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<PAGE>
FOR INFORMATION ONLY
THIS REGISTRATION STATEMENT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS
SUBJECT TO COMPLETION OR AMENDMENT.
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1997
REGISTRATION NO. 1-12783
___________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10/A
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
WHG RESORTS & CASINOS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 36-3277019
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
6063 EAST ISLA VERDE AVENUE 00979
CAROLINA, PUERTO RICO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (787) 791-2222
------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH EACH CLASS IS
TO BE SO REGISTERED TO BE REGISTERED
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
New York Stock Exchange
Common Stock, par value $.01 per share
- ------------------------------------------------------------------------------------------------------------------
Stock Purchase Rights pursuant to Stockholder Rights Agreement New York Stock Exchange
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
________________________________________________________________________________
<PAGE>
<PAGE>
WHG RESORTS & CASINOS INC.
ITEM 1. BUSINESS.
The information required by this item is contained under the Sections
'Summary of Certain Information,' 'Relationship Between the Company and WMS
After the Distribution,' 'Relationship Between the Company and the Company's
Subsidiaries After the Distribution,' 'Hotel Financings and Certain Contingent
Obligations,' 'Management's Discussion and Analysis of Financial Condition and
Results of Operations,' 'Industry Overview' and 'Business' of the Information
Statement of WHG Resorts & Casinos Inc., formerly known as WMS Hotel Corporation
(the 'Company'), being furnished to the stockholders of WMS Industries Inc.,
which is set forth as Exhibit 99 hereto (the 'Information Statement'), and such
Sections are incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this Section is contained under the Sections
'Summary of Certain Information,' 'Unaudited Pro Forma Condensed Consolidated
Financial Statements,' 'Selected Financial Data' and 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' of the
Information Statement and such Sections are incorporated herein by reference.
ITEM 3. PROPERTIES.
The information required by this Section is contained under the Section
'Business' of the Information Statement and such Section is incorporated herein
by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Section is contained under the Section
'Security Ownership of Certain Beneficial Owners and Management' of the
Information Statement and such Section is incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this Section is contained under the Sections
'Management' and 'Liability and Indemnification of Officers and Directors of the
Company' of the Information Statement and such Sections are incorporated herein
by reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this Section is contained under the Section
'Management' of the Information Statement and such Section is incorporated
herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Section is contained under the Section
'Related Party Transactions' of the Information Statement and such Section is
incorporated herein by reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this Section is contained under the Section
'Business -- Legal Proceedings' of the Information Statement and such Section is
incorporated herein by reference.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this Section is contained under the Sections
'Summary of Certain Information,' 'The Distribution,' 'Risk Factors,'
'Dividends,' 'Security Ownership of Certain
1
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<PAGE>
Beneficial Owners and Management' and 'Description of the Company's Capital
Stock' of the Information Statement and such Sections are incorporated herein by
reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has not sold any of its securities within the past three years.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this Section is contained under the Sections
'Purposes and Anti-Takeover Effects of Certain Provisions' and 'Description of
the Company's Capital Stock' of the Information Statement and such Sections are
incorporated herein by reference.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this Section is contained under the Section
'Liability and Indemnification of Officers and Directors of the Company' of the
Information Statement and such Section is incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Section is contained under the Sections
'Summary of Certain Information,' 'Unaudited Pro Forma Condensed Consolidated
Financial Statements,' 'Selected Financial Data,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and 'Index to
Financial Statements' of the Information Statement and such Sections are
incorporated herein by reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
See Index to Financial Statements on page F-1 of the Information Statement,
which is incorporated herein by reference.
(b) Exhibits
See Exhibit Index.
2
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
WHG RESORTS & CASINOS INC.
Dated: April 15, 1997 By: /s/ Louis J. Nicastro
...................................................
Name: Louis J. Nicastro
Title: Chairman of the Board and
Chief Executive Officer
</TABLE>
3
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQ.
NUMBER DESCRIPTION NO. PAGE
- -------- ----------- --------
<C> <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........................................
4.2 -- Rights Agreement dated as of April 21, 1997 between the Company and The Bank of New York...
4.3 -- Form of Certificate of Designation of Series A Preferred Stock (included as Exhibit A to
Exhibit 4.2 hereof)........................................................................
4.4 -- Specimen Form of Rights Certificate (included as Exhibit B to Exhibit 4.2 hereof)..........
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...................................................................................
10.1 -- Tax Sharing Agreement among WMS, the Company, ESJ Hotel Corporation, WMS El Con Corp., WMS
Property Inc. and Williams Hotel Corporation...............................................
`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 -- Intentionally left blank...................................................................
`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>
E-1
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<TABLE>
<CAPTION>
EXHIBIT SEQ.
NUMBER DESCRIPTION NO. PAGE
- -------- ----------- --------
<C> <S> <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)......................................................................................
</TABLE>
E-2
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<TABLE>
<CAPTION>
EXHIBIT SEQ.
NUMBER DESCRIPTION NO. PAGE
- -------- ----------- --------
<C> <S> <C>
`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...............................................................
`D'21 -- List of Subsidiaries of the Company........................................................
23.1 -- Consent of Oppenheimer & Co., Inc..........................................................
23.2 -- Consent of Houlihan, Lokey, Howard & Zukin, Inc............................................
`D'27 -- Financial Data Schedule (filed with EDGAR version only)....................................
99 -- Information Statement......................................................................
