 2.5% of Posadas de Puerto Rico Associates, Incorporated increasing its
interest from 92.5% to 95%.
NOTE 4: INVESTMENTS IN NONCONSOLIDATED AFFILIATES
Investments in nonconsolidated affiliates consist of a 50% interest in
Posadas de San Juan Associates, a partnership ('PSJA'); a 23.3% indirect
interest in El Conquistador Partnership L.P. ('El Conquistador') through a 46.5%
interest in WKA El Con Associates, a partnership ('WKA El Con').
Current receivables from nonconsolidated affiliates at June 30 were:
<TABLE>
<CAPTION>
1996 1995
---- ------
(IN THOUSANDS)
<S> <C> <C>
PSJA................................................................................... $ 61 $ --
WKA El Con............................................................................. 64 1,130
El Conquistador........................................................................ 483 2,029
Las Casitas............................................................................ -- 217
---- ------
$608 $3,376
---- ------
---- ------
</TABLE>
Investments in and noncurrent receivables and advances to nonconsolidated
affiliates at June 30 were:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Investments:
PSJA......................................................................... $(7,678) $(6,999)
WKA El Con................................................................... (612) 1,566
Receivables and advances:
PSJA......................................................................... 23,148 21,263
WKA El Con................................................................... 4,556 4,547
El Conquistador.............................................................. 7,712 5,943
------- -------
$27,126 $26,320
------- -------
------- -------
</TABLE>
PSJA operates as a partnership, therefore, 50% of its accumulated deficit
is recorded as an investment. Summarized financial data for PSJA financial
position at June 30, 1996 and 1995 and PSJA
F-9
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results of operations for fiscal 1996, 1995 and 1994 and the nine months ended
March 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1996 1995 1994
--------- --------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets........................................... $ 6,558 $ 7,745
Noncurrent assets........................................ 35,198 35,929
-------- --------
Total assets............................................. $ 41,756 $ 43,674
-------- --------
-------- --------
Payable to affiliates.................................... $ 61 $ --
Other current liabilities................................ 10,101 9,935
-------- --------
Total current liabilities................................ 10,162 9,935
Noncurrent payable to affiliates......................... 23,148 21,263
Other noncurrent liabilities............................. 23,803 26,474
-------- --------
Total noncurrent liabilities............................. 46,951 47,737
Partners' capital deficiency............................. (15,357) (13,998)
-------- --------
Total liabilities and partners' capital deficiency....... $ 41,756 $ 43,674
-------- --------
-------- --------
Revenues................................................. $39,685 $38,455 $ 50,124 $ 51,797 $ 55,923
Management fees and interest payable to Williams
Hospitality............................................ 4,140 3,707 4,738 4,691 5,041
Other costs and expenses................................. 33,441 35,312 46,746 49,507 53,330
--------- --------- -------- -------- --------
Net (loss)............................................... $ 2,104 $ (564) $ (1,360) $ (2,401) $ (2,448)
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
</TABLE>
The Company has a 46.5% interest in WKA El Con which has a 50% interest in
El Conquistador. Summarized financial data for WKA El Con financial position at
June 30, 1996 and 1995 and WKA El Con results of operations for fiscal 1996,
1995 and 1994 and the nine months ended March 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1996 1995 1994
--------- --------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans receivable from El Conquistador................... $ 16,116 $ 14,043
Investment in El Conquistador, net...................... (7,763) (1,642)
Other assets, net....................................... 3,566 5,024
-------- --------
Total assets............................................ $ 11,919 $ 17,425
-------- --------
-------- --------
Current payable to Williams Hospitality................. $ 64 $ 1,130
Other payables.......................................... -- 683
Long-term note payable including interest............... 5,197 4,797
Long-term notes payable to partners including
interest.............................................. 9,791 9,258
Partners' (capital deficiency) equity................... (3,133) 1,557
-------- --------
Total liabilities and partners' capital deficiency...... $ 11,919 $ 17,425
-------- --------
-------- --------
Net operating expenses.................................. $ (1) $ (155) $ (178) $ (356) $ (239)
Equity in net loss of El Conquistador to March 31 for
fiscal years and to December 31 for nine months ended
March 31.............................................. (7,405) (7,964) (6,120) (13,739) (5,024)
Equity in income of Las Casitas......................... -- 313 313 1,627 297
--------- --------- -------- -------- --------
Net (loss).............................................. $(7,406) $(7,806) $ (5,985) $(12,468) $ (4,966)
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
</TABLE>
F-10
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The WKA El Con long-term note payable including interest is collateralized
by a pledge of a second mortgage on land owned by the Company that cost
$3,761,000 and a WMS guarantee of $1,000,000 as to which WHC will indemnify WMS
in the event of any payments made on the guarantee. The other partners of WKA El
Con have pledged cash and a subsidiaries stock, in proportion to their interests
in WKA El Con, to WHC to be used in the event the guarantee is drawn on.
El Conquistador is a destination resort and casino which began operations
in November 1993. Summarized financial data for El Conquistador financial
position at March 31, 1996 and 1995 (the partnership's fiscal year end) and El
Conquistador results of operations for fiscal years ended March 31, 1996 and
1995 and five months ended March 31, 1994 and the six months ended September 30,
1996 and 1995 were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995 1994
------------ ------------ --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets................................. $ 11,823 $ 15,316
Land, building and equipment, net.............. 190,463 195,989
Deferred debt issuance and pre-opening costs,
net.......................................... 8,587 12,696
Other assets................................... 818 1,190
--------- ---------
Total assets................................... $ 211,691 $ 225,191
--------- ---------
--------- ---------
Current liabilities............................ $ 23,281 $ 27,288
Long-term debt................................. 149,324 151,759
Long-term due to partners and affiliates....... 42,611 37,428
Partners' (capital deficiency) equity.......... (3,525) 8,716
--------- ---------
Total liabilities and capital deficiency....... $ 211,691 $ 225,191
--------- ---------
--------- ---------
Revenues....................................... $ 58,169 $ 56,286 $ 89,214 $ 84,743 $ 32,973
Management fees and interest payable to
Williams Hospitality......................... 3,406 3,170 5,820 3,874 1,425
Interest payable to partners................... 1,878 1,932 2,598 1,898 1,082
Other costs and expenses....................... 60,840 59,144 82,538 95,324 36,240
Depreciation and amortization.................. 6,856 7,967 10,499 11,124 4,274
------------ ------------ --------- --------- ---------
Net (loss)..................................... $(14,811) $(15,927) $ (12,241) $ (27,477) $ (10,048)
------------ ------------ --------- --------- ---------
------------ ------------ --------- --------- ---------
</TABLE>
At March 31, 1996 Williams Hospitality has pledged cash equivalents and
investments of $1,850,000 as collateral for certain financing made by El
Conquistador. In addition, at March 31, 1996 Williams Hospitality has provided
guarantees amounting to $3,600,000 in connection with leasing and other
financing transactions of El Conquistador.
Long-term debt of the El Conquistador of $120,000,000 is collateralized by
a letter of credit which terminates on March 9, 1998. Under the terms of the
loan agreement, such debt is required to be repaid on February 1, 1998 in the
event the letter of credit is not renewed or replaced prior to November 9, 1997.
The Company has engaged an investment banking firm to investigate obtaining an
alternative letter of credit or financing arrangement. If such an alternative is
not found, the Company's investment in, receivables from, advances to and
potential payments on guarantees for El Conquistador totaling $19,271,000 at
June 30, 1996 ($16,689,000 at December 31, 1996) may not be recoverable. For the
years ended June 30, 1996, 1995 and 1994, the Company accrued approximately
$5,395,000, $3,704,000 and $1,425,000, respectively, in management fee revenue
from El Conquistador. The Company also recorded equity in losses of El
Conquistador of $2,786,000, $5,803,000 and $2,311,000 in the years ending June
30, 1996, 1995 and 1994, respectively.
F-11
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consolidated retained earnings of the Company at June 30, 1996 is reduced
by $22,078,000 for the Company's ownership percentage in the accumulated deficit
of PSJA and WKA El Con which are accounted for under the equity method.
Interest earned by the Company from all the nonconsolidated affiliates for
the years ended June 30, 1996, 1995 and 1994 was $1,650,000, $1,373,000 and
$800,000, respectively.
NOTE 5: PROPERTY AND EQUIPMENT
At June 30 net property and equipment were:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................................... $ 7,535 $ 7,535
Buildings and improvements.............................................. 45,294 45,033
Furniture, fixtures and equipment....................................... 30,473 29,585
------- -------
83,302 82,153
Less accumulated depreciation........................................... (38,383) (33,493)
------- -------
Net property and equipment.............................................. $44,919 $48,660
------- -------
------- -------
</TABLE>
NOTE 6: INCOME TAXES
The Company's two operating subsidiaries and two nonconsolidated affiliates
operate under the provisions of the Puerto Rico Tourism Incentives Act of 1983
which provides a ten-year incentive grant. Major benefits include 90% exemption
from income taxes on income deemed to be derived from tourism operations. The
grant also provides a 90% exemption from municipal real and personal property
taxes for the first five years, decreasing to a 75% exemption thereafter. Income
deemed to be derived from casino operations are not covered by the grant. The
companies have made applications to operate under the provisions of the Puerto
Rico Tourism Development Act of 1993 which provides benefits similar to the 1983
Act. The applications are pending final approval.
The two operating subsidiaries, the Condado Plaza and Williams Hospitality
elect to file income tax returns under Section 936 of the United States Internal
Revenue Code which provides for total or, after 1994, partial exemption from
Federal income taxes on income from sources within Puerto Rico, if certain
conditions are met. The portion of taxes that can be exempt under Section 936 is
determined by the calculation of certain limits prescribed by Section 936. These
limits are either based on certain costs and expenses ('economic activity
method') or a fixed percentage as prescribed in Section 936 ('percentage
limitation method'). Corporations that operate under Section 936 cannot be
members of a consolidated Federal income tax return. The tax exemption under
Section 936 generally decreases each year until the benefits terminate in 2005.
The Condado Plaza elected the economic activity method which results in a
100% exemption from Federal income taxes. Williams Hospitality elected the
percentage limitation method which resulted in a Federal tax provision of
$1,741,000 in fiscal 1996 and $1,149,000 in fiscal 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income taxes in the consolidated Federal income tax
return of WMS and allocated to the Company.
F-12
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
at June 30 were:
<TABLE>
<CAPTION>
1996 1995
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset resulting from book over tax deductions for WKA EL
Con..................................................................... $ -- $2,553
Deferred tax liabilities resulting from:
Tax over book deductions of WKA El Con............................... 686 --
Tax over book deductions of PSJA..................................... 1,605 1,605
------- ------
Total deferred tax liabilities....................................... 2,291 1,605
------- ------
Net deferred tax (liability) asset........................................ $(2,291) $ 948
------- ------
------- ------
</TABLE>
The Company's provision for income taxes was calculated on a historical
basis. WHC and certain of its subsidiaries have been members of the WMS
consolidated Federal income tax return since their inception. Accordingly,
losses for Federal income tax purposes which were primarily generated by the
Company's equity in loss of nonconsolidated affiliates in the form of
partnership losses were utilized by WMS in its consolidated tax return and
resulted in tax benefits. The Company received the tax benefits of $4,139,000
and $510,000 for usage of such losses during the years ended June 30, 1996 and
1995, respectively.
Significant components of the credit (provision) for income taxes for the
years ended June 30, 1996, 1995 and 1994 were:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal:
Certain Puerto Rico corporate income subject to federal tax..... $(1,741) $(1,149) $--
U.S. subsidiaries -- primarily partnership losses of
nonconsolidated affiliates.................................... 4,139 510 (3)
------- ------- -----
Total federal........................................................ 2,398 (639) (3)
Puerto Rico.......................................................... (804) (753) (953)
------- ------- -----
Total current credit (provision)................................ 1,594 (1,392) (956)
Deferred -- federal, primarily from book to tax differences on partnership
losses.................................................................. (3,239) 1,626 963
------- ------- -----
Credit (provision) for income taxes....................................... $(1,645) $ 234 $ 7
------- ------- -----
------- ------- -----
</TABLE>
For financial reporting purposes, income (loss) before income tax credit
(provision) and minority interests is comprised of the following components for
the years ended June 30:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income tax credit (provision) and minority
interests:
Puerto Rico corporate income...................................... $11,487 $ 5,652 $10,307
U.S. subsidiaries -- primarily partnership losses of
nonconsolidated affiliates...................................... (3,253) (6,783) (3,500)
------- ------- -------
$ 8,234 $(1,131) $ 6,807
------- ------- -------
------- ------- -------
</TABLE>
F-13
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (credit) for income taxes differs from the amount computed
using the statutory federal income tax rate as follows for the years ended June
30:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal income tax at 35%........................................ $2,882 $ (395) $2,382
Puerto Rico corporate loss resulting in no tax benefit..................... 199 1,525 --
Puerto Rico corporate income taxed at lower rates.......................... (1,671) (1,602) (2,654)
Other, net................................................................. 235 238 265
------ ------ ------
$1,645 $ (234) $ (7)
------ ------ ------
------ ------ ------
</TABLE>
Undistributed earnings of the Puerto Rico subsidiaries that operate as
Section 936 corporations under Federal income tax regulations were approximately
$35,430,000 at June 30, 1996. Those earnings are considered indefinitely
reinvested and, accordingly, no provision for income or toll gate taxes has
been provided thereon. Upon distribution of those earnings in the form of
dividends the Company would be subject to U.S. income tax of approximately
$2,094,000 and toll gate withholding taxes of approximately $725,000.
WHC and WMS expect to enter into a tax sharing agreement, effective on the
distribution date, that provides for the rights and obligations of each company
regarding deficiencies and refunds, if any, relating to Federal and Puerto Rico
income taxes for tax years up to and including the tax year of the distribution.
During fiscal 1996, 1995 and 1994 income taxes paid to taxing authorities
were $2,289,000, $1,549,000 and $3,371,000, respectively.
NOTE 7: NOTES PAYABLE AND LONG-TERM DEBT
The Condado Plaza has a $2,000,000 bank line of credit which is payable on
demand with interest at the prime rate plus 1 percentage point, 9.25% and 9.75%
at June 30, 1996 and 1995, respectively. Borrowings under the line at both June
30, 1996 and 1995 were $2,000,000. The line of credit is collateralized by a
mortgage on the Condado Plaza property and accounts receivable.
Long-term debt at June 30 was:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Condado Plaza mortgage note, due in increasing annual amounts through 1999, 12%... $24,150 $26,150
Other............................................................................. 2,704 4,591
------- -------
26,854 30,741
Less current maturities........................................................... (3,299) (3,813)
------- -------
$23,555 $26,928
------- -------
------- -------
</TABLE>
Scheduled payments by fiscal year on long-term debt are as follows:
$3,299,000 in 1997; $3,662,000 in 1998 and $19,893,000 in 1999.
The amount of interest paid (excluding $204,000 capitalized in fiscal 1994)
during fiscal 1996, 1995 and 1994 was $3,679,000, $4,306,000 and $4,710,000,
respectively.
NOTE 8: AUTHORIZED SHARES
At June 30, 1996 the authorized common stock of WHC consists of 1,000
shares of no par value of which 100 shares were issued and outstanding. Prior to
the distribution, WHC intends to merge into
F-14
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WMS Hotel Corporation and in connection with such merger to authorize the
issuance of 15,000,000 shares of common stock, $.01 par value, and 3,000,000
shares of preferred stock. The authorized and unissued common stock of WMS Hotel
Corporation as the surviving corporation of such merger will include 3,000,000
non-voting shares. In connection with such merger WMS will receive in exchange
for its shares in the Company the appropriate numbers of shares of voting common
stock to be issued in the distribution. The preferred stock will be issuable in
series, and the relative rights and preferences and the number of shares in each
series are to be established by the Board of Directors. Prior to the
Distribution, 300,000 shares of Series B Preferred Stock will be designated and
reserved for issuance.
NOTE 9: STOCK OPTION PLAN
Under the proposed stock option plan WHC may grant both incentive stock
options and nonqualified options on shares of voting common stock through the
year 2007. Options may be granted on 900,000 shares of common stock to employees
and under certain conditions to non-employee directors. The stock option
committee has the authority to fix the terms and conditions upon which each
employee option is granted, but in no event shall the term exceed ten years or
be granted at less than 100% of the fair market value of the stock at the date
of grant in the case of incentive stock options and 85% of the fair market value
of the stock on the date of grant in the case of non-qualified stock options. No
stock options will be granted prior to the date of the distribution.
The Company intends to account for stock options for purposes of
determining net income in accordance with APB Opinion No. 25 'Accounting for
Stock Issued to Employees.' SFAS No. 123 regarding stock option plans permits
the use of APB No. 25 but requires the inclusion of certain pro forma
disclosures in the footnotes starting in fiscal 1997.
NOTE 10: CONCENTRATION OF CREDIT AND MARKET RISK AND FAIR VALUE DISCLOSURES OF
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentrations of credit and market risk consist primarily of cash equivalents
and accounts receivable. By policy, the Company places its cash equivalents only
in high credit quality securities and limits the amounts invested in any one
security. At June 30, 1996, accounts receivable are from hotel and casino guests
and travel agents located throughout North America and Latin America and because
of the number and geographic distribution, concentration is limited.
The estimated fair value of financial instruments at June 30, 1996 has been
determined by the Company, using available market information and valuation
methodologies considered to be appropriate. The amounts reported for cash
equivalents and current notes payable are considered to be a reasonable estimate
of their fair value.