</TABLE>
- ------------
`D' Previously filed.
E-3
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as ........................`D'
<PAGE>
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of April 21, 1997 (the "Agreement"), between
WHG Resorts & Casinos Inc., a Delaware corporation (the "Company"), and The Bank
of New York (the "Rights Agent").
W I T N E S S E T H :
WHEREAS, the Board of Directors of the Company authorized and declared
a dividend of one preferred stock purchase right for each share of voting common
stock, par value $.01 per share, of the Company (the "Common Stock") outstanding
at the close of business on the effective date of the distribution (the
"Distribution") by WMS Industries Inc. of the Company's Common Stock (the
"Record Date"), and has further authorized the issuance of one right (as such
number may hereinafter be adjusted pursuant to the provisions of Section 11(p)
hereof) for each share of Common Stock of the Company issued between the Record
Date (whether originally issued or delivered from the Company's treasury)
and the earlier of the Expiration Date or Rights Distribution Date, each Right
initially representing the right to purchase one one-hundredth of a share
of Series A Preferred Stock of the Company having the rights, powers and
preferences set forth in the form of Certificate of Designation, attached hereto
as Exhibit A, upon the terms and subject to the conditions hereinafter set forth
(the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of shares of Common Stock then outstanding, but
shall not include an Exempt Person.
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(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(c) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates,directly or indirectly, has the right to acquire
(whether such right is exercisable immediately or only after the passage
of time) pursuant to any agreement, arrangement or understanding, whether
or not in writing (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights,
rights (other than these Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right to vote or
dispose of or has "beneficial ownership" of (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security which: (A) arises solely from
a revocable proxy given in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable provisions of the
General Rules and Regulations under the Exchange Act, and (B) is not also then
reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof) with
which such Person (or any Affiliate or Associate thereof) has any agreement,
arrangement or understanding, whether or not in writing, for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as described
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in the proviso to subparagraph (ii) of this paragraph (c)) or disposing of any
voting securities of the Company; provided, however, that nothing in this
paragraph (c) shall cause a Person engaged in business as an underwriter of
securities to be the "Beneficial Owner" of, or to "beneficially own," any
securities acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days after the date of such
acquisition.
(iv) Notwithstanding anything to the contrary
contained herein, no director or officer or other employee of the Company shall
be deemed the "Beneficial Owner" of, or to "beneficially own," any security
beneficially owned by any other director, officer or other employee by virtue of
the common status of such Persons as directors, officers or employees of the
Company, as the case may be.
(d) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(f) "Common Stock" shall mean the Common Stock as defined in
the first whereas clause of this Agreement, except that "Common Stock" when used
with reference to any Person other than the Company shall mean the capital stock
of such other Person or the equity securities or other equity interest having
power to control or direct the management of such Person.
(g) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company immediately prior to the Rights Distribution
Date, and (ii) any Person who is subsequently elected to the Board if such
Person is recommended or approved by a majority of the persons described in
clause (i); provided, however, that the term shall not include an Acquiring
Person, or any Affiliate or Associate of an Acquiring Person, or any
representative of any of the foregoing.
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(h) "Exempt Person" shall mean (i) the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan; or (ii) any Person who is
the Beneficial Owner of 15% or more of the outstanding shares of Common Stock on
the date when-issued trading of the Common Stock begins trading on the New York
Stock Exchange in connection with the Distribution or on the Distribution Date,
until such time hereafter as such Person shall become the Beneficial Owner
(other than by means of a stock dividend or stock split or in connection with an
employee or other direct stock option program of the Company) of an additional
number of shares of Common Stock greater than one percent (1%) of the number of
such shares outstanding; or (iii) any Person who inadvertently acquired
Beneficial Ownership of 15% or more of the outstanding shares of Common Stock or
otherwise acquired Beneficial Ownership of shares of Common Stock without any
plan or intention to seek control of the Company and without knowledge that such
acquisition would make such Person an Acquiring Person, if, in either case, such
Person promptly divests (without exercising or retaining any power, including
voting, with respect to such shares) a sufficient number of shares of Common
Stock (or securities convertible into Common Stock) so that such Person ceases
to be the Beneficial Owner of a number of shares of Common Stock that would
otherwise cause such Person to be an Acquiring Person, after notice by the
Company (or, after the first Stock Acquisition Date, after notice by a majority
of the Continuing Directors) that such Person will be deemed by the Company to
be an Acquiring Person unless it makes such divestitures; or (iv) any Person
whose Beneficial Ownership of 15% or more of the outstanding shares of Common
Stock is approved in advance (but only to the extent of Beneficial Ownership
which is so approved) by the Board of Directors of the Company or, after the
first Stock Acquisition Date, by a majority of the Continuing Directors;
(i) "Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(j) "Final Expiration Date" shall have the meaning set forth
in Section 7(a) hereof.
(k) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
4
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(l) "Preferred Stock" shall mean shares of Series A Preferred
Stock, par value $.01 per share, of the Company having the rights and
preferences set forth in the form of Certificate of Designation attached to this
Agreement as Exhibit A and, to the extent that there are not a sufficient number
of shares of Series A Preferred Stock authorized to permit the full exercise of
the Rights, any other series of Preferred Stock, par value $.01 per share, of
the Company designated for such purpose containing terms substantially similar
to the terms of the Series A Preferred Stock.
(m) "Rights Distribution Date" shall have the meaning set
forth in Section 3(a) hereof.