At June 30, 1996 the $24,150,000 Condado Plaza 12% mortgage note payable is
estimated to have a fair value of $25,652,000 using discounted cash flow
analysis based on an estimated interest rate of 8.38%. The mortgage note is
subject to a substantial prepayment penalty based on interest rate differentials
plus a fixed percentage.
NOTE 11: LEASE COMMITMENTS
Operating leases relate principally to hotel facilities and equipment. A
portion of the Condado Plaza hotel facilities are leased from a partnership
owned by a minority shareholder of the Condado Plaza. The minority shareholder
lease extends through 2004 at an annual rent of $684,000 through 1998 with
periodic escalations thereafter to an annual rent of $827,000 in 2004. Rent
expense for fiscal 1996, 1995 and 1994 was $1,027,000, $1,077,000 and
$1,240,000, respectively (including $684,000, $684,000 and $668,000 paid in
fiscal 1996, 1995 and 1994, respectively, under the minority shareholder lease
at the
F-15
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condado Plaza). Total net future lease commitments for minimum rentals at June
30, 1997, 1998, 1999, 2000, 2001 and thereafter are $713,000, $713,000,
$764,000, $781,000, $781,000 and $2,261,000, respectively.
NOTE 12: TRANSACTIONS WITH WMS
The Company's two operating subsidiaries and two nonconsolidated affiliates
have each provided for its off-season cash needs through its own operating cash
and from individual short-term note arrangements. Plant and equipment additions
at each property has also generally been provided by its own cash from
operations or third party financing. Cash advances from WMS, for the periods
reported, have been used for investment purposes. A summary of advances and
repayments between WMS and the Company for the years ended June 30, 1996, 1995
and 1994 were:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Advances from (repayments to) WMS by use or source:
Land purchased for investment........................................ $ -- $ -- $5,095
Purchase of additional shares in subsidiaries........................ -- 3,738 660
Investment in and advances to (repayments from) WKA El Con........... (546) 157 1,416
Cash primarily generated from Williams Hospitality dividends......... (1,590) (260) (201)
Income tax benefits from partnership losses utilized by WMS -- see
Note 6............................................................. (4,139) (510) 3
------- ------ ------
$(6,275) $3,125 $6,973
------- ------ ------
------- ------ ------
</TABLE>
During fiscal 1995 and 1994 the Condado Plaza sold to WMS 50 shares and 100
shares, respectively, of 8% non-voting preferred stock with a liquidation
preference of $50,000 per share for $2,500,000 and $5,000,000, respectively.
During fiscal 1996 the Condado Plaza redeemed 68 of those preferred shares at
$50,000 per share for $3,400,000. At June 30, 1996, 82 of the preferred shares
are outstanding at $4,100,000.
NOTE 13: PENSION PLAN
Certain subsidiaries are required to make contributions on behalf of
unionized employees to defray part of the costs of the multi-employer pension
plans established by their respective labor unions. Such contributions are
computed using a fixed charge per employee. Contributions to the plans for
fiscal 1996, 1995 and 1994 were $340,000, $352,000 and $243,000, respectively.
F-16
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal 1996 Quarters:
Revenues............................................... $13,404 $ 17,452 $21,450 $ 16,388
------------- ------------ --------- --------
------------- ------------ --------- --------
Operating income (loss)................................ $ (226) $ 4,069 $ 7,248 $ 2,467
Interest expense, net.................................. (560) (493) (395) (411)
Equity in loss of nonconsolidated affiliates........... (2,087) (1,510) (318) 450
Credit (provision) for income taxes.................... 448 (153) (1,005) (935)
Minority interests..................................... (298) (896) (1,585) (857)
Dividend on preferred stock of subsidiary.............. (150) (146) (126) (94)
------------- ------------ --------- --------
Net income (loss)...................................... $(2,873) $ 871 $ 3,819 $ 620
------------- ------------ --------- --------
------------- ------------ --------- --------
Pro forma net income (loss) reflecting income taxes on
a separate return basis.............................. $(3,623) $ 361 $ 3,713 $ 1,086
------------- ------------ --------- --------
------------- ------------ --------- --------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal 1995 Quarters:
Revenues............................................... $15,501 $ 18,792 $20,741 $ 15,844
------------- ------------ --------- --------
------------- ------------ --------- --------
Operating income (loss)................................ $ (325) $ 3,154 $ 4,072 $ 723
Interest expense, net.................................. (745) (669) (709) 371
Equity in loss of nonconsolidated affiliates........... (2,074) (1,806) (2,392) (731)
Credit (provision) for income taxes.................... 524 34 (46) (278)
Minority interests..................................... (270) (790) (1,116) (734)
Dividend on preferred stock of subsidiary.............. (110) (147) (150) (150)
------------- ------------ --------- --------
Net income (loss)...................................... $(3,000) $ (224) $ (341) $ (799)
------------- ------------ --------- --------
------------- ------------ --------- --------
Pro forma net income (loss) reflecting income taxes on
a separate return basis.............................. $(3,702) $ (874) $(1,189) $ (735)
------------- ------------ --------- --------
------------- ------------ --------- --------
</TABLE>
For pro forma net income (loss), see Note 1 -- Basis of Presentation.
F-17
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
(FORMERLY WILLIAMS HOTEL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15: SEGMENT INFORMATION
The Company's operations are conducted through two industry segments: the
operation of the Condado Plaza and the management of hotel/casinos. Industry
segment information for the fiscal years ended June 30 follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Condado Plaza........................................................... $ 55,322 $ 57,530 $ 62,600
Williams Hospitality.................................................... 16,939 17,350 16,795
Intersegment revenues elimination -- Williams Hospitality fees charged
to Condado Plaza...................................................... (3,567) (4,002) (3,915)
-------- -------- --------
Total revenues..................................................... $ 68,694 $ 70,878 $ 75,480
-------- -------- --------
-------- -------- --------
Operating income (loss)
Condado Plaza........................................................... $ 2,830 $ (1,465) $ 4,473
Williams Hospitality.................................................... 10,837 9,174 9,472
General corporate administrative expenses............................... (109) (85) (53)
-------- -------- --------
Total operating income............................................. $ 13,558 $ 7,624 $ 13,892
-------- -------- --------
-------- -------- --------
Identifiable assets
Condado Plaza........................................................... $ 53,323 $ 57,879 $ 63,077
Williams Hospitality.................................................... 18,582 17,737 16,419
General investment and corporate........................................ 5,095 5,994 5,281
Investments in, receivables and advances to nonconsolidated
affiliates............................................................ 27,734 29,696 31,367
-------- -------- --------
Total identifiable assets.......................................... $104,734 $111,306 $116,144
-------- -------- --------
-------- -------- --------
Depreciation of property and equipment
Condado Plaza........................................................... $ 4,120 $ 4,656 $ 4,488
Williams Hospitality.................................................... 769 681 316
-------- -------- --------
Total depreciation of property and equipment....................... $ 4,889 $ 5,337 $ 4,804
-------- -------- --------
-------- -------- --------
Capital expenditures
Condado Plaza........................................................... $ 1,078 $ 2,030 $ 7,992
Williams Hospitality.................................................... 71 36 2,979
-------- -------- --------
Total capital expenditures......................................... $ 1,149 $ 2,066 $ 10,971
-------- -------- --------
-------- -------- --------
</TABLE>
F-18
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
POSADAS DE SAN JUAN ASSOCIATES
We have audited the accompanying balance sheets of Posadas de San Juan
Associates as of June 30, 1996 and 1995, and the related statements of
operations and deficit, and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Posadas de San Juan
Associates at June 30, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Juan, Puerto Rico
August 2, 1996
F-19
<PAGE>
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, --------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 2,912,100 $ 2,443,700 $ 1,524,300
Trade accounts receivable, less allowance for doubtful accounts
of $357,100 and $434,500 at June 30, 1996 and 1995,
respectively, and $842,900 at March 31, 1997................. 4,876,100 2,370,700 4,152,800
Due from affiliated companies:
El Conquistador Partnership L.P........................... -- -- 82,000
Posadas de Puerto Rico Associates, Incorporated........... -- -- 49,000
----------- ----------- -----------
-- -- 131,000
Inventories.................................................... 941,100 906,400 1,045,500
Prepaid expenses............................................... 701,600 837,100 891,600
----------- ----------- -----------
Total current assets...................................... 9,430,900 6,557,900 7,745,200
Land, building and equipment:
Land........................................................... 3,300,000 3,300,000 3,300,000
Building....................................................... 14,350,700 14,350,700 14,350,700
Building improvements.......................................... 12,807,700 12,439,600 11,828,100
Furniture, fixtures and equipment.............................. 36,626,500 33,814,000 32,324,100
----------- ----------- -----------
67,084,900 63,904,300 61,802,900
Less accumulated depreciation.................................. (32,502,700) 30,080,700 27,459,900
----------- ----------- -----------
34,582,200 33,823,600 34,343,000
Operating equipment, net............................................ 490,600 570,700 649,500
Deferred financing costs, less accumulated amortization of $530,900
and $388,100 at June 30,1996 and 1995, respectively, and $635,200
at March 31, 1997................................................. 429,200 533,500 676,300
Other assets........................................................ 180,800 270,500 260,000
----------- ----------- -----------
Total assets.............................................. $45,113,700 $41,756,200 $43,674,000
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND DEFICIENCY IN
PARTNERSHIP CAPITAL
Current liabilities:
Trade accounts payable......................................... $ 4,218,100 $ 4,039,900 $ 4,381,800
Accrued compensation and related benefits...................... 1,300,600 1,139,300 1,439,100
Other accrued liabilities...................................... 2,262,100 1,458,700 1,807,600
Due to affiliated companies.................................... 84,300 11,600 --
Note payable to bank........................................... 700,000 300,000 --
Current portion of long-term debt.............................. 3,152,000 3,152,000 2,306,400
----------- ----------- -----------
Total current liabilities................................. 11,717,100 10,101,500 9,934,900
Long-term debt, net of current portion.............................. 21,611,500 23,805,000 26,474,000
Due to Williams Hospitality Group Inc............................... 25,038,600 23,206,700 21,262,600
Deficiency in partnership capital:
Capital contribution........................................... 7,000,000 7,000,000 7,000,000
Deficit........................................................ (20,253,500) (22,357,000) (20,997,500)
----------- ----------- -----------
Total deficiency in partnership capital................... (13,253,500) (15,357,000) (13,997,500)
----------- ----------- -----------
Total liabilities and deficiency in partnership capital... $45,113,700 $41,756,200 $43,674,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-20
<PAGE>
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
--------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms......................... $ 17,200,300 $ 16,983,200 $ 22,016,700 $ 21,517,300 $ 21,517,300
Food and beverage............. 9,509,500 10,022,800 13,424,400 12,688,200 12,731,100
Casino........................ 15,877,300 14,606,600 18,117,600 22,575,400 31,834,800
Rental and other income....... 2,412,800 2,640,400 3,503,000 2,852,400 2,884,500
Less casino promotional
allowances.................. (5,314,000) (5,797,800) (6,937,900) (7,836,300) (13,045,200)
------------ ------------ ------------ ------------ ------------
Net revenues....................... 39,685,900 38,455,200 50,123,800 51,797,000 55,922,500
Costs and expenses:
Rooms......................... 5,073,900 5,201,800 6,891,000 6,775,000 7,388,000
Food and beverage............. 6,888,200 7,253,000 9,506,100 9,340,600 9,940,400
Casino........................ 7,404,100 7,963,100 10,716,800 14,027,100 16,112,400
Selling, general and
administrative.............. 6,648,000 6,835,600 9,094,000 8,953,700 9,623,300
Management and incentive
management fees............. 3,399,200 3,040,900 3,850,100 3,893,000 4,332,300
Property operation,
maintenance and energy
costs....................... 3,426,200 3,651,500 4,803,200 4,416,800 4,483,000
Depreciation and
amortization................ 2,553,300 2,776,800 3,595,300 3,617,300 3,423,600
------------ ------------ ------------ ------------ ------------
35,392,900 36,723,700 48,456,500 51,023,500 55,303,000
------------ ------------ ------------ ------------ ------------
Income from operations............. 4,293,000 1,731,500 1,667,300 773,500 619,500
Interest income.................... -- -- -- 2,500 1,000
Interest expense................... 2,189,500 2,295,600 (3,026,800) (3,176,800) (3,069,800)
------------ ------------ ------------ ------------ ------------
Net income (loss).................. 2,103,500 (564,100) (1,359,500) (2,400,800) (2,449,300)
Deficit at beginning of period..... (22,357,000) (20,997,500) (20,997,500) (18,596,700) (16,147,400)
------------ ------------ ------------ ------------ ------------
Deficit at end of period........... $(20,253,500) $(21,561,600) $(22,357,000) $(20,997,500) $(18,596,700)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes.
F-21
<PAGE>
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)............................ $ 2,103,500 $ (564,100) $(1,359,500) $(2,400,800) $(2,449,300)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization........... 2,553,300 2,776,800 3,595,300 3,617,300 3,423,600
Provision for losses on accounts
receivable........................... 157,800 1,047,700 1,278,200 3,880,400 4,442,000
Gain or sale of equipment............... -- (46,600) (46,600) -- --
Changes in operating assets and
liabilities:
Amounts due to/from affiliated
companies.......................... 1,729,200 1,891,500 2,086,700 639,600 2,166,200
Trade accounts receivable............ (2,640,400) (347,700) 503,900 833,200 (4,161,600)
Inventories and prepaid expenses..... 100,900 183,900 193,600 21,600 439,000
Other assets......................... 62,700 125,800 (10,500) (125,600) 591,500
Trade accounts payable, accrued
expenses and other accrued
liabilities........................ 1,120,400 (536,400) (990,600) (2,493,100) 267,600
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities.... 5,187,400 4,530,900 5,250,500 3,972,600 4,719,000
Investing activities
Proceeds from sale of equipment.............. -- 119,300 119,300 -- --
Purchases of property and equipment.......... (2,841,600) (2,273,000) (2,502,800) (3,310,000) (2,737,300)
Purchases of operating equipment -- net...... 80,100 92,500 78,800 635,900 (98,800)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities........ (2,761,500) (2,061,200) (2,304,700) (2,674,100) (2,836,100)
Financing activities
Proceeds from long-term debt and other....... -- -- -- 156,200 188,700
Proceeds from short-term borrowings, net..... 400,000 600,000 300,000 -- --
Payments of long-term debt................... (2,357,500) (1,540,600) (2,326,400) (2,046,800) (2,017,700)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities........ (1,957,500) (940,600) (2,026,400) (1,890,600) (1,829,000)
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash................ 468,400 1,529,100 919,400 (592,100) 53,900
Cash at beginning of period.................... 2,443,700 1,524,300 1,524,300 2,116,400 2,062,500
----------- ----------- ----------- ----------- -----------
Cash at end of period.......................... $ 2,912,100 $ 3,053,400 $ 2,443,700 $ 1,524,300 $ 2,116,400
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental cash flow information:
Interest paid............................. $ 3,031,400 $ 3,232,500 $ 3,005,800
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-22
<PAGE>
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. INTERIM INFORMATION (UNAUDITED)
The interim financial statements as of and for the nine months ended March
31, 1997 and 1996 included herein are unaudited. Such information reflects all
adjustments, consisting solely of normal recurring adjustments, which are in the
opinion of management necessary for a fair presentation of the balance sheet as
of March 31, 1997 and the results of operations and cash flows for the nine
months ended March 31, 1997 and 1996. Due to the seasonality of the business,
the reported results are not necessarily indicative of those expected for the
entire year. Certain information and disclosures normally included in annual
financial statements in accordance with generally accepted accounting principles
have been excluded or omitted in presentation of the interim financial
statements.
2. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
ORGANIZATION
Posadas de San Juan Associates (the 'Partnership'), is a joint venture
organized under the General Partnership Laws of the State of New York, pursuant
to a Joint Venture Agreement dated July 27, 1984, as amended (the 'Agreement').
The Partnership is 50% owned by ESJ Hotel Corporation, an indirect wholly-owned
subsidiary of WMS Industries Inc. ('WMS'), with the remainder owned by entities
owned by individual investors (collectively, the 'Partners'). The Partnership
shall continue to exist until July 27, 2024, unless terminated earlier by mutual
agreement of the Partners pursuant to the Agreement. The Agreement provides that
the net profits or losses of the Partnership shall be allocated to the Partners
in the same proportion as their capital contributions.
The Partnership owns and operates the El San Juan Hotel & Casino, a luxury
resort hotel and casino property in San Juan, Puerto Rico.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles which 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.
INVENTORIES
Inventories, which consist mainly of food, beverages and supplies, are
valued at the lower of cost (first-in, first-out method) or market.
LAND, BUILDING AND EQUIPMENT
Land, building and equipment are stated on the basis of cost. Building and
equipment are depreciated by the straight-line method over their estimated
useful lives.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized over the maturities of the
related debt.
CASINO REVENUES
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
F-23
<PAGE>
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROMOTIONAL ALLOWANCES
Casino promotional allowances represent the retail value of complimentary
food, beverage and hotel services furnished to patrons, commissions and
transportation costs.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Advertising costs
for fiscal years 1996 and 1995 amounted to approximately $1,394,000 and
$1,299,000, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of the
different classes of financial instruments were as follows:
Notes payable and long-term debt: The carrying amount of the short- and
long-term borrowings at June 30, 1996 approximates fair value. The fair
values were estimated using discounted cash flows, based on the current
borrowing rates for similar types of borrowing arrangements.
3. FURNITURE, FIXTURES AND EQUIPMENT FUND
In accordance with the terms of the Management Agreement and the Loan
Agreement the Partnership is required to deposit cash equal to 4% of hotel gross
revenue each month into a furniture, fixtures and equipment fund.
Williams Hospitality Group Inc. ('Williams Hospitality'), a hotel/casino
management company that is an affiliated company through common ownership, (on
behalf of the Partnership) withdraws from the fund amounts required to pay the
cost of replacements of, and additions to, furniture, fixtures and equipment at
the Hotel. At June 30, 1996 and 1995, there were no unexpended funds available.
4. TRADE ACCOUNTS RECEIVABLE
At June 30, 1996 and 1995 trade accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Trade accounts receivable -- casino............................... $1,045,100 $2,874,100
Less allowance for doubtful accounts.............................. 266,100 307,500
---------- ----------
779,000 2,566,600
Trade accounts receivable -- hotel................................ 1,682,700 1,713,200
Less allowance for doubtful accounts.............................. 91,000 127,000
---------- ----------
1,591,700 1,586,200
---------- ----------
$2,370,700 $4,152,800
---------- ----------
---------- ----------
</TABLE>
Approximately 31% and 76% of the trade accounts receivable -- casino, as of
June 30, 1996 and 1995, respectively, are from customers in Latin America.
5. DUE TO AFFILIATED COMPANY
Current amounts due to affiliated company consist of fees earned by
Williams Hospitality and other payments made by Williams Hospitality for
services rendered on behalf of the Partnership. At June 30, 1996 and 1995
noncurrent amounts due to an affiliated company consisted of the following:
F-24
<PAGE>
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Due to Williams Hospitality -- noncurrent:
Incentive management fees................................. $ 9,878,900 $ 8,881,300
Interest on incentive management fees..................... 4,526,800 3,580,300
Basic management fees..................................... 8,801,000 8,801,000
----------- -----------
$23,206,700 $21,262,600
----------- -----------
----------- -----------
</TABLE>
Payment of approximately $16,500,000 of the noncurrent amounts due to
Williams Hospitality are restricted under the terms of the Loan Agreement (see
Note 7).
6. LINE OF CREDIT
The Partnership has available a $1,000,000 revolving line of credit with a
bank, which is payable on demand, bearing interest at one percentage point over
the prime rate (9.25% at June 30, 1996). The line of credit is collateralized by
substantially all trade accounts receivable and leases with concessionaires as
well as the mortgage covering long-term debt. As of June 30, 1996, $300,000 was
outstanding under the line of credit.
7. LONG-TERM DEBT
Long-term debt at June 30, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Mortgage note payable to bank.................................. $26,250,000 $28,500,000
Capital lease obligation bearing interest at 11.18% payable in
monthly installments of $3,450, including interest through
1999......................................................... 109,600 140,300
Capital lease obligation bearing interest at 9.5% payable in
monthly installments of $10,413, including interest through
2001......................................................... 480,700 --
Chattel mortgage note payable bearing interest at 9%, payable
in monthly installments of $3,900, including interest through
1998, collateralized with personal property.................. 116,700 140,100
----------- -----------
26,957,000 28,780,400
Less current portion........................................... 3,152,000 2,306,400
----------- -----------
$23,805,000 $26,474,000
----------- -----------
----------- -----------
</TABLE>
The mortgage note payable to bank is collateralized by all the
Partnership's real and personal property. The note is payable in accelerating
monthly installments with a final installment of $7,500,000 due in fiscal 2003.
Interest is payable at rates from 6.7% to 7.3% on $21,250,000 of the note.
Interest rates have not been fixed on $5,000,000 of the note, which at June 30,
1996 was at an interest rate of 7.44%, which is reset every seven days. Under
the terms of the loan agreement 50% of the excess net free cash flow, as
defined, each year is required to be used to prepay the final installment of the
note until it is reduced to $3,000,000. Further, distributions to the partners
and payment of basic and incentive management fees and accrued interest thereon
outstanding at the date of the borrowing may only be paid to the extent of the
remaining 50% of the excess net free cash flow. There was no excess net free
cash flow, as defined, for the year ended June 30, 1996.
F-25
<PAGE>
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal year ending in:
<S> <C>
1997............................................................................ $ 3,152,000
1998............................................................................ 3,168,700
1999............................................................................ 3,295,300
2000............................................................................ 3,632,000
2001............................................................................ 3,584,000
Thereafter...................................................................... 10,125,000
-----------
$26,957,000
-----------
-----------
</TABLE>
8. INCOME TAXES
The Partnership operated under the provisions of the Puerto Rico Tourism
Incentives Act of 1983 (the '1983 Act'). The 1983 Act provides for a ten-year
grant which may be extended for an additional ten-year term. Major benefits of
this grant are: a 90% exemption from income taxes on hotel income through the
entire term of the grant, and a 90% exemption from municipal real and personal
property taxes for the first five years, decreasing to a 75% exemption
thereafter. The Partnership's casino operations are not covered by the tax
exemption grant and are fully taxable.
The Partnership has filed an application to operate under the provisions of
the Puerto Rico Tourism Development Act of 1993 which provides benefits similar
to the 1983 Act. The application is pending final approval.
As of June 30, 1996 the Partnership had net operating loss carryforwards of
approximately $27,324,500 for Puerto Rico income tax purposes from its combined
hotel and casino operations and, accordingly, no Puerto Rico taxes have been
provided in the accompanying financial statements. Such losses may be utilized
to offset future Puerto Rico taxable income through June 30, 2003 as follows:
1997, $2,608,500; 1998, $2,064,000; 1999, $3,271,000; 2000, $3,896,600; 2001,
$6,046,000; 2002, $5,114,000 and 2003, $4,324,400.
Following the provisions of SFAS No. 109, the deferred tax asset that
results from the cumulative net operating loss carryforwards has been fully
reserved.
For Puerto Rico income tax purposes the Partnership is taxed as if it were
a corporation. Income of the Partnership for federal income tax purposes is
taxable to the Partners.
9. TRANSACTIONS WITH RELATED PARTIES
The Partnership has an Operating and Management Agreement (the 'Management
Agreement') dated October 2, 1986 with Williams Hospitality. The Management
Agreement provides that Williams Hospitality is to manage the Hotel until the
year 2005 for a basic management fee of 5% of the Hotel's gross revenues (as
defined in the Management Agreement) and an incentive management fee of 12% of
the Hotel's gross operating profits (as defined in the Management Agreement). In
addition, the Partnership is required to pay certain administrative expenses
incurred by Williams Hospitality in connection with management of the Hotel.
During fiscal years 1996, 1995 and 1994, basic management fees amounted to
$2,852,500, $2,981,600 and $3,447,400, respectively. Incentive management fees
amounted to $997,600, $911,500 and $884,800, respectively, for the same fiscal
years. Administrative costs and service fees charged by Williams Hospitality
during fiscal years 1996, 1995 and 1994 amounted to $1,446,700, $1,844,000 and
$2,342,800, respectively.
F-26
<PAGE>
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal years 1996, 1995 and 1994, interest at 10% charged to the
Partnership by Williams Hospitality amounted to $888,100, $797,000 and $708,500,
respectively.
During fiscal years 1996, 1995 and 1994, the Partnership was charged by
Posadas de Puerto Rico Associates, Incorporated ('Posadas de Puerto Rico') (an
affiliated company through common ownership) $243,600, $92,800 and $625,100,
respectively, for certain services provided.
During fiscal years 1996, 1995 and 1994, the Partnership charged Posadas de
Puerto Rico $256,100, $191,500 and $578,400, respectively, for certain services
rendered.
F-27
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
WKA EL CON ASSOCIATES
We have audited the accompanying balance sheets of WKA El Con Associates (a
joint venture partnership) as of June 30, 1996 and 1995, and the related
statements of operations and deficit, and cash flows for each of the three years
in the period ended June 30, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WKA El Con Associates at
June 30, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Juan, Puerto Rico
August 6, 1996
F-28
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, ----------------------------
1997 1997 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................................. $ 3,600 $ 3,200
Certificate of deposit held in escrow............................ -- -- $ 682,500
Notes receivable from El Conquistador Partnership L.P............ 18,079,200 16,116,000 14,043,200
Investment in Las Casitas Development Company.................... 242,600 1,292,600 1,929,400
Capitalized interest, less accumulated amortization of $71,000
and $41,600 at June 30, 1996 and 1995, respectively, and
$93,000 at March 31, 1997...................................... 1,375,500 1,397,500 1,426,900
Deferred debt issuance costs and other assets, less accumulated
amortization of $496,200 and $383,700 at June 30, 1996 and
1995, respectively, and $573,100 at March 31, 1997............. 795,300 872,200 984,800
------------ ------------ ------------
Total assets........................................... $ 20,496,200 $ 19,681,500 $ 19,066,800
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND (DEFICIENCY) PARTNERS' CAPITAL
Liabilities:
Long-term note payable...................................... $ 5,487,300 $ 5,197,000 $ 4,797,100
Due to affiliated company................................... 79,100 64,200 1,130,600
Due to partners............................................. 10,300,300 9,790,700 9,940,600
Losses in excess of equity investment in El Conquistador
Partnership L.P. ......................................... 15,168,000 7,762,600 1,642,100
------------ ------------ ------------
Total liabilities...................................... 31,034,700 22,814,500 17,510,400
(Deficiency) partners' capital:
Contributed................................................. 20,286,200 20,286,200 18,990,500
Deficit..................................................... (30,824,700) (23,419,200) (17,434,100)
------------ ------------ ------------
Total (deficiency) partners' capital................... (10,538,500) (3,133,000) 1,556,400
------------ ------------ ------------
Total liabilities and (deficiency) partners' capital... $ 20,496,200 $ 19,681,500 $ 19,066,800
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-29
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
---------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income.................. $ 913,600 $ 875,600 $ 1,150,100 $ 1,027,600 $ 337,400
Cost and expenses:
Interest.................... 800,000 884,400 1,145,800 1,137,600 474,800
Professional fees........... 14,900 39,100 40,100 83,400 18,300
Amortization................ 98,800 107,300 142,000 163,200 84,000
------------ ------------ ------------ ------------ -----------
913,700 1,030,800 1,327,900 1,384,200 577,100
------------ ------------ ------------ ------------ -----------
Loss before equity in operations
of investees................... (100) (155,200) (177,800) (356,600) (239,700)
Equity in operations of
investees:
El Conquistador Partnership
L.P....................... (7,405,400) (7,963,600) (6,120,500) (13,738,400) (5,023,800)
Las Casitas Development
Company................... -- 313,200 313,200 1,627,100 297,300
------------ ------------ ------------ ------------ -----------
(7,405,400) (7,650,400) (5,807,300) (12,111,300) 4,726,500
------------ ------------ ------------ ------------ -----------
Net loss......................... (7,405,500) (7,805,600) (5,985,100) (12,467,900) (4,966,200)
Accumulated deficit at beginning
of period...................... (23,419,200) (17,434,100) (17,434,100) (4,966,200) --
------------ ------------ ------------ ------------ -----------
Accumulated deficit at end of
period......................... $(30,824,700) $(25,239,700) $(23,419,200) $(17,434,100) $(4,966,200)
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
</TABLE>
See accompanying notes.
F-30
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------------- ------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss................................. $(7,405,500) $(7,805,600) $(5,985,100) $(12,467,900) $(4,966,200)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Amortization.......................... 98,800 107,300 142,000 163,200 84,000
Equity in operations of affiliates
including $950,000 in cash
distributions received in fiscal
year 1996 and $1,050,000 and
$450,000 cash received during the
nine months ended March 31, 1997 and
1996................................ 8,455,400 8,100,400 6,757,300 12,111,300 4,726,500
Changes in operating assets and
liabilities:
Accrued interest income added to
notes receivable................. (913,200) (848,300) (1,122,800) (1,000,600) (320,200)
Other receivables................... -- -- -- 13,200 (13,200)
Accrued interest expense added to
long-term liabilities............ 800,000 841,500 1,102,900 974,500 373,600
Accounts payable.................... -- -- -- (36,700) 18,300
Due to affiliated company........... 14,900 57,900 58,900 -- --
----------- ----------- ----------- ------------ -----------
Net cash provided by (used in) operating
activities............................ 1,050,400 453,200 953,200 (243,000) (97,200)
Investing activities
Sale (purchase) of certificate of deposit
held in escrow........................ -- 682,500 682,500 100,000 (782,500)
Increase in deferred debt issuance costs
and other assets...................... -- -- -- (230,400) (520,100)
Investment in capital of affiliates...... -- -- -- -- (25,400)
Capitalized interest, net................ -- -- -- -- (61,900)
Increase in notes receivable from
affiliate............................. (1,050,000) (450,000) (950,000) (423,500) (5,506,300)
Disbursement of cash held for investment
in affiliate.......................... -- -- -- -- 1,844,900
----------- ----------- ----------- ------------ -----------
Net cash (used in) provided by investing
activities............................ (1,050,000) 232,500 (267,500) (553,900) (5,051,300)
Financing activities
Partners' contributed capital............ -- -- 1,295,700 1,870,500 2,417,200
Partners' loans -- net................... -- (682,500) (852,900) 323,500 4,451,700
Payments to affiliated company........... -- -- (1,125,300) (1,397,100) (1,720,400)
----------- ----------- ----------- ------------ -----------
Net cash (used in) provided by financing
activities............................ -- (682,500) (682,500) 796,900 5,148,500
----------- ----------- ----------- ------------ -----------
Net increase in cash....................... 400 3,200 3,200 -- --
Cash at beginning of period................ 3,200 -- -- -- --
----------- ----------- ----------- ------------ -----------
Cash at end of period...................... $ 3,600 $ 3,200 $ 3,200 $ -- $ --
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
</TABLE>
See accompanying notes.
F-31
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. INTERIM INFORMATION (UNAUDITED)
The interim financial statements as of and for the nine months ended March
31, 1997 and 1996 included herein are unaudited. Such information reflects all
adjustments, consisting solely of normal recurring adjustments, which are in the
opinion of management necessary for a fair presentation of the balance sheet as
of March 31, 1997 and the results of operations and cash flows for the nine
months ended March 31, 1997 and 1996. Due to the seasonality of the business,
the reported results are not necessarily indicative of those expected for the
entire year. Certain information and disclosures normally included in annual
financial statements in accordance with generally accepted accounting principles
have been excluded or omitted in presentation of the interim financial
statements.
2. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
ORGANIZATION
WKA El Con Associates (the 'Partnership') is a joint venture organized
under the General Partnership Law of the State of New York, pursuant to a Joint
Venture Agreement (the 'Agreement') dated January 9, 1990, as amended, for the
purpose of becoming a general and limited partner of El Conquistador Partnership
L.P. ('El Con'). The Partnership is owned 46.54% by WMS El Con Corp., 37.23% by
AMK Conquistador, S.E. and 16.23% by Hospitality Investor Group, S.E. The
Partnership shall continue to exist until March 31, 2030, unless terminated
earlier pursuant to the Agreement. Net profits or losses of the Partnership will
be allocated to the partners in accordance with the terms of the Agreement.
The Partnership is a 50% limited partner in Las Casitas Development Company
I, S en C (S.E.) ('Las Casitas'), a joint venture constructing and selling
condominiums on property adjacent to El Con.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles which 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.
INVESTMENTS IN AFFILIATED COMPANIES
The investments in affiliated companies are accounted for under the equity
method. El Con equity is recorded by the Partnership based on El Con's fiscal
year of March 31. Las Casitas equity is recorded by the Partnership based on Las
Casitas fiscal year of June 30. Capitalized interest is being amortized by the
straight-line method over the estimated useful life of the El Conquistador
property.
DEFERRED DEBT ISSUANCE COSTS AND OTHER ASSETS
Deferred debt issuance costs include legal and bank fees incurred in
connection with the issuance of the debt, and are being amortized over the
maturity of the related debt. Certain other capital and pre-opening costs
relating to El Con were incurred by the Partnership and are being amortized over
5 to 50 years.
F-32
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of the
different classes of financial instruments were the following:
Note payable: The carrying amount of the note payable at June 30, 1996
approximate fair value. The fair value was estimated using discounted cash
flows, based on the current borrowing rates for similar types of borrowing
arrangements.
RECLASSIFICATIONS
Certain amounts of the prior year have been reclassified to conform to the
current year's presentation.
3. NOTES RECEIVABLE FROM AFFILIATED COMPANY
At June 30, 1996 and 1995 notes receivable from El Con consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Note receivable due on demand.................................. $ 136,000 $ 136,000
Note receivable due through May, 2002 (See Note 6)............. 4,000,000 4,000,000
Subordinated notes receivable due in 2003 to 2005 (See Note
5)........................................................... 8,229,700 8,229,700
Accrued interest receivable.................................... 2,800,300 1,677,500
Deficiency loan participation.................................. 950,000 --
----------- -----------
$16,116,000 $14,043,200
----------- -----------
----------- -----------
</TABLE>
Repayment of the notes and deficiency loan participation, including accrued
interest, is subordinated to other long-term debt of El Con.
4. COST OF INVESTMENT IN AFFILIATED COMPANIES
In 1991, the Partnership borrowed $9,000,000 from Williams Hospitality
Group Inc. ('Williams Hospitality'), a hotel/casino management company that is
an affiliated company through common ownership, and invested the proceeds in the
partnership capital of El Con, a joint venture organized to acquire the El
Conquistador property. The Partnership owns a 50% interest, as both a general
and limited partner, of El Con (See Note 5).
The Partnership's investment in Las Casitas amounts to $5,000.
5. DUE TO AFFILIATED COMPANY AND PARTNERS
In 1991, the Partnership borrowed $9,000,000 from Williams Hospitality of
which $1,050,000 was outstanding as of June 30, 1995 and none as of June 30,
1996.