(n) "Section 11(a)(ii) Event" shall mean any event described
in Section 11(a)(ii) hereof.
(o) "Section 13 Event" shall have the meaning set forth in
Section 13(a) hereof.
(p) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such.
(q) "Subsidiary " shall mean, with reference to any Person,
any corporation, association, partnership, limited liability company or other
business entity of which more than 50% of the total voting power of shares of
capital stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person, or otherwise controlled by such Person.
(r) "Triggering Event" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights
Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint
5
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such Co-Rights Agents as it may deem necessary or desirable upon ten days' prior
written notice to the Rights Agent. The Rights Agent shall have no duty to
supervise, and shall in no event be liable for, the acts or omissions of any
such Co-Rights Agent.
3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the earlier of (i) the Close of Business on the
tenth day after the Stock Acquisition Date or (ii) the Close of Business on the
tenth Business Day (or such later day as may be determined by action of the
Board of Directors (but only if at the time of such determination there are then
in office not less than two Continuing Directors and such action is approved by
a majority of the Continuing Directors) prior to such time as any Person becomes
an Acquiring Person) after the date of commencement by any Person (other than an
Exempt Person) of, or of the first public announcement of the intention of any
Person (other than an Exempt Person) to commence, a tender or exchange offer, if
upon consummation thereof, such Person would be the Beneficial Owner of 15% or
more of the Common Stock then outstanding (the earlier of (i) and (ii) being
herein referred to as the "Rights Distribution Date"), the Rights will be
evidenced (subject to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Stock registered in the names of the holders thereof
(which certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and will be transferable only in
connection with the transfer of the underlying shares of Common Stock. As soon
as practicable after the Rights Distribution Date, the Rights Agent will send by
first-class, insured, postage prepaid mail, to each record holder of the Common
Stock as of the close of business on the Rights Distribution Date, at the
address of such holder shown on the records of the Company, one or more Rights
certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held,
subject to adjustment in the number of Rights per share of Common Stock as has
been made pursuant to Section 11(p) hereof. At the time of distribution of the
Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of rights are distributed and cash
is paid in lieu of any fractional Rights. As of and
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after the Rights Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) A summary of this Agreement is contained in Exhibit C
annexed hereto (the "Summary of Rights") as well as in the Information Statement
contained in the Registration Statement on Form 10 filed by the Company with the
Securities and Exchange Commission in connection with the Distribution. With
respect to certificates for the Common Stock outstanding as of the Record Date,
until the Rights Distribution Date, the Rights will be evidenced by such
certificates for Common Stock and the registered holders of the Common Stock
shall also be the registered holders of the associated Rights. Until the earlier
of the Rights Distribution Date or the Expiration Date, the transfer of any
certificates representing shares of Common Stock in respect of which Rights have
been issued shall also constitute the transfer of the Rights associated with
such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common
Stock which are issued after the Record Date but prior to the earlier of the
Rights Distribution Date or the Expiration Date. Certificates representing such
shares of Common Stock shall also be deemed to be certificates for Rights, and
shall bear the following legend:
This certificate also evidences and entitles the
holder hereof to certain Rights as set forth in
the Rights Agreement between WHG Resorts &
Casinos Inc. (the "Company") and The Bank of New
York (the "Rights Agent") dated as of April 21,
1997 (the "Rights Agreement"), the terms of which
are hereby incorporated herein by reference and a
copy of which is on file at the principal offices
of the Rights Agent. Under certain circumstances,
as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and
will no longer be evidenced by this certificate.
The Rights Agent will mail to the holder of this
certificate a copy of the Rights Agreement, as in
effect on the date of mailing, without charge
promptly after receipt of a written request
therefor. Under certain circumstances set forth
in the Rights Agreement, Rights issued to, or
held by, any Person who is or was an Acquiring
Person or any Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such
Person or by any subsequent holder, may become
null and void.
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With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Rights Distribution Date or (ii) the Expiration Date, the
Rights associated with the Common Stock represented by such certificates shall
be evidenced by such certificates alone, and the surrender for transfer of any
of such certificates shall also constitute the transfer of the Rights associated
with the Common Stock represented by such certificates.
4. FORM OF RIGHTS CERTIFICATE.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
to purchase such number of one one-hundredths of a share of Preferred Stock as
shall be set forth therein at the price set forth therein (the "Purchase
Price"), but the amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person or (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, and any Rights Certificate
issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange,
replacement or adjustment of any other Rights Certificate referred to in this
sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate
are or were beneficially owned by a Person who
was or is an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms
are defined in the Rights
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Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null
and void in the circumstances specified in
Section 7(e) of such Agreement.
The provisions of Section 7(e) of this Rights Agreement shall be operative
whether or not the foregoing legend is contained on any such Rights Certificate.
5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually or by facsimile signature
countersigned by the Rights Agent and shall not be valid for any purpose unless
so countersigned. In case any officer of the Company who shall have signed any
of the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Rights Certificates had not ceased to be such officer
of the Company.
(b) Following the Rights Distribution Date, the Rights Agent
will keep or cause to be kept, at its office designated as the appropriate place
for surrender of Rights Certificates upon exercise or transfer, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the Close of Business on the Rights
Distribution Date, and at or prior to the Close of Business on the Expiration
Date, any Rights Certificate or Rights Certificates
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may be transferred, split up, combined or exchanged for another Rights
Certificate or Rights Certificates, entitling the registered holder to purchase
a like number of one one-hundredths of a share of Preferred Stock (or, following
a Triggering Event, Common Stock, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder (or former holder in the case of a transfer) to purchase.
Any registered holder desiring to transfer, split up, combine or exchange any
Rights Certificate or Rights Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Rights Certificate or
Rights Certificates to be transferred, split up, combined or exchanged at the
office of the Rights Agent designated for such purpose. Neither the Rights Agent
nor the Company shall be obligated to take any action whatsoever with respect to
the transfer of any such surrendered Rights Certificate until the registered
holder shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and upon surrender to
the Rights Agent and cancellation of the Rights Certificate if mutilated, the
Company will execute and deliver a new Rights Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered owner in lieu
of the Rights Certificate so lost, stolen, destroyed or mutilated.
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7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Subject to Section 7(e) hereof, the registered holder of
any Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein, including without limitation, the restrictions on
exercisability set forth in Section 9(c) Section 11(a)(iii), Section 23(a) and
Section 24(b) hereof) in whole or in part at any time after the Rights
Distribution Date upon surrender of the Rights Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the principal office or offices of the Rights
Agent designated for such purpose, together with payment of the aggregate
Purchase Price with respect to the total number of one one-hundredths of a share
of Preferred Stock (or other shares, securities, cash or other assets, as the
case may be) as to which such surrendered Rights are then exercisable, at or
prior to the earlier of (i) the close of business on December 31, 2007 (the
"Final Expiration Date"), or (ii) the time at which the Rights are redeemed
as provided in Section 23 hereof (the earlier of (i) or (ii) being herein
referred to as the "Expiration Date").
(b) The Purchase Price of each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be one
hundred dollars ($100.00), and shall be subject to adjustment from time to time
as provided in Sections and (a) hereof and shall be payable in accordance with
paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price and an amount equal to any applicable transfer tax, the
Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A)
requisition from any transfer agent of the shares of Preferred Stock (or make
available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of one one-hundredths of a share of Preferred
Stock to be purchased and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests, or (B) if the Company shall have elected
to deposit the total number of shares of Preferred Stock issuable upon exercise
of the Rights hereunder with a depository agent, requisition from the depository
agent of depository receipts representing such number of
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one one-hundredths of a share of Preferred Stock as are to be purchased (in
which case certificates for the shares of Preferred Stock represented by such
receipts shall be deposited by the transfer agent with the depository agent) and
the Company hereby directs the depository agent to comply with such request,
(ii) when appropriate, requisition from the Company the amount of cash, if any,
to be paid in lieu of fractional shares in accordance with Section 14 hereof,
(iii) after receipt of such certificate or depository receipts, cause the same
to be delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt thereof, deliver such cash, if
any, to or upon the order of the registered holder of such Rights Certificate.
The payment of the Purchase Price (as such amount may be reduced pursuant to
Section 11(a)(iii) hereof) may be made in cash or by certified bank check or
bank draft payable to the order of the Company. In the event that the Company is
obligated to issue other securities (including Common Stock) of the Company, pay
cash and/or distribute other property pursuant to Section 11(a) hereof, the
Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 14
hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, or (ii) a transferee of an Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person becomes such, shall become null and void without any further
action and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied
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with, but shall have no liability to any holder of Rights Certificates or other
Person as a result of its failure to make any determinations hereunder with
respect to an Acquiring Person or its Affiliates, Associates or transferees.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All Rights
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificates purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
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Stock and/or other securities) that will be sufficient to permit the exercise in
full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock and/or other securities)
issuable and deliverable upon the exercise of the Rights may be listed on any
national securities exchange or automated quotation system, the Company shall
use its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such exchange
or quotation system upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, a registration statement under the Securities Act of
1933, as amended (the "Act"), with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities, and
(B) the date of the expiration of the Rights. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the securities
or "blue sky"laws of the various states in connection with the exercisability
of the Rights. The Company may temporarily suspend, for a period of time not
to exceed 90 days after the date set forth in clause (i) of the first sentence
of this Section 9(c), the exercisability of the Rights in order to prepare
and file such registration statement and permit it to become effective.
Upon any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended,
as well as a public announcement at such time as the suspension is no longer in
effect. In addition, if the Company shall determine that a registration
statement is required following the Rights Distribution Date, the Company
may temporarily suspend the exercisability of the Rights until such time as a
registration statement has been declared effective. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be
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exercisable in any jurisdiction if the requisite qualification in such
jurisdiction shall not have been obtained or the exercise thereof shall not be
permitted under applicable law.