Interest on the note was based on the interest rate charged to Williams
Hospitality by a bank. Interest charged to the Partnership by Williams
Hospitality amounted to approximately $16,400 and $122,500 and $206,200 in
fiscal years 1996, 1995, and 1994, respectively.
At various times, the partners loaned the Partnership $8,229,700 under the
terms of Loan Agreements. The notes are payable in 2003 to 2005 and bear
interest at the prime rate commencing on various dates. The Partnership has
advanced the same amount under a subordinated note to El Con under the same
terms as the borrowing from the partners. (See Note 3).
In November 1993, the partners advanced $782,500 to the Partnership that
was invested in a bank certificate of deposit. During fiscal years 1996 and
1995, $682,500 and $100,000, respectively, were withdrawn from the certificate
and distributed to the partners. The certificate of deposit was held in
F-33
<PAGE>
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
escrow and was pledged as collateral to the bank for a bank loan of an equal
amount to El Con. Interest accrued on the partners' advances at the same
interest rate earned on the certificate of deposit.
During fiscal year 1995, Williams Hospitality converted $3,800,000 from
amounts it had due from El Con to a loan. The loan was made by Williams
Hospitality to El Con for the Partnership.
During fiscal year 1996, the Partnership purchased from Williams
Hospitality a $950,000 participation in a deficiency loan to El Con. The loan
and interest at 9.16% are payable from specified future cash flow of El Con. At
June 30, 1996 the Partnership guarantees a revolving credit facility with a bank
in the aggregate amount of up to $4,000,000 of El Con.
6. LONG-TERM NOTE PAYABLE
The long-term note payable to a bank includes accrued interest of
$1,197,000 and $797,100 at June 30, 1996 and 1995, respectively. The note is
payable in quarterly installments of $250,000 commencing in May 2000. Any unpaid
principal and interest is payable in May 2002. The note bears interest at a
variable rate, computed quarterly, equal to LIBOR, plus 1.75%. Under the terms
of the Credit Facility Agreement dated May 5, 1992, interest payments are
deferred during the first five years. The $4,000,000 borrowing was loaned to El
Con under similar terms. (See Note 3).
The note is collateralized by second mortgages on parcels of land owned by
Williams Hospitality and Posadas de Puerto Rico Associates, Incorporated,
affiliated companies through common ownership, with a cost of approximately
$3,761,000, and a guarantee of $1,000,000 by WMS Industries Inc., the ultimate
owner of WMS El Con Corp.
7. INCOME TAXES
The Partnership is not taxable for Puerto Rico income tax purposes pursuant
to an election submitted to the Puerto Rico Treasury Department. Instead, each
partner reports their distributive share of the Partnership's profit or losses
in their respective income tax returns and, therefore, no provision for income
taxes has been made in the accompanying financial statements. Income or loss of
the Partnership for Federal income tax purposes is reported by the partners.
F-34
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
EL CONQUISTADOR PARTNERSHIP L.P.
We have audited the accompanying balance sheets of El Conquistador
Partnership L.P. as of March 31, 1996 and 1995, and the related statements of
operations and (deficiency in) partners' capital, and cash flows for each of the
three years in the period ended March 31, 1996. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of El Conquistador Partnership
L.P. at March 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended March 31, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Juan, Puerto Rico
May 3, 1996
F-35
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ----------------------------
1996 1996 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash....................................................... $ 1,039,800 $ 856,983 $ 877,970
Restricted cash and investments held by bank............... 3,332,300 2,879,355 3,382,708
Trade accounts receivable, less allowance for doubtful
accounts of $301,765 and $894,187 at March 31, 1996 and
1995, respectively, and $215,800 at December 31, 1996.... 4,931,900 5,302,884 7,653,918
Due from affiliated companies.............................. 411,200 314,999 377,424
Inventories................................................ 1,585,200 1,522,463 2,051,966
Prepaid expenses and other current assets.................. 1,214,310 945,905 972,010
------------ ------------ ------------
Total current assets............................. 12,514,710 11,822,589 15,315,996
Due from affiliated company..................................... 421,000 817,868 1,189,574
Land, building and equipment:
Land....................................................... 14,372,700 14,372,707 14,372,707
Building................................................... 159,467,700 158,039,190 158,039,190
Furniture, fixture and equipment........................... 31,518,000 31,359,202 30,504,887
Construction in-process.................................... -- -- 42,978
------------ ------------ ------------
205,358,400 203,771,099 202,959,762
Less accumulated depreciation.............................. 19,527,900 14,777,283 8,402,779
------------ ------------ ------------
185,830,500 188,993,816 194,556,983
Operating equipment, net........................................ 1,467,400 1,469,350 1,431,896
Deferred debt issuance costs, net of accumulated amortization of
$4,731,745 and $3,753,733 at March 31, 1996 and 1995,
respectively, and $5,465,300 at December 31, 1996............. 3,225,100 3,958,624 4,936,636
Deferred pre-opening costs, net of accumulated amortization of
$8,751,425 and $5,619,919 at March 31, 1996 and 1995,
respectively, and $10,077,279 at December 31, 1996............ 3,302,400 4,628,254 7,759,760
------------ ------------ ------------
Total assets..................................... $206,761,110 $211,690,501 $225,190,845
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND (DEFICIENCY IN) PARTNERS' CAPITAL
Current liabilities:
Trade accounts payable..................................... $ 8,339,200 $ 7,657,546 $ 9,662,586
Advance deposits........................................... 6,050,500 3,568,390 5,227,153
Accrued interest........................................... 1,598,800 1,510,080 1,510,200
Other accrued liabilities.................................. 4,615,200 4,673,189 5,893,127
Due to affiliated companies................................ 1,524,100 652,896 1,148,010
Notes payable to banks..................................... 6,273,400 2,773,359 1,638,359
Current portion of chattel mortgages and capital lease
obligations.............................................. 2,445,000 2,444,993 2,208,272
------------ ------------ ------------
Total current liabilities............................. 30,846,200 23,280,453 27,287,707
Long-term debt.................................................. 145,000,000 145,000,000 145,000,000
Chattel mortgages and capital lease obligations, net of current
portion....................................................... 2,625,900 4,324,358 6,759,225
Due to affiliated companies..................................... 9,867,700 8,531,671 5,917,725
Due to partners................................................. 36,757,400 34,079,309 31,510,445
(Deficiency in) partners' capital:
Limited partners........................................... (15,586,049) (2,996,497) 7,408,382
General partners........................................... (2,750,041) (528,793) 1,307,361
------------ ------------ ------------
Total (deficiency in) partners' capital............... (18,336,090) (3,525,290) 8,715,743
------------ ------------ ------------
Total liabilities and (deficiency in) partners'
capital............................................. $206,761,110 $211,690,501 $225,190,845
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-36
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF OPERATIONS AND (DEFICIENCY IN) PARTNERS' CAPITAL
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
--------------------------- -----------------------------------------
1996 1995 1996 1995 1994
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms.......................... $ 24,419,700 $23,566,000 $38,817,160 $37,942,821 $16,873,156
Food and beverage.............. 17,633,400 18,007,000 26,188,693 27,298,340 9,420,792
Casino......................... 4,011,200 4,152,100 6,179,133 6,054,569 2,487,552
Rental and other income........ 12,954,100 11,293,600 19,165,969 14,652,328 4,343,493
------------ ----------- ----------- ----------- -----------
59,018,400 57,018,700 90,350,955 85,948,058 33,124,993
Less casino promotional
allowances................... (849,200) (732,600) (1,136,499) (1,205,380) (151,923)
------------ ----------- ----------- ----------- -----------
Net revenues........................ 58,169,200 56,286,100 89,214,456 84,742,678 32,973,070
Costs and expenses:
Rooms.......................... 8,242,928 8,736,100 12,853,157 14,755,239 5,686,692
Food and beverage.............. 12,811,291 12,494,400 17,638,186 20,797,173 8,186,633
Casino......................... 2,765,000 2,588,500 3,686,904 3,923,817 2,065,525
Selling, general and
administrative............... 10,449,921 9,151,238 12,992,841 18,115,433 6,624,081
Management and incentive
management fees.............. 2,969,700 2,925,015 5,394,675 3,703,819 1,425,347
Property operation, maintenance
and energy costs............. 9,545,397 9,349,668 12,396,063 14,408,347 5,452,018
Depreciation and
amortization................. 6,856,179 7,966,869 10,499,296 11,124,075 4,273,902
Other expenses................. 6,787,315 6,433,990 9,201,228 9,722,662 4,118,222
------------ ----------- ----------- ----------- -----------
60,427,731 59,645,780 84,662,350 96,550,565 37,832,420
------------ ----------- ----------- ----------- -----------
Income (loss) from operations....... (2,258,531) (3,359,680) 4,552,106 (11,807,887) (4,859,350)
Interest income..................... 139,431 172,312 228,625 467,922 109,437
Interest expense.................... 12,691,700 12,739,877 17,021,764 16,136,755 5,297,771
------------ ----------- ----------- ----------- -----------
Net loss............................ (14,810,800) (15,927,245) (12,241,033) (27,476,720) (10,047,684)
Partners' capital at beginning of
period............................ (3,525,290) 8,715,743 8,715,743 36,191,325 46,189,386
Partners' capital contribution...... -- -- -- 1,138 49,623
------------ ----------- ----------- ----------- -----------
(Deficiency in) partners' capital at
end of period..................... $(18,336,090) $(7,211,502) $(3,525,290) $ 8,715,743 $36,191,325
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-37
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
--------------------------- ------------------------------------------
1996 1995 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss........................................... $(14,810,800) $(15,927,245) $(12,241,033) $(27,476,720) $(10,047,684)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization................. 6,856,179 7,966,869 10,499,296 11,124,075 4,273,902
Provision for losses on accounts receivable... 115,400 167,900 363,245 1,808,641 517,623
Incentive management fees..................... 899,148 923,328 2,224,381 679,259 263,363
Deferred interest expense to partners and
affiliates.................................. 2,310,910 2,178,243 2,995,431 2,063,981 686,446
Changes in operating assets and liabilities:
Restricted cash and investments held by
bank.................................... (452,945) 291,030 503,353 2,549,446 1,600,000
Trade accounts receivable................. 255,584 2,136,438 1,987,789 2,187,211 (12,167,393)
Inventories............................... (62,737) 407,945 529,503 61,249 (2,113,215)
Prepaid expenses and other current
assets.................................. (310,427) (60,936) 26,105 491,032 (1,463,042)
Trade accounts payable and advance
deposits................................ 3,163,764 (2,813,050) (3,663,803) (1,323,693) 12,226,578
Accrued interest and other accrued
liabilities............................. 30,631 (739,901) (1,220,058) 1,156,483 6,246,846
Affiliated companies, net................. 1,171,871 446,487 (97,985) 1,967,073 2,259,373
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by operating
activities....................................... (833,422) (5,022,892) 1,906,224 (4,711,963) 2,282,797
Investing activities
Decrease in restricted cash and investments held
for construction and interest payments........... -- -- -- -- 82,280,346
Purchases of property and equipment................ (1,587,270) (563,673) (826,611) (3,525,762) (98,960,148)
Usage (purchases) of operating equipment, net...... 1,950 109,023 (37,454) 523,641 (1,955,537)
Advances to affiliate, net......................... -- -- -- -- (1,815,631)
Additions to deferred pre-opening expenses......... -- -- -- -- (7,379,879)
------------ ------------ ------------ ------------ ------------
Net cash (used in) investing activities............ (1,585,320) (454,650) (864,065) (3,002,121) (27,830,849)
Financing activities
Additions to deferred debt issuance costs.......... -- -- -- -- (505,210)
Proceeds from long-term debt....................... -- -- -- 772,000 10,992,552
Payments of principal on long-term debt............ (1,698,441) (2,108,984) (2,198,146) (1,976,625) (704,240)
Proceeds from notes payable to bank................ 3,500,000 7,684,685 7,684,685 -- --
Payments on principal on notes payable to bank..... -- -- (6,549,685) (200,000) 1,565,000
Proceeds from partners' and affiliates loans, and
capital contributions............................ 800,000 -- -- 8,698,134 15,411,995
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities....................................... 2,601,559 5,575,701 (1,063,146) 7,293,509 26,760,097
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash........................ 182,817 98,159 (20,987) (420,575) 1,212,045
Cash at beginning of period............................ 856,983 877,970 877,970 1,298,545 86,500
------------ ------------ ------------ ------------ ------------
Cash at the end of the period.......................... $ 1,039,800 $ 976,129 $ 856,983 $ 877,970 $ 1,298,545
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Supplemental disclosure of cash flow information:
Interest paid, net of interest capitalized in
1994............................................. $ 14,026,453 $ 14,314,600 $ 3,545,742
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-38
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS
1. INTERIM INFORMATION (UNAUDITED)
The interim financial statements as of and for the nine months ended
December 31, 1996 and 1995 included herein are unaudited. Such information
reflects all adjustments, consisting solely of normal recurring adjustments,
which are in the opinion of management necessary for a fair presentation of the
balance sheet as of December 31, 1996 and the results of operations and cash
flows for the nine months ended December 31, 1996 and 1995. Due to the
seasonally of the business, the reported results are not necessarily indicative
of those expected for the entire year. Certain information and disclosures
normally included in annual financial statements in accordance with generally
accepted accounting principles have been excluded or omitted in presentation of
the interim financial statements.
2. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
ORGANIZATION
El Conquistador Partnership L.P. (the 'Partnership'), is a limited
partnership organized under the Laws of Delaware, pursuant to a Joint Venture
Agreement dated January 12, 1990 (the 'Agreement'). The Partnership is 50% owned
by WKA El Con Associates ('WKA El Con'), a partnership owned by several partners
affiliated with Williams Hospitality Group Inc. ('Williams Hospitality'), and
50% by Kumagai Caribbean, Inc. ('Kumagai'), a wholly-owned subsidiary of Kumagai
International USA, Inc. The partners ('Partners') are both General Partners and
Limited Partners in the Partnership. The Partnership shall continue to exist
until March 31, 2030, unless terminated earlier by mutual agreement of the
General Partners. The Agreement provides that net profits or losses of the
Partnership after deducting a preferred cumulative annual return of 8.5% on the
Partners unrecovered capital accounts, as defined, will be allocated to the
Partners on a 50-50 ratio subject to certain exceptions, as defined.
In February, 1991 the Partnership acquired the El Conquistador Hotel
property and other adjacent parcels of land in Las Croabas, Puerto Rico (the
'Resort'). The Resort experienced extensive renovation and was reopened as a
luxury resort hotel and casino in October, 1993.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles which 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.
INVENTORIES
Inventories, which consist mainly of food, beverages and supplies, are
valued at the lower of cost (first-in, first-out method) or market.
LAND, BUILDING AND EQUIPMENT
Land, building and equipment are stated on the basis of cost. Building and
equipment are depreciated by the straight-line method over their estimated
useful lives.
DEFERRED DEBT ISSUANCE COSTS
Debt issuance costs include legal and underwriting fees, other fees
incurred in connection with the financing and other costs. These costs are being
amortized on a straight-line basis over the terms of the debt.
F-39
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED PRE-OPENING COSTS
Pre-opening costs consist of amounts incurred in connection with the
marketing, organization, planning and development of the Resort. Such costs
include legal, engineering and marketing fees and other costs incurred prior to
the commencement of operations of the Resort. The remaining costs are being
amortized on a straight-line basis over a five year period extending through
November 1998.
CASINO REVENUES
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
CASINO PROMOTIONAL ALLOWANCES
Casino promotional allowances represent the retail value of complimentary
food, beverage and hotel services furnished to patrons, commissions and
transportation costs.
3. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
Pursuant to the terms of the bond agreement (see Note 9), the Partnership
had cash and investments on deposit with the trustee for the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Interest due May 1...................................... $1,584,000 $1,782,000
Interest due August 1................................... 1,295,355 1,600,708
---------- ----------
$2,879,355 $3,382,708
---------- ----------
---------- ----------
</TABLE>
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Trade accounts receivable -- hotel...................... $5,259,478 $8,192,918
Less allowances for doubtful accounts................... 217,362 791,455
---------- ----------
5,042,116 7,401,463
Trade accounts receivable -- casino..................... 345,171 355,187
Less allowance for doubtful accounts.................... 84,403 102,732
---------- ----------
260,768 252,455
---------- ----------
Trade accounts receivable, net.......................... $5,302,884 $7,653,918
---------- ----------
---------- ----------
</TABLE>
5. TRANSACTIONS WITH RELATED PARTIES
The Partnership has an Operating and Management Agreement (the 'Management
Agreement') with Williams Hospitality. The Management Agreement provides that
Williams Hospitality will manage the Resort for a period of 20 years for a basic
management fee of 3.5% of the Resort's gross revenues, as defined, and an
incentive management fee of 10% of the Resorts' operating profit, as defined.
Incentive management fees accrued each year are not payable until significant
cash flows levels are achieved. In addition, the Partnership is required to pay
certain administrative expenses incurred by Williams Hospitality in connection
with management of the Resort.
F-40
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal years 1996, 1995 and 1994, basic management fees amounted to
$3,170,000, $3,025,000 and $1,162,000, respectively. Incentive management fees
amounted to approximately $2,224,000, $679,300 and $263,400 during fiscal years
1996, 1995 and 1994, respectively. In addition, Williams Hospitality charged the
Partnership approximately $2,728,000, $3,536,000 and $1,377,000 in fiscal years
1996, 1995 and 1994, respectively, for services provided to the Resort.