(d) The Company covenants and agrees that it will take such
action as may be necessary to ensure that all one one-hundredths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-hundredths of a
share of Preferred Stock (or Common Stock and/or other securities, as the case
may be) upon the exercise of Rights. The Company shall not, however, be required
to pay any transfer tax which may be payable in respect of any transfer or
delivery of Rights Certificates to a person other than, or the issuance or
delivery of a number of one one-hundredths of a share of Preferred Stock (or
Common Stock and/or other securities, as the case may be) in respect of a name
other than that of, the registered holder of the Rights Certificates evidencing
Rights surrendered for exercise or to issue or deliver any certificates for a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificates at
the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
10. PREFERRED STOCK RECORD DATE. Each person in whose name any
certificate for a number of one one-hundredths of a share of Preferred Stock (or
Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such fractional shares
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of Preferred Stock (or Common Stock and/or other securities, as the case may be)
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of the Purchase Price (and all applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or Common Stock and/or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a stockholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER
OF RIGHTS. The Purchase Price, the number and kind of shares covered by each
Right and the number of rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock into a
greater number of shares, (C) combine the outstanding Preferred Stock into a
smaller number of shares, or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11(a)
and Section 7(e) hereof, the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision, combination
or reclassification, and the number and kind of shares of Preferred Stock or
capital stock, as the case may be, issuable on such date, shall be
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proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive, upon payment of the Purchase Price then in
effect, the aggregate number and kind of shares of Preferred Stock or capital
stock as the case may be, which, if such Right had been exercised immediately
prior to such date and at a time when the Preferred Stock transfer books of the
Company were open, he or she would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment under
both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(a)(i) shall be in addition to, and shall be made prior
to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) Subject to Section 24 of this Agreement, in the event any
Person, alone or together with its Affiliates and Associates, shall become an
Acquiring Person, unless the event causing such Person to become an Acquiring
Person is a transaction set forth in Section (a) hereof, then, promptly
following the date of the occurrence of such event, proper provision shall be
made so that each holder of a Right (except as provided below and in Section (e)
hereof) shall thereafter have the right to receive, upon exercise thereof at the
then current Purchase Price in accordance with the terms of this Agreement, in
lieu of the number of one one-hundredths of a share of Preferred Stock, such
number of shares of Common Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the then number
of one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event, and (y) dividing that product (which, following such first occurrence,
shall thereafter be referred to as the "Purchase Price" for each Right and for
all purposes of this Agreement) by 50% of the current market price (determined
pursuant to Section 11(d) hereof) per share of Common Stock on the date of such
first occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common
Stock which are authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section
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11(a), the Company shall: (A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right (the "Current Value")
over (2) the Purchase Price (such excess shall be referred to herein as the
"Spread"), and (B) with respect to each Right, make adequate provision to
substitute for the Adjustment Shares, upon payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or
other equity securities of the Company (including, without limitation, shares or
units of shares of preferred stock which the Board of Directors of the Company
has deemed to have the same value as shares of Common Stock (such shares of
preferred stock shall be referred to herein as "common stock equivalents")), (4)
debt securities of the Company, (5) other assets, or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Company
based upon the advice of a nationally-recognized investment banking firm
selected by the Board of Directors of the Company; provided, however, if the
Company shall not have made adequate provision to deliver value pursuant to
clause (B) above within 30 days following the date on which the Company's right
of redemption pursuant to Section 23(a) expires (the "Section 11(a)(ii) Trigger
Date"), then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase Price, shares
of Common Stock (to the extent available) and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If the Board of
Directors of the Company shall determine in good faith that it is likely that
sufficient additional shares of Common Stock could be authorized for issuance
upon exercise in full of the Rights, the 30 day period set forth above may be
extended to the extent necessary, but not more than 90 days after the
Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such period, as
it may be extended, shall be referred to herein as the "Substitution Period").
To the extent that the Company determines that some action need be taken
pursuant to the first and/or second sentences of this Section 11(a)(iii), the
Company (x) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights, and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek any authorization of additional shares and/or to decide the
appropriate form of
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distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the Common Stock shall be the current market price (as determined
pursuant to Section 11(d) hereof) per share of the Common Stock on the
Section 11(a)(ii) Trigger Date and the value of any "common stock equivalent"
shall be deemed to have the same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within 45
calendar days after such record date) Preferred Stock (or shares having the same
rights, privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security is convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of shares of Preferred Stock
which the aggregate offering price of the total number of shares of
Preferred Stock and/or equivalent preferred stock so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date, plus the number of additional shares of Preferred Stock and/or
equivalent preferred stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible).