In addition, the Partnership was charged by Posadas de Puerto Rico
Associates, Incorporated ('Posadas de Puerto Rico') and Posadas de San Juan
Associates ('Posadas de San Juan'), hotel and casino operations affiliated
through common ownership, approximately $437,000 and $116,000, respectively in
fiscal year 1996, $687,000 and $179,000, respectively, in fiscal year 1995, and
$445,000 and $318,000, respectively, in fiscal year 1994, for services provided
to the Resort.
As of March 31, 1996 each partner had advanced $8,365,685 to the
Partnership under notes that are due for various periods up to ten years with
interest at the Citibank, N.A. in New York base rate. Repayment of interest and
principal is subordinated to other long-term debt. In addition, each partner had
advanced to the Partnership $4,000,000 under a May 5, 1992 loan agreement. The
loan agreement provides for the payment of interest at a variable rate, computed
quarterly, equal to LIBOR plus 1.75%. Interest payments will be deferred during
the first five years. The principal and deferred interest accrued at March 31,
1996 is payable in quarterly installments of $250,000 commencing in March 2000
and a final lump-sum payment in February 2002. The loan is collateralized by a
subordinated pledge of the Partnership's assets.
As of March 31, 1996 each partner had provided $3,800,000 to cover cash
flow deficiency in the Partnership's operations as provided by the Agreement.
The deficiency loans consisted of $3,800,000 in cash by Kumagai, and the
conversion of amounts due from the Partnership to Williams Hospitality to loans
for WKA El Con. The deficiency loans bear interest at 9.16%. Repayment of
interest and principal is subordinated to other long-term debt.
During fiscal year 1995 Las Casitas Development Company S.E., an affiliated
company 50% owned by WKA El Con, paid $2,500,000 to the Partnership for land
purchased in April, 1993.
As of March 31, 1996, the outstanding balance of advances made in fiscal
year 1994 by the Partnership to Williams Hospitality for the purchase of
transportation equipment leased to the Partnership under a five year service
agreement amounted to $1,123,400. Service agreement payments by the Partnership
are equal to the $39,819 monthly amounts receivable under the advance. Repayment
of the advances by Williams Hospitality are limited to amounts payable under the
service agreement. This transportation equipment is pledged as collateral by
Williams Hospitality to the Partnership's chattel mortgage notes.
In addition, a subsidiary of Williams Hospitality financed other
transportation equipment in fiscal year 1994 from an external borrowing of
$441,000 repayable over 5 years. The Partnership chartered the transportation
equipment under terms similar to the transaction described above. Monthly
payments amount to $9,699.
The chattel mortgage notes payable (see Note 8) are collateralized by a
bank standby letter of credit of $3,423,000. The letter of credit is
collateralized by certificates of deposit of the same amount issued by the bank
in equal amounts to Williams Hospitality and Kumagai. The chattel mortgage
notes, and capital leases are guaranteed by Williams Hospitality and Kumagai.
6. NOTES PAYABLE TO BANKS
Notes payable to banks include a $4,000,000 revolving term credit facility
entered into by the Partnership with a bank, which is payable on demand or at
the expiration of the credit facility (July 31, 1996). Advances under the credit
facility bear interest at .75% over the cost of 936 funds, if available, or
LIBOR, or 1.5% over the bank's base rate. The credit facility is collateralized
by accounts receivable,
F-41
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and guaranteed by the Partners and the Government Development Bank for Puerto
Rico ('GDB'). At March 31, 1996, the Partnership had outstanding borrowings of
$2,500,000 under the credit facility.
The other note payable outstanding consists of a short-term note of
$273,359 due on demand to a bank.
7. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to the Partnership and other payments made by
Williams Hospitality, and for services rendered by Posadas de Puerto Rico and
Posadas de San Juan. Amounts due to affiliated companies consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current:
Due to Williams Hospitality:
Basic management fees................................ $ 414,718 $ 396,138
Other................................................ 195,523 447,226
Due to Posadas de Puerto Rico........................ 37,380 299,126
Due to Posadas de San Juan........................... 5,275 5,520
----------- -----------
$ 652,896 $ 1,148,010
----------- -----------
----------- -----------
Non current:
Affiliate:
Due to Williams Hospitality:
Incentive management fees....................... $ 3,167,002 $ 942,621
Interest at 10% on incentive management fees.... 89,350 36,953
Advances........................................ 3,800,000 3,800,000
Interest on advances............................ 503,368 129,199
Other........................................... 375,528 375,528
----------- -----------
7,935,248 5,284,301
Due to KG Caribbean.................................. 596,423 633,424
----------- -----------
$ 8,531,671 $ 5,917,725
----------- -----------
----------- -----------
Partners:
Due to WKA El Con:
Advances........................................ $12,365,685 $12,365,685
Interest on advances............................ 2,522,285 1,424,938
Due to Kumagai:
Advances........................................ 16,165,685 16,165,685
Interest on advances............................ 3,025,654 1,554,137
----------- -----------
$34,079,309 $31,510,445
----------- -----------
----------- -----------
</TABLE>
F-42
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. CHATTEL MORTGAGES AND CAPITAL LEASE OBLIGATIONS
Chattel mortgages and capital lease obligations on equipment consisted of
the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Chattel mortgage notes payable bearing interest at 9%, payable in
monthly installments of $215,784, including interest, through
1998, collateralized with personal property..................... $6,023,820 $7,980,491
Capital lease obligations bearing interest at 11.5%, payable in
monthly installments of $28,335, including interest, through
1998, collateralized with personal property, net of $121,571 in
1996 and $223,683 in 1995 representing interest................. 745,531 987,006
---------- ----------
6,769,351 8,967,497
Less current portion.............................................. 2,444,993 2,208,272
---------- ----------
$4,324,358 $6,759,225
---------- ----------
---------- ----------
</TABLE>
Maturities of chattel mortgages and capital lease obligations are as
follows:
<TABLE>
<S> <C>
1997........................................................ $2,444,993
1998........................................................ 2,679,819
1999........................................................ 1,644,539
----------
$6,769,351
----------
----------
</TABLE>
See Note 5 for additional collateral and guarantees.
Assets and accumulated depreciation recorded under capital lease
obligations are included in land, building and equipment as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Equipment......................................................... $1,288,373 $1,288,373
Less accumulated depreciation..................................... 622,717 365,041
---------- ----------
$ 665,656 $ 923,332
---------- ----------
---------- ----------
</TABLE>
9. LONG-TERM DEBT
At March 31, 1996 and 1995, long-term debt consisted of the following:
<TABLE>
<S> <C>
Industrial Revenue Bonds Series A................................... $ 90,000,000
Industrial Revenue Bonds Series B................................... 30,000,000
Government Development Bank for Puerto Rico......................... 25,000,000
------------
$145,000,000
------------
------------
</TABLE>
On February 7, 1991 the Puerto Rico Industrial, Medical, Educational and
Environmental Pollution Control Facilities Financing Authority (the 'Authority')
sold industrial revenue bonds ('Bonds') in the principal amount of $120,000,000
and loaned the proceeds to the Partnership to be used for the payment of project
costs pursuant to a Loan Agreement. The Loan Agreement provides that the
Partnership will pay all interest and principal on the Bonds.
The Authority issued 1991 Series A, Industrial Revenue Bonds for
$90,000,000 and 1991 Series B, Industrial Revenue Bonds for $30,000,000.
F-43
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Commencing on May 1, 1996, the Bonds will be subject to redemption at the
Partnership's option at par plus accrued interest, if any. The Bonds are due on
November 1, 1999 and interest is payable quarterly. The 1991 Series A Bonds and
the 1991 Series B Bonds bear interest at a variable rate, computed quarterly,
equal to 86% and 94%, respectively, of a LIBOR rate minus 1/8th of 1%. On
February 7, 1991 the Partnership entered into an Interest Swap Agreement that
expires March 8, 1998 by which the Partnership agreed to a fixed rate of 7.55%
on the outstanding principal of $120,000,000 in exchange for the counterparty's
obligation to pay the variable interest rate described above.
The Loan Agreement provides that the Partnership will deposit with the
trustee all interest which will become due not later than the 124th day
preceding the date of payment. The Bonds are collateralized by a letter of
credit, that terminates on March 9, 1998, issued by the Mitsubishi Bank,
Limited. Under the terms of the Loan Agreement, the debt is required to be
repaid on February 1, 1998 in the event the Letter of Credit is not renewed or
replaced prior to November 9, 1997.
The Partnership pays an annual letter of credit fee of approximately 1.25%
of the Bond principal except under certain circumstances the rate may be reduced
to 1.2%. In addition, in connection with the letter of credit the Partnership
pays an annual agents fee of approximately .25% of the Initial Stated Amount, as
defined.
Under the provisions of a term loan agreement with the Government
Development Bank for Puerto Rico ('GDB'), the Partnership borrowed $25,000,000
for the payment of project costs which is due on February 7, 2006. The loan
agreement provides for a variable interest rate equivalent to a LIBOR rate minus
.5% plus an add-on margin as provided in the loan agreement. Interest is payable
quarterly in arrears.
Commencing on April 1, 1993, the Partnership is required to deposit
annually with an escrow agent 50% of the Available Cash Flow, as defined in the
Loan Agreement with GDB, up to a maximum of $1,666,700 plus any prior year
requirement in arrears. Through March 31, 1996, there had been no amounts
deposited in escrow under this provision.
The Bonds and the term loan with GDB are collateralized by a first and
second mortgage lien on the Resort, a chattel mortgage on personal property, and
an assignment of various contracts and a management agreement with a related
party. The collateral is subject to a subordination agreement in favor of the
Mitsubishi Bank, Limited.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107 'Disclosures About
Fair Value of Financial Instruments', requires the disclosure of the fair value
of the Partnership's financial instruments at March 31, 1996 and 1995. The
carrying amount of cash and investments, notes payable to bank, chattel mortgage
notes and capitalized leases approximates fair value because of the short
maturity of the instruments or recent issuance. The fair value of the
Partnership's long-term debt has not been determined because similar terms and
conditions may no longer be available.
11. INCOME TAXES
The Partnership is not taxable for Puerto Rico income tax purposes pursuant
to an election submitted to the Puerto Rico Treasury Department. Instead, each
Partner reports their distributive share of the Partnership's profit and losses
in their respective income tax returns and, therefore, no provision for income
taxes has been made in the accompanying financial statements. Income or loss of
the Partnership for Federal income tax purposes is reported by the partners.
The Partnership has requested a tax exemption grant under the provisions of
the Puerto Rico Tourism Incentives Act of 1993 (the 'Tourism Act'). The Tourism
Act provides for a ten-year grant which may be extended for an additional
ten-year term. Major benefits of this Act are: a 90% exemption from income taxes
on hotel income, and municipal real and personal property taxes, and a
F-44
<PAGE>
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
100% exemption from municipal license tax through the entire term of the grant.
The Partnership's casino operations are not covered by the tax exemption grant
and are fully taxable.
12. ADVERTISING COSTS
The Partnership recognizes the cost of advertising as expense in the year
in which they are incurred. Advertising costs amounted to approximately $847,000
and $2,107,000 for fiscal years 1996 and 1995, respectively.
13. COMMITMENTS
The Partnership leases land under an operating lease agreement for
thirty-one years with renewal options for two five year periods. Following are
the minimum annual rental payments on the operating lease subsequent to March
31, 1996:
<TABLE>
<S> <C>
1997........................................................ $ 180,000
1998........................................................ 190,000
1999........................................................ 210,000
2000........................................................ 210,000
2001........................................................ 210,000
Thereafter.................................................. 6,050,000
----------
$7,050,000
----------
----------
</TABLE>
Total rent expense for fiscal years 1996, 1995 and 1994 amounted to
approximately $985,000, $1,169,000 and $430,000, respectively.
F-45
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH AN OFFER IN
SUCH JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR IN ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CURRENT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................................................................... 3
Risk Factors................................................................................................................ 7
Price Range of Common Stock and Dividends................................................................................... 13
The NAI Group............................................................................................................... 13
Plan of Distribution........................................................................................................ 14
Relationship Between the Company and Its Subsidiaries and Affiliates........................................................ 16
Arrangements Between the Company and WMS.................................................................................... 17
Accounting Treatment........................................................................................................ 18
Hotel Financings and Certain Contingent Obligations......................................................................... 18
Unaudited Pro Forma Condensed Consolidated Financial Statements............................................................. 21
Selected Financial Data..................................................................................................... 26
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 27
Industry Overview........................................................................................................... 32
Business.................................................................................................................... 33
Management.................................................................................................................. 43
Related Party Transactions.................................................................................................. 52
Security Ownership of Certain Beneficial Owners and Management.............................................................. 53
Purposes and Anti-Takeover Effects of Certain Provisions.................................................................... 54
Description of the Company's Capital Stock.................................................................................. 60
Shares Eligible for Future Sale............................................................................................. 62
Legal Matters............................................................................................................... 62
Experts..................................................................................................................... 62
Index to Financial Statements............................................................................................... F-1
</TABLE>
WHG RESORTS &
CASINOS INC.
1,729,425 SHARES OF
VOTING COMMON STOCK
AND ASSOCIATED STOCK
PURCHASE RIGHTS
------------------------
PROSPECTUS
------------------------
, 1997
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the offering, all of which shall
be borne by the Registrant, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission fee......................................... $ 5,961.28
Printing expenses.............................................................. 50,000.00
Legal fees and expenses........................................................ 65,000.00
Accountants' fees and expenses................................................. 20,000.00
Miscellaneous.................................................................. 2,038.72
-----------
Total................................................................ $143,000.00
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY
Articles Eleventh and Twelfth of the Company's Amended and Restated
Certificate of Incorporation (the 'Certificate') and Section 4 of Article V of
the Company's Amended and Restated Bylaws (the 'Bylaws') (the 'Director
Liability and Indemnification Provisions') limit the personal liability of the
Company's directors to the Company or its stockholders for monetary damages for
breach of fiduciary duty.
The Director Liability and Indemnification Provisions define and clarify
the rights of certain individuals, including the Company's directors and
officers, to indemnification by the Company in the event of personal liability
or expenses incurred by them as a result of certain litigation against them.
Such provisions are consistent with Section 102(b)(7) of the Delaware General
Corporation Law (the 'DGCL'), which is designed, among other things, to
encourage qualified individuals to serve as directors of Delaware corporations
by permitting Delaware corporations to include in their articles or certificates
of incorporation a provision limiting or eliminating directors' liability for
monetary damages and with other existing DGCL provisions permitting
indemnification of certain individuals, including directors and officers. The
limitations of liability in the Director Liability and Indemnification
Provisions may not affect claims arising under the Federal securities laws.
In performing their duties, directors of a Delaware corporation are
obligated as fiduciaries to exercise their business judgment and act in what
they reasonably determined in good faith, after appropriate consideration, to be
the best interests of the corporation and its stockholders. Decisions made on
that basis are protected by the 'business judgment rule.' The business judgment
rule is designed to protect directors from personal liability to a corporation
or its stockholders when business decisions are subsequently challenged.
However, the expense of defending lawsuits, the frequency with which unwarranted
litigation is brought against directors and the inevitable uncertainties with
respect to the outcome of applying the business judgment rule to particular
facts and circumstances mean that, as a practical matter, directors and officers
of a corporation rely on indemnity from, and insurance procured by, the
corporation they serve as a financial backstop in the event of such expenses or
unforeseen liability. The Delaware legislature has recognized that adequate
insurance and indemnity provisions are often a condition of an individual's
willingness to serve as a director of a Delaware corporation. The DGCL has for
some time specifically permitted corporations to provide indemnity and procure
insurance for its directors and officers.
Set forth below is a description of the Director Liability and
Indemnification Provisions. Such description is intended as a summary only and
is qualified in its entirety by reference to the Certificate and Bylaws.
Elimination of Liability in Certain Circumstances. Article Eleventh of the
Certificate protects directors against monetary damages for breaches of their
fiduciary duty of care, except as set forth
II-1
<PAGE>
<PAGE>
below. Under the DGCL, absent Article Eleventh directors could generally be held
liable for gross negligence for decisions made in the performance of their duty
of care but not for simple negligence. Article Eleventh eliminates director
liability for negligence in the performance of their duties. Directors remain
liable for breaches of their duty of loyalty to the Company and its
stockholders, as well as acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law and transactions from which
a director derives improper personal benefit. Article Eleventh does not
eliminate director liability under Section 174 of the DGCL, which makes
directors personally liable for unlawful dividends or unlawful stock repurchases
or redemptions and expressly sets forth a negligence standard with respect to
such liability.
While Article Eleventh provides directors with protection from awards of
monetary damages for breaches of the duty of care, it does not eliminate a
director's duty of care. Accordingly, Article Eleventh will have no effect on
the availability of equitable remedies such as an injunction or rescission based
upon a director's breach of the duty of care. The provisions of Article Eleventh
which eliminate liability as described above will apply to officers of the
Company only if they are directors of the Company and are acting in their
capacity as directors, and will not apply to officers of the Company who are not
directors. The elimination of liability of directors for monetary damages in the
circumstances described above may deter persons from bringing third-party or
derivative actions against directors to the extent such actions seeks monetary
damages.
Indemnification and Insurance. Under Section 145 of the DGCL, directors and
officers as well as other employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation (a 'derivative action')) if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the Company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action and the DGCL
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to the Company.
Section 4 of Article V of the Bylaws provides that the Company shall
indemnify any person to whom, and to the extent, indemnification may be granted
pursuant to Section 145 of the DGCL.
Article Twelfth of the Certificate provides that each person who was or is
made a party to, or is involved in any action, suit or proceeding by reason of
the fact that he is or was a director, officer or employee of the Company will
be indemnified by the Company against all expenses and liabilities (including
attorneys' fees) reasonably incurred by or imposed upon him, except in such case
where the director, officer or employee is adjudged guilty of willful
misfeasance or malfeasance in the performance of his duties. Article Twelfth
also provides that the right of indemnification shall be in addition to and not
exclusive of all other rights to which such director, officer or employee may be
entitled.
The Company has entered into indemnity agreements with each of its
directors and executive officers whereby the Company will, in general, indemnify
such directors and executive officers, to the extent permitted by the DGCL,
against any expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement incurred in connection with any actual or threatened action
or proceeding to which such director or officer is made or threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the Company. The foregoing description of the indemnity agreements is
qualified in its entirety by reference to the Company's form of indemnity
agreement.
The Company maintains directors' and officers' liability insurance
providing for $10.0 million in coverage.
II-2
<PAGE>
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
`D'2.1 -- Plan of Reorganization and Distribution Agreement dated as of March 20, 1997 among WMS
Industries Inc. ('WMS'), Williams Hotel Corporation and WHG Resorts & Casinos Inc. (the
'Company')
`D'3.1 -- Amended and Restated Certificate of Incorporation of the Company
`D'3.2 -- Amended and Restated Bylaws of the Company
`D'4.1 -- Specimen of Common Stock Certificate of the Company
`D'4.2 -- Rights Agreement dated as of April 21, 1997 between the Company and The Bank of New York
`D'4.3 -- Form of Certificate of Designation of Series A Preferred Stock (included as Exhibit A to
Exhibit 4.2 hereof)
`D'4.4 -- Specimen Form of Rights Certificate (included as Exhibit B to Exhibit 4.2 hereof)
`D'4.5 -- Summary of Rights Plan (included as Exhibit C to Exhibit 4.2 hereof)
`D'4.6 -- Certificate of Designation of Series B Preferred Stock
`D'4.7 -- Put and Call Agreement dated as of April 21, 1997 between the Company and Louis J. Nicastro
5 -- Opinion of Shack & Siegel, P.C.
10.1 -- Tax Sharing Agreement dated as of March 20, 1997 among WMS, the Company, ESJ Hotel
Corporation, WMS El Con Corp., WMS Property Inc. and Williams Hotel Corporation, as amended as
of April 15, 1997
`D'10.2 -- Employment Agreement between the Company and Louis J. Nicastro
`D'10.3 -- Employment Agreement between Williams Hospitality Group Inc. ('WHGI') and Brian R. Gamache
10.4 -- Employment Agreement between the Company and Brian R. Gamache
`D'10.5 -- Employment Agreement between the Company and George R. Baker
`D'10.6 -- Employment Agreement between WHGI and Richard F. Johnson
`D'10.7 -- Stock Option Plan
`D'10.8 -- Form of Indemnity Agreement authorized to be entered into between the Company and each officer
and director of the Company
`D'10.9 -- Operating and Management Agreement dated as of September 23, 1983 between Posadas de Puerto
Rico Associates, Incorporated ('PPRA') and Posadas de America Central, Inc. (now known as WHGI)
`D'10.10 -- Operating Credit and Term Loan Agreement dated August 30, 1988 between PPRA and Scotiabank de
Puerto Rico, as amended June 12, 1989, September 28, 1990 and April 26, 1991
`D'10.11 -- Subordination Agreement dated August 30, 1988 between Williams Hospitality Management
Corporation (now known as WHGI), PPRA and Scotiabank de Puerto Rico
`D'10.12 -- Posadas de San Juan Associates Joint Venture Agreement dated July 27, 1984 among ESJ Hotel
Corporation, Great American Industries, Inc., IHS Associates, Ltd. and MILTK Inc., as amended
as of October 15, 1984, September 30, 1986, December 30, 1989 and August 13, 1992
`D'10.13 -- Deed of Lease dated September 23, 1983 between Posadas de Flamboyan Associates, L.P. and PPRA,
as amended September 23, 1983
`D'10.14 -- Deed of Subordination of Lease dated May 5, 1995 among Posadas de Flamboyan Associates, L.P.,
PPRA and Scotiabank de Puerto Rico
`D'10.15 -- Option Agreement dated May 5, 1995 between PPRA and Posadas de Flamboyan Associates, L.P. and
Letter Agreement dated May 5, 1992 between PPRA and Scotiabank de Puerto Rico related thereto
`D'10.16 -- Guaranty of Payment and Performance in favor of PPRA made by Burton I. Koffman and Richard E.
Koffman dated May 5, 1995
</TABLE>
II-3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
`D'10.17 -- Operating and Management Agreement dated as of July 31, 1984 between Posadas de San Juan
Associates ('PSJA') and Williams Hospitality Management Corporation (now known as WHGI), as
amended October 25, 1984 and October 1, 1986
`D'10.18 -- Credit Agreement dated as of January 20, 1993 between PSJA and The Bank of Nova Scotia
`D'10.19 -- Subordination Agreement dated January 20, 1993 between Williams Hospitality Management
Corporation (now known as WHGI), PSJA and The Bank of Nova Scotia
`D'10.20 -- WKA El Con Associates Joint Venture Agreement dated January 9, 1990 among WMS El Con Corp.
(now known as WHG El Con Corp.), International Textile Products of Puerto Rico, Inc., KMA
Associates of Puerto Rico, Inc. and Hospitality Investor Group, S.E., as amended as of January
31, 1990, January 18, 1991 and April 20, 1992
`D'10.21 -- El Conquistador Partnership L.P. Venture Agreement dated July 12, 1990 between Kumagai
Caribbean, Inc. ('Kumagai') and WKA El Con Associates ('WKA'), as amended May 4, 1992
`D'10.22 -- El Conquistador Partnership L.P. Development Services and Management Agreement dated January
12, 1990 between El Conquistador Partnership L.P. (the 'Partnership') and Williams Hospitality
Management Corporation (now known as WHGI), as amended as of September 30, 1990 and January 31,
1991
`D'10.23 -- Loan Agreement dated February 7, 1991 between Puerto Rico Industrial, Medical, Educational and
Environmental Pollution Control Facilities Financing Authority ('AFICA') and the Partnership
`D'10.24 -- Trust Agreement dated February 7, 1991 between AFICA and Banco Popular de Puerto Rico, as
Trustee
`D'10.25 -- Letter of Credit and Reimbursement Agreement dated as of February 7, 1991 between the
Partnership and The Mitsubishi Bank, Limited, acting through its New York Branch (now known as
The Bank of Tokyo-Mitsubishi, Ltd.) (the 'Bank') and the Irrevocable Transferable Standby
Letter of Credit dated February 7, 1991 issued pursuant thereto
`D'10.26 -- First Amendment to the Letter of Credit and Reimbursement Agreement dated as of May 5, 1992
between the Partnership, WKA, Kumagai and the Bank
`D'10.27 -- Loan Agreement dated February 7, 1991 between The Government Development Bank for Puerto Rico
('GDB') and the Partnership
`D'10.28 -- First Amendment to GDB Loan Agreement dated May 5, 1992 between GDB and the Partnership
`D'10.29 -- Second Amendment to GDB Loan Agreement dated as of October 4, 1996 between GDB and the
Partnership
`D'10.30 -- Management Agreement Subordination and Attornment Agreement dated as of February 7, 1991
between Williams Hospitality Management Corporation (now known as WHGI) and the Bank
`D'10.31 -- Interest Rate and Currency Exchange Agreement dated as of February 7, 1991 between the Bank
and the Partnership
`D'10.32 -- Guaranty dated as of February 7, 1991 made by Kumagai and Williams Hospitality Management
Corporation (now known as WHGI) in favor of the Bank
`D'10.33 -- Collateral Pledge Agreement dated as of February 7, 1991 among the Partnership, AFICA and the
Bank
`D'10.34 -- Mortgage dated February 7, 1991 by the Partnership in favor of AFICA
`D'10.35 -- Deed of Mortgage dated February 7, 1991 by the Partnership in favor of GDB
`D'10.36 -- Deed of Lease dated December 15, 1990 by Alberto Bachman Umpierre and Lilliam Bachman Umpierre
to the Partnership
`D'10.37 -- Leasehold Mortgage dated February 7, 1991 by the Partnership in favor of AFICA
`D'10.38 -- Deed of Leasehold Mortgage dated February 7, 1991 by the Partnership in favor of GDB
`D'10.39 -- Credit Facility Agreement dated as of May 5, 1992 between GDB, Kumagai and WKA
`D'10.40 -- Deed of Mortgage dated May 5, 1992 by the Partnership in favor of GDB
`D'10.41 -- Partnership Loan Agreement dated as of May 5, 1992 among Kumagai, WKA and the Partnership
</TABLE>
II-4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
`D'10.42 -- Williams Hospitality Management Corporation (now known as WHGI) Amended and Restated
Stockholders Agreement dated as of April 30, 1992 among the Company, Burton I. Koffman, as
nominee, Hugh A. Andrews and Williams Hospitality Management Corporation (now known as WHGI)
`D'10.43 -- Posadas de Puerto Rico Associates, Incorporated Stockholders' Agreement dated September 23,
1983 among Williams Hotel Corporation, Burton I. Koffman, as nominee, Hugh A. Andrews and PPRA,
as amended April 20, 1992
`D'10.44 -- Put Option Agreement dated as of April 30, 1993, as extended, among American National Bank and
Trust Company of Chicago, WMS, Burton I. Koffman and Empire Hotel Corp.
`D'10.45 -- Loan Agreement dated as of October 21, 1993 between the Partnership and General Electric
Capital Corporation of Puerto Rico ('GECCPR'), as amended June 30, 1994
`D'10.46 -- Corporate Guaranty dated October 21, 1993 by WHGI in favor of GECCPR and related Guarantor's
Consent dated as of June 30, 1994 by WHGI
`D'10.47 -- Registration Rights Agreement dated as of April 21, 1997 between the Company and Louis J.
Nicastro
`D'10.48 -- Guaranty dated as of May 5, 1992 by WMS, Hugh A. Andrews, Burton I. Koffman and Richard E.
Koffman in favor of the Bank
10.49 -- Guaranty dated as of April 21, 1997 by the Company in favor of the Bank
`D'21 -- List of Subsidiaries of the Company
23.1 -- Consent of Shack & Siegel, P.C., included in Exhibit 5
23.2 -- Consent of Ernst & Young LLP
</TABLE>
- ------------
`D' Incorporated by reference herein to the same exhibit number included in the
Registrant's Registration Statement on Form 10, Registration No. 1-12783,
filed with the Securities and Exchange Commission on February 28, 1997, and
all the amendments thereto.
(b) Financial Statement Schedules
The following financial statement schedules are included in Part II of this
Registration Statement and should be read in conjunction with the financial
statements and notes thereto:
WHG Resorts & Casinos Inc. (formerly Williams Hotel Corporation)
Schedule II -- Valuation and Qualifying Accounts, years ended June 30,
1996, 1995 and 1994
El Conquistador Partnership L.P.
Schedule II -- Valuation and Qualifying Accounts, years ended March 31,
1996, 1995 and 1994
Posadas de San Juan Associates
Schedule II -- Valuation and Qualifying Accounts, years ended June 30,
1996, 1995 and 1994
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-5
<PAGE>
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of the securities being offered (if the
total dollar amount of the securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
'Calculation of Registration Fee' table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-6
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Municipality of Carolina,
Commonwealth of Puerto Rico, on June 19, 1997.
WHG RESORTS & CASINOS INC.
(Registrant)
By: /S/ LOUIS J. NICASTRO
...................................
LOUIS J. NICASTRO
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
Each person whose signature to this Registration Statement appears below
hereby appoints Louis J. Nicastro and Richard F. Johnson, and each of them
acting singly, as his or her attorney-in-fact to sign in his or her behalf
individually and in the capacity stated below and to file all amendments and
post-effective amendments to this Registration Statement, which amendment or
amendments may make such changes and additions to this Registration Statement as
such attorney-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ LOUIS J. NICASTRO Chairman of the Board, Chief Executive June 19, 1997
......................................... Officer and Director
(LOUIS J. NICASTRO)
/s/ GEORGE R. BAKER Vice Chairman of the Board and Director June 19, 1997
.........................................
(GEORGE R. BAKER)
/s/ BRIAN R. GAMACHE President, Chief Operating Officer and June 19, 1997
......................................... Director
(BRIAN R. GAMACHE)
/s/ RICHARD F. JOHNSON Chief Financial Officer, Treasurer June 19, 1997
......................................... and Chief Accounting Officer
(RICHARD F. JOHNSON)
/s/ BARBARA M. NORMAN Vice President, Secretary, June 19, 1997
......................................... General Counsel and Director
(BARBARA M. NORMAN)
/s/ DAVID M. SATZ, JR. Director June 19, 1997
.........................................
(DAVID M. SATZ, JR.)
/s/ JOSEPH A. LAMENDELLA Director June 19, 1997
.........................................
(JOSEPH A. LAMENDELLA)
</TABLE>
II-7
<PAGE>
<PAGE>
SCHEDULE II
WHG RESORTS & CASINOS INC.
(FORMERLY WMS HOTEL CORPORATION)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
----------- ---------- ----------- ----------
BALANCE AT CHARGED TO DEDUCTIONS- BALANCE AT
BEGINNING COSTS AND AMOUNTS END OF
COLUMN A OF PERIOD EXPENSES WRITTEN OFF PERIOD
- ------------------------------------------------------------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
1996................................................... $ 399,000 $1,457,000 $ 1,381,000 $475,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
1995................................................... $ 755,000 $1,842,000 $ 2,198,000 $399,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
1994................................................... $ 873,000 $1,840,000 $ 1,958,000 $755,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
<PAGE>
<PAGE>
SCHEDULE II
EL CONQUISTADOR PARTNERSHIP L.P.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
----------- ---------- ----------- ----------
BALANCE AT CHARGED TO DEDUCTIONS- BALANCE AT
BEGINNING COSTS AND AMOUNTS END OF
COLUMN A OF PERIOD EXPENSES WRITTEN OFF PERIOD
- ------------------------------------------------------------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
1996................................................... $ 894,200 $ 367,300 $ 959,700 $301,800
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
1995................................................... $ 517,600 $1,808,600 $ 1,432,000 $894,200
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
1994................................................... $ -- $ 517,600 $ -- $517,600
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
<PAGE>
<PAGE>
SCHEDULE II
POSADAS DE SAN JUAN ASSOCIATES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
----------- ---------- ----------- ----------
BALANCE AT CHARGED TO DEDUCTIONS- BALANCE AT
BEGINNING COSTS AND AMOUNTS END OF
COLUMN A OF PERIOD EXPENSES WRITTEN OFF PERIOD
- --------------------------------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
1996................................................ $ 434,500 $1,278,200 $ 1,355,600 $ 357,100
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
1995................................................ $ 1,290,800 $3,880,400 $ 4,736,700 $ 434,500
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
1994................................................ $ 1,632,000 $4,442,000 $ 4,783,200 $1,290,800
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C>
`D'2.1 -- Plan of Reorganization and Distribution Agreement dated as of March 20, 1997 among WMS Industries
Inc. ('WMS'), Williams Hotel Corporation and WHG Resorts & Casinos Inc. (the 'Company')..........
`D'3.1 -- Amended and Restated Certificate of Incorporation of the Company.................................
`D'3.2 -- Amended and Restated Bylaws of the Company.......................................................
`D'4.1 -- Specimen of Common Stock Certificate of the Company..............................................
`D'4.2 -- Rights Agreement dated as of April 21, 1997 between the Company and The Bank of New York.........
`D'4.3 -- Form of Certificate of Designation of Series A Preferred Stock (included as Exhibit A to Exhibit
4.2 hereof)......................................................................................
`D'4.4 -- Specimen Form of Rights Certificate (included as Exhibit B to Exhibit 4.2 hereof)................
`D'4.5 -- Summary of Rights Plan (included as Exhibit C to Exhibit 4.2 hereof).............................
`D'4.6 -- Certificate of Designation of Series B Preferred Stock...........................................
`D'4.7 -- Put and Call Agreement dated as of April 21, 1997 between the Company and Louis J. Nicastro......
5 -- Opinion of Shack & Siegel, P.C...................................................................
10.1 -- Tax Sharing Agreement dated as of March 20, 1997 among WMS, the Company, ESJ Hotel Corporation,
WMS El Con Corp., WMS Property Inc. and Williams Hotel Corporation, as amended as of April 15,
1997.............................................................................................
`D'10.2 -- Employment Agreement between the Company and Louis J. Nicastro...................................
`D'10.3 -- Employment Agreement between Williams Hospitality Group Inc. ('WHGI') and Brian R. Gamache.......
10.4 -- Employment Agreement between the Company and Brian R. Gamache....................................
`D'10.5 -- Employment Agreement between the Company and George R. Baker.....................................
`D'10.6 -- Employment Agreement between WHGI and Richard F. Johnson.........................................
`D'10.7 -- Stock Option Plan................................................................................
`D'10.8 -- Form of Indemnity Agreement authorized to be entered into between the Company and each officer
and director of the Company......................................................................
`D'10.9 -- Operating and Management Agreement dated as of September 23, 1983 between Posadas de Puerto Rico
Associates, Incorporated ('PPRA') and Posadas de America Central, Inc. (now known as WHGI).......
`D'10.10 -- Operating Credit and Term Loan Agreement dated August 30, 1988 between PPRA and Scotiabank de
Puerto Rico, as amended June 12, 1989, September 28, 1990 and April 26, 1991.....................