In case such subscription price may be paid by delivery of consideration part
or all of which may be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of Directors of
the Company,
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whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company or a
Subsidiary shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed, and in the event that such rights or warrants are not so issued,
the Purchase Price shall be adjusted to be the Purchase Price which would then
be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a cash
dividend out of the earnings or retained earnings of the Company), assets (other
than a dividend payable in Preferred Stock, but including any dividend payable
in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the cash, assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to a
share of Preferred Stock and the denominator of which shall be such current
market price (as determined pursuant to Section 11(d) hereof) per share of
Preferred Stock. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Purchase Price shall be adjusted to be the Purchase Price which would have
been in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for
the 30 consecutive Trading Days (as such term is hereinafter
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defined) immediately prior to such date, and for purposes of computations made
pursuant to Section 11(a)(iii) hereof, the "current market price" per share of
Common Stock on any date shall be deemed to be the average of the daily closing
prices per share of such Common Stock for the 10 consecutive Trading Days
immediately following such date; provided, however, that in the event that the
current market price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a dividend
or distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other than the Rights),
or (B) any subdivision, combination or reclassification of such Common Stock,
and prior to the expiration of the requisite 30 Trading Day or 10 Trading Day
period, as set forth above, after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current market price" shall
be properly adjusted to take into account ex-dividend trading. The closing price
for each day shall be the last reported sales price as reported by the New York
Stock Exchange, Inc. ("NYSE"), or if the shares of Common Stock are not listed
or traded on the NYSE, the closing price for each day shall be the last reported
sales price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading or, if the shares of
Common Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, or, if on any such date
the shares of Common Stock are not quoted by the NYSE or any such other
organization and are not listed on a national securities exchange, the average
of the closing bid and asked prices as furnished by a professional market maker
making a market in the Common Stock selected by the Board of Directors of the
Company. If on any such date no market maker is making a market in the Common
Stock, the fair value of such shares on such date as determined in good faith by
the Board of Directors of the Company shall be used. The term "Trading Day"
shall mean a day on which the NYSE is open for the transaction of business or,
if the shares of Common Stock are not listed for quotation on the NYSE, a
Business Day. If the Common Stock
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is not publicly held or not so listed or traded, "current market price" per
share shall mean the fair value per share as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
"current market price" per share of Preferred Stock shall be determined in the
same manner set forth for the Common Stock in clause (i) of this Section 11(d)
(other than the last sentence thereof). If the current market price per share of
Preferred Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner described
in clause (i) of this Section 11(d), then the "current market price" per share
of Preferred Stock shall be conclusively deemed to be an amount equal to 100 (as
such number may be appropriately adjusted for such events as stock splits, stock
dividends and recapitalization with respect to the Common Stock occurring after
the date of this Agreement) multiplied by the current market price per share of
the Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, "current market price" per share of the
Preferred Stock shall mean the fair value per share as determined in good faith
by the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes. For all purposes of this Agreement, the "current market price" of one
one-hundredth of a share of Preferred Stock shall be equal to the "current
market price" of one share of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
shall be made to the nearest cent or to the nearest ten-thousandth (.0001)
of a share of Common Stock or other share or one-millionth (.000001) of a share
of Preferred Stock, as the case may be. Notwithstanding the first sentence of
this Section 11(e), any adjustment required by this Section
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11 shall be made no later than the earlier of (i) three (3) years from the date
of the transaction which mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11
(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Section 11(a), (b), (c), (e), (g), (h), (i), (j), (k), and (m), and the
provisions of Section 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth (.000001) of a share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to such
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
the adjustment in the number of Rights
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shall be exercisable for the number of one one-hundredths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
ten-thousandth (.0001)) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Rights Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11 (i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Rights Certificates on such record date Rights Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Rights Certificates evidencing all the rights to which such holders shall be
entitled after such adjustment. Rights Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Rights Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one
one-hundredth of a share and the number of one one-hundredths of a share which
were expressed in the initial Rights Certificates issued hereunder.
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(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated par value, if any, of the
number of one one-hundredths of a share of Preferred Stock issuable upon
exercise of the Rights, the Company shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue such number of fully paid and nonassessable one
one-hundredths of a share of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash or any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash or shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Preferred Stock
shall not be taxable to such stockholders.
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(n) The Company covenants and agrees that it shall not, at any
time after the Rights Distribution Date, (i) consolidate with any other Persons
(other than a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof), (ii) merge with or into any other Persons (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger or sale there are any
rights, warrants or other instruments or securities outstanding or agreements
in effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale, the stockholders of
the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(a) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Rights
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Rights Distribution Date (i)
declare a dividend on the outstanding shares of Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
the number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter but prior to the Rights
Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following
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any such event shall equal the result obtained by multiplying the number of
Rights associated with each share of Common Stock immediately prior to such
event by a fraction the numerator of which shall be the total number of shares
of Common Stock outstanding immediately prior to the occurrence of the event and
the denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 and Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail
a brief summary thereof to each holder of a Rights Certificate (or, if prior
to the Rights Distribution Date, to each holder of a certificate representing
shares of Common Stock) in accordance with Section 25 hereof. The Rights
Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
(a) In the event that, following the Stock Acquisition Date, directly or
indirectly, (x) the Company shall consolidate with, or merge with and into, any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), and the Company shall not be th continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof) shall consolidate with, or merger with or into, the
Company, and the Company shall be the continuing or surviving corporation of
such consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding shares of Common Stock shall be
changed into or exchanged for stock or other securities of any other Person
or cash or any other property, or (z) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise transfer),
in one transaction or a series of related transactions, assets or earning power
aggregating more than
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50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions each of which complies with Section
11(o) hereof) (any event described in (x), (y) or (z) being referred to
hereinafter as a "Section 13 Event"), then, and in each such case (except as may
be contemplated by Section 13(d) hereof), proper provisions shall be made so
that: (i) each holder of a Right, except as may be contemplated by Section 7(e)
hereof, shall thereafter have the right to receive, upon the exercise thereof at
the then current Purchase Price in accordance with the terms of this Agreement,
such number of validly authorized and issued, fully paid, non-assessable and
freely tradeable shares of Common Stock of the Principal Party (as such term is
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall be equal to the result obtained by (1)
multiplying the then current Purchase Price by the number of one one-hundredths
of a share of Preferred Stock for which a Right is exercisable immediately prior
to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event
has occurred prior to the first occurrence of a Section 13 Event, multiplying
the number of one one-hundredths of a share of Preferred Stock for which a Right
was exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event by the Purchase Price in effect immediately prior to such first
occurrence), and (2) dividing the product (which, following the first occurrence
of a Section 13 Event, shall be referred to as the "Purchase Price" for each
Right and for all purposes of this Agreement) by 50% of the current market price
(determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock
of such Principal Party on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; (iv) such Principal Party
shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to ensure that the
provisions hereof shall thereafter be applicable, as nearly
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as reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights; and (v) the provisions of Section
11(a)(ii) hereof shall be of no effect following the first occurrence of any
Section 13 Event. Notwithstanding anything in this Agreement to the contrary,
Section 13(a) shall not be applicable to a transaction described in clauses (x)
or (y) of Section 13(a) if (A) such transaction is consummated with a Person
or Persons who acquired shares of Common Stock pursuant to an all cash tender
offer for all of the Company's outstanding Common Stock which was approved
by the Board of Directors (or a wholly-owned subsidiary of any such Person or
Persons) or, after the first Stock Acquisition Date, a majority of the
Continuing Directors, (B) the price per share of Common Stock offered in such
transaction is not less than the price per share of Common Stock paid to all
holders of Common Stock whose shares were purchased pursuant to such tender
offer and (C) the form of consideration being offered to the remaining holders
of Common Stock is the same as the form of consideration paid pursuant to such
tender offer.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in
clause (x) or (y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, and if no securities are so issued,
the Person that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions; provided, however, that in any
such case, (1) if the Common Stock of such Person is not at such time and has
not been continuously over the preceding 12 month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, "Principal Party" shall refer to such other Person; and (2) in case
such person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stocks of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest aggregate market value.