`D'10.11 -- Subordination Agreement dated August 30, 1988 between Williams Hospitality Management Corporation
(now known as WHGI), PPRA and Scotiabank de Puerto Rico..........................................
`D'10.12 -- Posadas de San Juan Associates Joint Venture Agreement dated July 27, 1984 among ESJ Hotel
Corporation, Great American Industries, Inc., IHS Associates, Ltd. and MILTK Inc., as amended as
of October 15, 1984, September 30, 1986, December 30, 1989 and August 13, 1992...................
`D'10.13 -- Deed of Lease dated September 23, 1983 between Posadas de Flamboyan Associates, L.P. and PPRA, as
amended September 23, 1983.......................................................................
`D'10.14 -- Deed of Subordination of Lease dated May 5, 1995 among Posadas de Flamboyan Associates, L.P.,
PPRA and Scotiabank de Puerto Rico...............................................................
`D'10.15 -- Option Agreement dated May 5, 1995 between PPRA and Posadas de Flamboyan Associates, L.P. and
Letter Agreement dated May 5, 1992 between PPRA and Scotiabank de Puerto Rico related thereto....
`D'10.16 -- Guaranty of Payment and Performance in favor of PPRA made by Burton I. Koffman and Richard E.
Koffman dated May 5, 1995........................................................................
`D'10.17 -- Operating and Management Agreement dated as of July 31, 1984 between Posadas de San Juan
Associates ('PSJA') and Williams Hospitality Management Corporation (now known as WHGI), as
amended October 25, 1984 and October 1, 1986.....................................................
`D'10.18 -- Credit Agreement dated as of January 20, 1993 between PSJA and The Bank of Nova Scotia...........
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C>
`D'10.19 -- Subordination Agreement dated January 20, 1993 between Williams Hospitality Management
Corporation (now known as WHGI), PSJA and The Bank of Nova Scotia.................................
`D'10.20 -- WKA El Con Associates Joint Venture Agreement dated January 9, 1990 among WMS El Con Corp. (now
known as WHG El Con Corp.), International Textile Products of Puerto Rico, Inc., KMA Associates of
Puerto Rico, Inc. and Hospitality Investor Group, S.E., as amended as of January 31, 1990, January
18, 1991 and April 20, 1992.......................................................................
`D'10.21 -- El Conquistador Partnership L.P. Venture Agreement dated July 12, 1990 between Kumagai Caribbean,
Inc. ('Kumagai') and WKA El Con Associates ('WKA'), as amended May 4, 1992.......................
`D'10.22 -- El Conquistador Partnership L.P. Development Services and Management Agreement dated January 12,
1990 between El Conquistador Partnership L.P. (the 'Partnership') and Williams Hospitality
Management Corporation (now known as WHGI), as amended as of September 30, 1990 and January 31,
1991.............................................................................................
`D'10.23 -- Loan Agreement dated February 7, 1991 between Puerto Rico Industrial, Medical, Educational and
Environmental Pollution Control Facilities Financing Authority ('AFICA') and the Partnership.....
`D'10.24 -- Trust Agreement dated February 7, 1991 between AFICA and Banco Popular de Puerto Rico, as
Trustee..........................................................................................
`D'10.25 -- Letter of Credit and Reimbursement Agreement dated as of February 7, 1991 between the Partnership
and The Mitsubishi Bank, Limited, acting through its New York Branch (now known as The Bank of
Tokyo-Mitsubishi, Ltd.) (the 'Bank') and the Irrevocable Transferable Standby Letter of Credit
dated February 7, 1991 issued pursuant thereto...................................................
`D'10.26 -- First Amendment to the Letter of Credit and Reimbursement Agreement dated as of May 5, 1992
between the Partnership, WKA, Kumagai and the Bank...............................................
`D'10.27 -- Loan Agreement dated February 7, 1991 between The Government Development Bank for Puerto Rico
('GDB') and the Partnership......................................................................
`D'10.28 -- First Amendment to GDB Loan Agreement dated May 5, 1992 between GDB and the Partnership..........
`D'10.29 -- Second Amendment to GDB Loan Agreement dated as of October 4, 1996 between GDB and the
Partnership......................................................................................
`D'10.30 -- Management Agreement Subordination and Attornment Agreement dated as of February 7, 1991 between
Williams Hospitality Management Corporation (now known as WHGI) and the Bank.....................
`D'10.31 -- Interest Rate and Currency Exchange Agreement dated as of February 7, 1991 between the Bank and
the Partnership..................................................................................
`D'10.32 -- Guaranty dated as of February 7, 1991 made by Kumagai and Williams Hospitality Management
Corporation (now known as WHGI) in favor of the Bank.............................................
`D'10.33 -- Collateral Pledge Agreement dated as of February 7, 1991 among the Partnership, AFICA and the
Bank.............................................................................................
`D'10.34 -- Mortgage dated February 7, 1991 by the Partnership in favor of AFICA.............................
`D'10.35 -- Deed of Mortgage dated February 7, 1991 by the Partnership in favor of GDB.......................
`D'10.36 -- Deed of Lease dated December 15, 1990 by Alberto Bachman Umpierre and Lilliam Bachman Umpierre to
the Partnership..................................................................................
`D'10.37 -- Leasehold Mortgage dated February 7, 1991 by the Partnership in favor of AFICA...................
`D'10.38 -- Deed of Leasehold Mortgage dated February 7, 1991 by the Partnership in favor of GDB.............
`D'10.39 -- Credit Facility Agreement dated as of May 5, 1992 between GDB, Kumagai and WKA...................
`D'10.40 -- Deed of Mortgage dated May 5, 1992 by the Partnership in favor of GDB............................
`D'10.41 -- Partnership Loan Agreement dated as of May 5, 1992 among Kumagai, WKA and the Partnership........
`D'10.42 -- Williams Hospitality Management Corporation (now known as WHGI) Amended and Restated Stockholders
Agreement dated as of April 30, 1992 among the Company, Burton I. Koffman, as nominee, Hugh A.
Andrews and Williams Hospitality Management Corporation (now known as WHGI)......................
`D'10.43 -- Posadas de Puerto Rico Associates, Incorporated Stockholders' Agreement dated September 23, 1983
among Williams Hotel Corporation, Burton I. Koffman, as nominee, Hugh A. Andrews and PPRA, as
amended April 20, 1992...........................................................................
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------------- ----
<S> <C> <C>
`D'10.44 -- Put Option Agreement dated as of April 30, 1993, as extended, among American National Bank and
Trust Company of Chicago, WMS, Burton I. Koffman and Empire Hotel Corp..........................
`D'10.45 -- Loan Agreement dated as of October 21, 1993 between the Partnership and General Electric Capital
Corporation of Puerto Rico ('GECCPR'), as amended June 30, 1994.................................
`D'10.46 -- Corporate Guaranty dated October 21, 1993 by WHGI in favor of GECCPR and related Guarantor's
Consent dated as of June 30, 1994 by WHGI.......................................................
`D'10.47 -- Registration Rights Agreement dated as of April 21, 1997 between the Company and Louis J.
Nicastro........................................................................................
`D'10.48 -- Guaranty dated as of May 5, 1992 by WMS, Hugh A. Andrews, Burton I. Koffman and Richard E.
Koffman in favor of the Bank....................................................................
10.49 -- Guaranty dated as of April 21, 1997 by the Company in favor of the Bank.........................
D'21 -- List of Subsidiaries of the Company.............................................................
23.1 -- Consent of Shack & Siegel, P.C., included in Exhibit 5..........................................
23.2 -- Consent of Ernst & Young LLP....................................................................
</TABLE>
- ------------
`D' Incorporated by reference herein to the same exhibit number included in the
Registrant's Registration Statement on Form 10, Registration No. 1-12783,
filed with the Securities and Exchange Commission on February 28, 1997, and
all the amendments thereto.
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as ........................`D'
<PAGE>
<PAGE>
(212) 782-0700
June 19, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form S-1 Registration Statement of WHG Resorts & Casinos Inc.
Dear Sir or Madam:
We have acted as counsel to WHG Resorts & Casinos Inc., a Delaware
corporation (the "Company"), in connection with the filing with the Securities
and Exchange Commission of a registration statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933, as amended, on
behalf of certain stockholders of the Company, relating to 1,729,425 shares of
the Company's voting common stock, par value $.01 per share (the "Shares"),
owned by such stockholders.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of:
(i) the Registration Statement; (ii) the Amended and Restated Certificate of
Incorporation of the Company; (iii) the Amended and Restated By-Laws of the
Company; and (iv) such other documents as we have deemed necessary or
appropriate as a basis for the opinion set forth below. In our examination, we
have assumed the genuineness of all signatures, the legal capacity of all
natural persons, the authenticity of all documents submitted to us as originals,
the conformity to the original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents. As to any facts material to this opinion that we did not
independently establish or verify, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized and are validly issued, fully paid and
nonassessable.
<PAGE>
<PAGE>
Securities and Exchange Commission - 2 - June 19, 1997
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and we further consent to the reference made to us under
the caption "Legal Matters" in the Prospectus which forms a part of the
Registration Statement.
The law covered by the opinion expressed herein is limited to the
corporate laws of the State of Delaware.
Very truly yours,
SHACK & SIEGEL, P.C.
By: /s/ Pamela E. Flaherty
________________________
Pamela E. Flaherty
<PAGE>
<PAGE>
EXHIBIT 10.1
TAX SHARING AGREEMENT
THIS AGREEMENT is entered into as of the 20th day of March, 1997, by
and among WMS Industries Inc., a Delaware corporation ("WMS"), Williams Hotel
Corporation, a Delaware corporation ("Williams"), WHG Resorts & Casino Inc.
(formerly known as WMS Hotel Corporation), a Delaware corporation ("Hotel"), ESJ
Hotel Corporation, a Delaware corporation ("ESJ"), WMS Property Inc., a Delaware
corporation ("WPI"), and WHG El Con Corp. (formerly known as WMS El Con Corp.),
a Delaware corporation ("El Con"), (Williams, Hotel, ESJ, WPI and El Con
hereinafter sometimes referred to as the "Hotel Subsidiaries" or the "Hotel
Group").
WITNESSETH:
WHEREAS, WMS and the Hotel Subsidiaries (hereinafter sometimes referred
to as "Members", or in the singular "Member") have been part of an affiliated
group ("WMS Group") as defined by Section 1504(a) of the Internal Revenue Code
of 1986, as amended (hereafter referred to by Sections); and
WHEREAS, the WMS Group has filed consolidated federal income tax
returns in accordance with Section 1501; and
WHEREAS, WMS is the Common Parent (as such term is defined in Section
1504(a)) for the affiliated group which includes WMS and the Hotel Subsidiaries;
and
WHEREAS, pursuant to the Plan of Reorganization and Distribution
Agreement dated as of March 20, 1997, the following will occur (and in the order
enumerated): (i) Williams will be merged with and into Hotel; (ii) WPI will be
merged with and into ESJ; (iii) the capital stock of ESJ will be transferred to
Posadas de Puerto Rico Associates, Incorporated ("PPRA"); and (iv) WMS will
distribute all of its stock in Hotel to the common stockholders of WMS in a
transaction intended to qualify for tax-free treatment under Section 355 (the
"Distribution") and as a result, Hotel and the Hotel Subsidiaries will leave the
WMS Group; and
WHEREAS, WMS and the Hotel Subsidiaries have filed consolidated federal
income tax returns for the taxable years ending on or prior to June 30, 1996
(the "Prior Periods") and will file such a return for the WMS Group's current
year ending June 30, 1997 (the "Current Period") which will include the Hotel
Subsidiaries for the period ending as of the close of the day of the
Distribution (the "Distribution Date") (in the case of Williams, Hotel and El
Con) or the date of the Contribution (the "Contribution Date") (in the case of
WPI and ESJ) in accordance with Section 1501 and regulations issued under
Section 1502; and
WHEREAS, the Members desire to provide and fix the responsibilities
for: (1) the preparation and filing of tax returns along with the payments of
taxes shown to be due and
<PAGE>
<PAGE>
payable therein (as well as estimated or advance payments required prior to the
filing of said returns) for all periods prior to and following the Distribution
Date or the Contribution Date; (2) the retention and maintenance of all relevant
records necessary to prepare and file appropriate tax returns, as well as the
provision for appropriate access to those records for all parties to this
Agreement; (3) the conduct of audits, examinations, and proceedings by
appropriate governmental authorities which could result in a redetermination of
tax liabilities (for all periods prior to or following the Distribution Date) of
any party to this Agreement; and (4) the cooperation of all parties with one
another to fulfill their duties and responsibilities under this Agreement and
under applicable law;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. PAYMENT OF TAXES
WMS shall pay all taxes due (or receive all refunds) in
connection with the filing of WMS's consolidated federal income tax returns for
all taxable periods beginning before the Distribution or Contribution Dates, and
with any request for extension of time within which to file such returns.
2. PREDISTRIBUTION TAX RETURNS
All consolidated federal income tax returns that include a
member of the WMS Group and/or the Hotel Group that are required to be filed for
periods beginning before the Distribution or Contribution Dates shall be
prepared and filed by WMS. The Hotel Group shall, for such taxable periods,
provide WMS with (i) true and correct separate federal income tax returns for
each member of the Hotel Group, and (ii) a true and correct reconciliation of
book income to federal taxable income for each member of the Hotel Group.
3. ALLOCATION OF TAX ATTRIBUTES
All tax attributes of the WMS Group will be allocated among
WMS (and its subsidiaries other than the Hotel subsidiaries), and the Hotel
subsidiaries, in accordance with the Regulations promulgated pursuant to Section
1502 or analogous provisions of state, local, or foreign law.
4. CARRYBACKS OF TAX ATTRIBUTES
Except as provided in Section 8(c) hereof, if, for any taxable
year beginning on or after the Distribution or Contribution Dates, Hotel or any
Member of the Hotel Group recognizes a tax attribute that Hotel or such Member
of the Hotel Group, under the applicable provisions of the Code and Regulations
promulgated under Section 1502 thereof, is permitted or required to carry back
to a prior taxable year of the WMS Group or the prior taxable year of a Member
of the WMS Group, WMS shall, at Hotel's cost and expense, file appropriate
2
<PAGE>
<PAGE>
refund claims within a reasonable period after being requested by Hotel. WMS (or
the Member of the WMS Group receiving such refund) shall promptly remit to Hotel
any refunds it receives with respect to any tax attribute so carried back.
5. TAX AUDITS AND CONTROVERSIES
(a) WMS, at its own expense, shall have the exclusive
authority to represent each member of the Hotel Group before the Internal
Revenue Service ("IRS") or any other governmental agency or authority or before
any court with respect to any matter affecting the tax liability of any member
of either the WMS Group or the Hotel Group for any period beginning before the
Distribution or Contribution Dates with respect to any return for which WMS has
filing responsibility. Such representation shall include, but shall not be
limited to exclusive control over (i) any response to any examination of any
such tax returns and (ii) any contest through a final determination of any issue
included in any such tax return that includes a member of the WMS Group
including, but not limited to, (A) whether and in what forum to conduct such
contest and (B) except as otherwise provided in this Section 5, whether and on
what basis to settle such contest. WMS shall give timely notice to Hotel of any
inquiry, the assertion of any claim or the commencement of any suit, action or
proceeding to the extent that any issue raised therein could directly or
indirectly adversely impact any Member of the Hotel Group and will give Hotel
such information with respect thereto as Hotel may reasonably request. Upon
notice to WMS, Hotel may, at its own expense, participate in any such inquiry,
audit or other administrative proceeding and to the extent any such inquiry,
audit or other administrative proceeding relates to an item of the Hotel Group,
then Hotel may assume at its own expense the defense or prosecution, as the case
may be, of any inquiry, audit, suit or action or proceeding provided that each
Hotel representative is reasonably satisfactory to WMS and Hotel shall
thereafter consult with WMS upon WMS's request for such consultation from time
to time, with respect to such proceeding.
(b) In the event either WMS or Hotel notifies the other party
in writing that it wishes to settle any audit, inquiry, suit, action or
proceeding (each an "Action") affecting the tax liability of the other party
(including by application of this Agreement), such other party shall have the
right (by giving written notice to the party wishing to settle the Action within
a reasonable amount of time, considering all the facts and circumstances, of
having received notice of the intention to settle), to prohibit such settlement,
in which case the party favoring settlement shall have the right (within thirty
(30) days of receipt of the other party's written notice prohibiting the
settlement) to pay to the other party (or receive from the other party) an
amount (a "Settlement Amount") equal to the aggregate amount which it would have
paid (or received) after application of each provision of this Agreement other
than this Section 5(b), in full satisfaction of the Action and its obligation to
pay amounts (or right to receive amounts) as provided in this Agreement. The
party opposing the settlement shall thereafter control, in its sole and absolute
discretion, the further defense and disposition of the Action, and shall be
fully and wholly liable for all taxes (and receive any refund of taxes)
resulting therefrom and shall indemnify and hold harmless the party favoring the
settlement from any and all liability for taxes that results from the ultimate
resolution of the Action in excess of the Settlement Amount. The
3
<PAGE>
<PAGE>
party opposing the settlement shall have no obligation or duty to reimburse or
refund to the other party any portion of the Settlement Amount, regardless of
the ultimate resolution of the Action. The party favoring the settlement shall
have the right, at its own expense, to participate in any Action for which the
other party has assumed control under this Section 5(b). If the party favoring
settlement does not on a timely basis exercise its right to make or receive a
settlement amount, the obligation of WMS and Hotel under this Agreement shall be
determined as if the proposed settlement did not exist (e.g., the party favoring
settlement cannot settle an Action without again complying with the procedure
set forth in this Section 5(b)).