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(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior thereto the Company and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the
date of any consolidation, merger or sale of assets mentioned in paragraph
(a) of this Section 13, the Principal Party will
(i) prepare and file a registration statement under
the Act, with respect to the Rights on an appropriate form, and will use its
best efforts to cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form 10 under
the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. In the event that a
Section 13 Event shall occur at any time after the occurrence of a
Section 11(a)(ii) Event, the Rights which have not theretofore been exercised
shall thereafter become exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x), (y) or (z) o f Section 13(a) if such transaction is (i)
approved (whether or not the approval of the Board of Directors is required in
connection with such transaction) by a majority of the Board of Directors of
the Company (or, from and after the Stock Acquisition Date, a majority of
Continuing Directors), or (ii) a merger which follows a cash tender offer
approved by the Board of Directors (or, from and after the Stock Acquisition
Date, a majority of 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, and (x) at the
time the Board of
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Directors approves such transaction, the Board of Directors is aware of the
identity of any Person (and the identities of all the Person's Affiliates and
Associates) whose beneficial ownership will equal or exceed 15% of the shares of
Common Stock of the Company both before and after such transaction and (y) the
number of shares of Common Stock beneficially owned by any such Person, together
with such Person's Affiliates and Associates both before and after such
transaction.
14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Rights Distribution Date as provided in
Section 11(p) hereof, or to distribute Rights Certificates which evidence
fractional Rights. In lieu of such fractional Rights, there shall be paid to
the registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right. For
purposes of this Section 14(a), the current market value of a whole Right shall
be the closing price of the Rights for the Trading Day immediately prior to
the date on which such fractional Rights would have been otherwise issuable.
The closing price of the Rights for any day shall be the last sales price or,
if not listed or traded on the NYSE, the average of the high bid and low asked
prices in the over-the-counter market, as reported by a NYSE member or such
other system then in use or, if on any such date the Rights are not quoted by
any organization, the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Rights are
listed or admitted to trading or, if on any such date the Rights are not quoted
by the NYSE or such other system then in use and are not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Rights selected by the Board of Directors of the Company. If on any such date no
such market maker is making a market in the Rights the fair value of the Rights
on such date as determined in good faith by the Board of Directors of the
Company shall be used.
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(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one one-hundredth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-hundredth of a share of Preferred
Stock, the Company may pay to the registered holders of Rights Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one one-hundredth of a share of Preferred Stock shall be one one-hundredth
of the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one (1) share of Common Stock. For
purposes of this Section 14(c), the current market value of one (1) share of
Common Stock shall be the closing price of one (1) share of Common Stock (as
determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
14.
15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Rights Distribution Date, the registered holders
of the Common Stock); and any registered holder of any Rights
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Certificate (or, prior to the Rights Distribution Date, of the Common Stock),
without the consent of the Rights Agent or of the holder of any other Rights
Certificate (or, prior to the Rights Distribution Date, of the Common Stock),
may, in his or her own behalf and for his or her own benefit, enforce and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his or her right to exercise the Rights
evidenced by such Rights Certificate in the manner provided in such Rights
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any person subject to this Agreement.
16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Rights Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) from and after the Rights Distribution Date, the Rights
Certificates are transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent designated
for such purposes, duly endorsed or accompanied by a proper instrument of
transfer and with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Rights Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
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(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as
such, of any Rights Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the number of one one-hundredths of a
share of Preferred Stock or any other securities of the Company which may at any
time be issuable on the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 24 hereof),
or to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any
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loss, liability, or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including, without limitation, Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, however, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at the time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates
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so countersigned; and in case at that time any of the Rights Certificates shall
not have been countersigned, the Rights Agent may countersign such Rights
Certificates either in its prior name or in its changed name; and in all such
cases such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current market price") be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
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(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock or
Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock or Preferred Stock will,
when so issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
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(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct; provided,
however, reasonable care was exercised in the selection and continued employment
thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.