6. RETENTION OF BOOKS AND RECORDS
WMS and the Hotel Subsidiaries each agree to retain all tax
records, related schedules and work papers, and all material records and other
documents relating thereto existing on the date hereof or created through or
with respect to taxable periods ending on or before the Distribution Date or the
Contribution Date, until the later of (i) the expiration of the statute of
limitations (including extensions) of the taxable year to which such tax returns
and other documents relate or (ii) ten years from the date hereof.
7. COOPERATION REGARDING RETURN FILINGS, EXAMINATIONS AND
CONTROVERSIES
(a) In addition to any obligations imposed pursuant to the
Plan of Reorganization and Distribution Agreement, Hotel and each Member of the
Hotel Group shall fully cooperate with WMS and its representatives, in a prompt
and timely manner, in connection with (A) the preparation and filing of and (B)
any inquiry, audit, examination, investigation, dispute, or litigation involving
any tax returns filed or required to be filed by or for any member of the WMS
Group for any taxable period beginning before the Distribution Date or the
Contribution Date. Such cooperation shall include, but not be limited to, (x)
the execution and delivery to WMS by the appropriate Hotel Group Member of any
power of attorney or other necessary document to allow WMS and its counsel to
participate on behalf of Hotel or any Hotel Group Member in any action and to
assume the defense or prosecution, as the case may be, of any action, pursuant
to the terms of Section 5 of this Agreement and (y) making available to WMS,
during normal business hours, and within sixty (60) days of any request
therefor, all books, records and information (which books, records and
information may be copied by WMS at its expense) and the assistance of all
officers and employees, reasonably necessary or useful in connection with any
Action, including the preparation of the consolidated federal tax return for the
Current Period.
(b) In addition to any obligations imposed pursuant to the
Plan of Reorganization and Distribution Agreement, WMS and each Member of the
WMS Group shall fully cooperate with Hotel and its representatives, in a prompt
and timely manner, in connection with (A) the preparation and filing of and (B)
any inquiry, audit, examination, investigation, dispute, or litigation involving
any tax returns filed or required to be filed by or for any Member of the Hotel
Group for any taxable period beginning before the Distribution or Contribution
Dates. Such cooperation shall include, but not be limited to, (x) the execution
and delivery to
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Hotel by the appropriate WMS Group member of any power of attorney or other
necessary document to allow Hotel and its counsel to participate on behalf of
WMS or any WMS Group member in any action and to assume the defense or
prosecution, as the case may be, of any action, pursuant to the terms of Section
5(a) of this Agreement and (y) making available to Hotel, during normal business
hours, and within sixty (60) days of any request therefor, all books, records
and information (which books, records, and the assistance of all officers and
employees, reasonably necessary or useful in connection with any action,
including the preparation of the consolidated federal tax return for the Current
Period).
8. REFUNDS AND SUBSEQUENT ADJUSTMENTS
(a) If part or all of an unused consolidated net operating
loss or tax credit is allocated to a Member of the Hotel Group pursuant to
Section 1.1502-79 of the Regulations, and it is carried back or forward to a
year in which such Member actually filed or files a separate income tax return
or a consolidated federal income tax return with another affiliated group, any
refund or reduction in tax liability arising from the carryback or carryover
shall be retained by such Member. Notwithstanding the preceding sentence, WMS
shall determine whether an election shall be made not to carryback any
consolidated net operating loss ("NOL") arising in a consolidated return year
(including any portion allocated to a Member under Section 1.1502-79) in
accordance with Section 172(b)(3).
(b) If the consolidated federal income tax liability is
adjusted for the Prior Periods or the Current Period, whether by means of an
amended return, claim for refund, or after an audit by the IRS, WMS shall be
solely responsible for the payment of any additional tax liability and will
retain any tax refunds. WMS shall indemnify the Hotel Subsidiaries against any
liability for such taxes including any liability asserted pursuant to Regulation
Section 1.1502-6 and Hotel and the Hotel Subsidiaries will promptly pay over to
WMS any tax refunds received with respect to such periods.
(c) If Hotel or a Member of the Hotel Group shall be entitled
to an Income Tax Benefit (as herein defined) for any taxable period ending after
the Distribution Date or the Contribution Date on account of a redetermination
of the tax treatment of any item of income, gain, deduction, loss or credit in
the consolidated federal income tax return for the Prior Periods or the Current
Period, then such Hotel Group Member shall (i) not elect to waive the carryback
period pursuant to Section 172(b)(3) with respect to any NOL generated or
increased as a result of such Income Tax Benefit and (ii) pay over to WMS the
amount of any Income Tax Reduction (as herein defined) as a result of such
Income Tax Benefit. In addition, notwithstanding Section 4 of this Agreement,
WMS shall retain the portion of any refund received with respect to the
carryback of an NOL (or other tax attribute) to a prior taxable year of the WMS
Group, to the extent such NOL (or other tax attribute) resulted from the
realization of such Income Tax Benefit.
For purposes of this Section 8(c):
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(A) "Income Tax Benefit" shall mean any decrease in
any item of income, gain or investment tax credit recapture or
any increase in any item of deduction (including depletion,
depreciation or amortization deductions which result from an
addition to basis of any asset); and
(B) "Income Tax Reduction" shall mean (i) with
respect to any taxable period for which an income tax return
shall have been filed, receipt of a refund of income tax
previously paid with respect to such period plus interest
thereon as provided by law (or any reduction in income tax
liability in lieu of such refund and interest); and (ii) with
respect to any taxable period for which an income tax return
shall not have been filed, a reduction in the income tax that
would otherwise have been payable with respect to such period.
9. STATE AND LOCAL TAXES
Each Member shall timely file its own returns and pay its own state and
local income and franchise taxes; provided, however, that if any two or more
Members are required or elect, or WMS elects or causes any two or more Members
to elect, to file combined or consolidated (or similar) income tax returns for
any taxable year under any state or local income tax law, the financial
consequences of filing such returns among such Members shall be determined in a
manner as similar as practicable to those provided herein for federal income tax
purposes.
10. EFFECTIVE DATE
This Agreement shall become effective upon the Distribution and shall
continue in effect until otherwise agreed in writing by WMS and Hotel or their
successors.
11. MISCELLANEOUS PROVISIONS
(a) All material including, but not limited to, returns,
supporting schedules, work papers, correspondence, and other documents relating
to the consolidated federal income tax returns filed for a taxable year during
which this Agreement was in effect shall be made available to any party to this
Agreement during regular business hours until the later of (i) the expiration of
the statute of limitations (including extensions) of the taxable year to which
such tax returns and other documents relate or (ii) ten years from the date
hereof.
(b) The provisions of this Agreement shall be administered by
the Chief Executive Officer of WMS. A dispute between the parties with respect
to the operation or interpretation of this Agreement shall be decided by three
arbitrators who must all be certified public accountants or attorneys
specializing in tax law. WMS and Hotel shall each choose an arbitrator who will
choose a third arbitrator. The court of arbitrators shall be held in the State
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of Illinois in the city of Chicago. The losing party shall bear the cost of
arbitration including all fees for attorneys and accountants.
(c) Any alteration, modification, addition, deletion, or other
change in the consolidated income tax return provisions of the Code or the
regulations thereunder shall automatically be applied to this Agreement mutatis
mutandis.
(d) This Agreement shall bind successors and assigns of the
parties hereto; but no assignment shall relieve any party's obligations
hereunder without the written consent of the other parties.
(e) All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if signed by the respective
party hereto giving such notice or other communication (in the case of any
corporation and signature shall be by an authorized officer thereof) upon
receipt of: hand delivery; certified or registered Mail, return receipt
requested; or telecopy transmission with confirmation of receipt:
IF TO HOTEL, TO:
WHG Resorts & Casinos Inc.
6063 East Isla Verde Avenue
Carolina, Puerto Rico 00979
Telecopier: (787) 791-7500
Attention: Chief Financial Officer
IF TO WMS, TO:
WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
Telecopier: (773) 961-1099
Attention: Chief Financial Officer
Such names and addresses may be changed from time to time by such
notice.
(f) This Agreement shall be governed by the laws of the
State of Illinois.
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IN WITNESS WHEREOF, the parties have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective as of the date first written above.
WMS INDUSTRIES INC.
By: /s/ Harold H. Bach, Jr.
------------------------------
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
WHG RESORTS & CASINOS INC.
By: /s/ Harold H. Bach, Jr.
------------------------------
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
ESJ HOTEL CORPORATION
By: /s/ Harold H. Bach, Jr.
------------------------------
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
WMS EL CON CORP.
By: /s/ Harold H. Bach, Jr.
------------------------------
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
WMS PROPERTY INC.
By: /s/ Harold H. Bach, Jr.
------------------------------
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
WILLIAMS HOTEL CORPORATION
By: /s/ Harold H. Bach, Jr.
------------------------------
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
8
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FIRST AMENDMENT TO
TAX SHARING AGREEMENT
This agreement is entered into as of the 15th day of April 1997 among
WMS Industries Inc., a Delaware corporation, WHG Resorts & Casinos Inc., a
Delaware corporation, ESJ Hotel Corporation, a Delaware corporation and WHG El
Con Corp., a Delaware corporation (formerly known as WMS El Con Corp.).
WHEREAS, the parties hereto and certain of their predecessors are
parties to a tax sharing agreement (the "Tax Sharing Agreement") dated March 20,
1997. Capitalized terms as used herein and not otherwise defined shall have the
same meaning ascribed to such terms in the Tax Sharing Agreement.
Section 1 of the Tax Sharing Agreement is hereby amended and restated
to read as follows:
1. Payment of Taxes
(a) Except as provided in subsection (b), WMS shall pay all
taxes due (or receive all refunds) in connection with the filing of
WMS's consolidated federal income tax returns for all taxable periods
beginning before the Distribution or Contribution Dates, and with any
request for extension of time within which to file such returns.
(b) Notwithstanding subsection (a) of this section, in the
event the consolidated federal income tax return for the Current Period
includes items of income or deduction allocable to a Member of the
Hotel Group which are attributable to a sale of substantially all the
assets of such Member (or substantially all the assets of a partnership
owned by such Member) after the Distribution or Contribution Date, such
member shall pay to WMS the portion of the consolidated tax liability
attributable to such items or WMS shall pay to such member the
reduction in the consolidated tax liability attributable to such items.
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Except as set forth above, the Tax Sharing Agreement remains in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers effective as
of the date first above written.
WMS INDUSTRIES INC.
By /s/ Harold H. Bach, Jr.
--------------------------------
Harold H. Bach, Jr.
Vice President - Finance
WHG RESORTS & CASINOS INC.
ESJ HOTEL CORPORATION
WHG EL CON CORP.
By /s/ Harold H. Bach, Jr.
--------------------------------
Harold H. Bach, Jr.
Vice President - Finance
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WHG RESORTS & CASINOS INC.
6063 East Isla Verde Avenue
Carolina, Puerto Rico 00979
April 21, 1997
Mr. Brian R. Gamache
7 Candida Street
Condado, Santurce
Puerto Rico 00907
Dear Mr. Gamache:
Reference is made to your employment agreement dated October 27, 1996
with Williams Hospitality Group Inc. ("WHGI"). As you are aware, our parent
corporation, WMS Industries Inc., has announced its intention to spin off its
hotel & casino business to the stockholders of WMS Industries Inc., a
transaction which we expect to occur on or about April 21, 1997 (the
"Distribution Date").
This letter will confirm that it is our mutual intention that you will
serve as President and Chief Operating Officer of WHG Resorts & Casinos Inc.
(the "Company"), the new public company which results from the spin off
transaction, effective on the Distribution Date. In connection therewith, the
Company will pay you a salary at the rate of $50,000 per annum, payable in
accordance with the Company's customary payroll practices. You agree to devote
such time to the business of the Company that is reasonable to perform the
duties as its President and Chief Operating Officer. The term of your employment
by the Company pursuant to this letter shall coincide with the term of your
employment with WHGI under your existing employment agreement.
Very truly yours,
WHG RESORTS & CASINOS INC.
By: /s/ Louis J. Nicastro
------------------------------
Name: Louis J. Nicastro
Title: Chairman of the Board
ACCEPTED AND AGREED TO
this 21st day of April, 1997
/s/ Brian R. Gamache
- --------------------------------
BRIAN R. GAMACHE
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GUARANTY
GUARANTY, dated as of April 21, 1997 made by WHG RESORTS & CASINOS
INC., formerly known as WMS Hotel Corporation, a Delaware corporation ("WHG"),
in favor of The Bank of Tokyo-Mitsubishi, Ltd. (formerly known as The Mitsubishi
Bank, Limited), a banking corporation organized under the laws of Japan, acting
through its New York Branch (the "Bank").
WMS Industries Inc. ("WMS"), Hugh A. Andrews ("Andrews"), Burton I.
Koffman and Richard E. Koffman (collectively, the "Koffmans") (WMS, Andrews and
the Koffmans are collectively referred to herein as the Guarantors) have entered
into a Guaranty, dated as of May 5, 1992 (the "Guaranty") in favor of the Bank
pursuant to which the Guarantors issued their unconditional guaranty of due and
punctual payment and performance of the "Guaranteed Obligations". Capitalized
terms used but not defined herein shall have the meanings given such terms in
the Guaranty.
The Guaranteed Obligations relate to obligations of WKA to make
additional loans to El Conquistador Partnership L.P. ("El Con LP") under
Paragraph 4 of the First Amendment (the "Amendment") dated May 5, 1992 to the
Letter of Credit and Reimbursement Agreement, dated as of February 7, 1991 (as
amended to date, and as the same may be further amended, modified, restated or
supplemented, the "Letter of Credit Agreement").
The Bank is entering into a Consent and Waiver Agreement, dated as of
April 21, 1997 (the "Waiver Agreement") relating to the Letter of Credit
Agreement. It is a condition precedent to the effectiveness of the Waiver
Agreement that WHG shall have executed and delivered this Guaranty to the Bank.
WHG hereby acknowledges that it will materially benefit from the
Waiver Agreement.
Intending to be legally bound, WHG hereby agrees with the Bank as
follows:
1. (a) WHG hereby absolutely and unconditionally guarantees the due
and punctual payment and performance of the obligations of WKA to make
additional loans pursuant to Paragraph 4 of the Amendment (the "Guaranteed
Obligations") to the extent provided in Section 1(c) hereof. WHG hereby agrees
that if WKA fails to perform the Guaranteed Obligations when and as the same
shall be required in accordance with the terms of the Amendment, on receipt of
demand from the Bank, WHG will forthwith perform the Guaranteed Obligations
which are the subject of such demand to the extent provided in Section 1(c)
hereof.
(b) WHG hereby agrees that, notwithstanding any provision to the
contrary in the Letter of Credit Agreement or the Operative Documents limiting
the recourse of the Bank to assets of the Company, WHG shall be fully and
personally liable
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with respect to its covenants, representations, warranties and agreements under
this Guaranty.
(c) The obligations of WHG hereunder with respect to the Guaranteed
Obligations shall be joint and several with the obligations of WMS under the
Guaranty and shall be subject to the same limitations as are the obligations of
WMS under the Guaranty.
(d) The obligations of WHG hereunder shall terminate upon the earliest
to occur of (i) termination of the Letter of Credit Agreement and the actual and
irrevocable receipt by the Bank of payment in full of any amounts which may have
become due and payable, (ii) the advance by WKA of additional loans to the
Company, pursuant to Paragraph 4 of the Amendment, in the aggregate amount of
$3,000,000, and (iii) the Coverage Date.
2. Sections 2 through 15 of the Guaranty are incorporated herein by
reference and the Guarantor hereby agrees to be bound by the terms contained
therein, makes the representations and warranties to the Bank contained therein,
and make each of the covenants to the Bank contained therein, in each case,
mutatia mutandis, as if all such provisions were set forth herein in full.
Notices to WHG shall be addressed as follows: WHG Resorts & Casinos Inc., 6063
East Isle Verde Avenue, Carolina, Puerto Rico 00979, Telecopy: 787-791-2576.
3. From time to time, at the request of the Bank, WHG shall execute
and deliver all such further instruments and take all such further actions as
may be reasonably necessary or appropriate in order to carry out the provisions
of this Guaranty.
WHG RESORTS & CASINOS INC.
By: /s/ Louis J. Nicastro
--------------------------
Name: Louis J. Nicastro
Title: Chairman
The undersigned hereby consents to the foregoing guaranty by WHG,
ratifies and confirms its Guaranty in all respects and confirms that its
Guaranty remains in full force and effect in accordance with its terms.
WMS INDUSTRIES INC.
By: /s/ Neil D. Nicastro
----------------------------
Name: Neil D. Nicastro
Title: President
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EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' and to
the use of our reports with respect to the consolidated financial statements of
WHG Resorts & Casinos Inc., formerly known as Williams Hotel Corporation, and
the financial statements of Posadas de San Juan Associates, WKA El Con
Associates and El Conquistador Partnership L.P., in the Registration Statement
(Form S-1) and related Prospectus of WHG Resorts & Casinos Inc. for the
registration of 1,729,425 shares of its common stock.
Our audits of WHG Resorts & Casinos Inc., Posadas de San Juan Associates
and El Conquistador Partnership L.P. also included the financial statement
schedules included in the Registration Statement (Form S-1). These schedules are
the responsibility of the respective Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, with respect to which
the dates are February 21, 1997, August 2, 1996 and May 3, 1996, respectively,
the financial statement schedules referred to above, when considered in relation
to the related basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Chicago, Illinois ERNST & YOUNG LLP
June 17, 1997
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