21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon 30
days' notice in writing mailed to the Company, and to each transfer agent of the
Common Stock and Preferred Stock, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail at the expense of the
Company. The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and
Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Rights Certificate
(who shall, with such notice, submit his
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or her Rights Certificate for inspection by the Company), then the incumbent
Rights Agent or any registered holder of any Rights Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the State of New York (or of any other state of the United States
so long as such corporation is authorized to do business as a banking
institution in the State of New York in good standing, having a principal office
in the State of New York which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $50,000,000. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
that purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
(a) Notwithstanding any of the provisions of this Agreement or
of the Rights to the contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
under the Rights Certificates made in accordance with the provisions of this
Agreement. In addition, in connection with the issuance or sale of shares of
Common Stock
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following the Rights Distribution Date and prior to the redemption or expiration
of the Rights, the Company (a) shall, with respect to shares of Common Stock so
issued or sold pursuant to the exercise of stock options or under any employee
plan or arrangement, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Rights Certificate
would be issued, and (ii) no such Rights Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.
23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its option,
at any time prior to the earlier of (i) the Stock Acquisition Date, or (ii) the
Final Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"), and the Company may, at its
option pay the Redemption Price in securities, cash or other assets, provided,
however, if the Board of Directors of the Company authorizes redemption of the
Rights on or after the time a Person becomes an Acquiring Person, then there
must be Continuing Directors then in office and such authorization shall require
the concurrence of a majority of such Continuing Directors. In the event a
majority of the Board of Directors of the Company is changed by vote of the
stockholders of the Company, 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.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after
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the first occurrence of a Section 11(a)(ii) Event until such time as the
Company's right of redemption hereunder has expired (as such time period may
be extended pursuant to this Agreement). The Company may, at its option, pay
the Redemption Price in cash, shares of Common Stock (based on the "current
market price" of the Common Stock at the time of redemption) or any other form
of consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Rights Distribution
Date, on the registry books of the transfer agent for the Common Stock. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
24. EXCHANGE.
(a) The Board of Directors of the Company, may, at its option,
at any time after any Person becomes an Acquiring Person, exchange all or part
of the then outstanding and exercisable Rights (which shall not include Rights
that have become void pursuant to the provisions of Section 7(e) hereof) for
Common Stock at an exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio").
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and
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the only right thereafter of a holder of such Rights shall be to receive that
number of shares of Common Stock equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly give public
notice of any such exchange; provided, however, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange. The
Company promptly shall mail a notice of any such exchange to all of the holders
of such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Common Stock for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void pursuant
to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Stock issued but not outstanding or Common Stock authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this Section
24, the Company shall take all such action as may be necessary to authorize
additional shares of Common Stock for issuance upon exchange of the Rights. In
the event the Company shall, after good faith effort, be unable to take all such
action as may be necessary to authorize such additional shares of Common Stock,
the Company shall substitute, for each share of Common Stock that would
otherwise be issuable upon exchange of a Right, common stock equivalents.
(d) The Company shall not be required to issue fractional
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock, there
shall be paid to the registered holders of the Rights Certificates with regard
to which such fractional shares of Common Stock would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
share of Common Stock. For the purposes of this subsection (d), the current
market value of a whole share of Common Stock shall be the closing price of a
share of Common Stock
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(as determined pursuant to Section 11(d)(i) hereof for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
(e) All actions and decisions by the Board of Directors of the
Company under this Section 24 shall require the affirmative vote of a majority
of the Continuing Directors.
25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the
Rights Distribution Date, (i) to pay any dividend payable in stock of any class
to the holders of Preferred Stock or to make any other distribution to the
holders of Preferred Stock (other than a cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of
which complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible
and in accordance with Section 25 hereof, a notice of such proposed action,
which shall specify the record date for the purposes of such stock dividend,
distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding
up is to take place and the date of participation therein by the holders
of the shares of Preferred Stock, if any such date is to be fixed, and
such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 20 days prior to the record date for determining
holders of the shares of Preferred
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Stock for purposes of such action, and in the case of any such other action, at
least 20 days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the shares of Preferred Stock
whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii)
hereof shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
26. NOTICES. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, or by overnight delivery service, addressed (until
another address is filed in writing with the Rights Agent) as follows:
WHG Resorts & Casinos Inc.
6063 East Isla Verde Avenue
Carolina, Puerto Rico 00979
Attention: Chairman of the Board
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, or by overnight delivery service,
addressed (until another address is filed in writing with the Company) as
follows:
The Bank of New York
101 Barclay Street, 12W
New York, New York 10280
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Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Rights Distribution Date, to the holder of certificates
representing shares of Common Stock) shall be sufficiently given or made if sent
by first-class mail, postage prepaid, or by overnight delivery service,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
27. SUPPLEMENTS AND AMENDMENTS. Prior to the Rights Distribution Date,
the Company and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement without the approval of any holders of
certificates representing shares of Common Stock. For any holder, and after the
Rights Distribution Date, the Company and the Rights Agent shall, if the Company
so directs, supplement or amend this Agreement without the approval of any
holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder or (iv) to change or supplement the provisions hereunder
in any manner which the Company may deem necessary or desirable, provided that
no such amendment or supplement shall be made which (x) changes the Redemption
Price, the Final Expiration Date, the Purchase Price or the number of one
one-hundredths of a share of Preferred Stock for which a Right is exercisable or
(y) adversely affects the interests of the holders of Rights Certificates (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person);
provided, however, that this Agreement may not be supplemented or amended to
lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating
to when the Rights may be redeemed (x)
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at such time as the Rights are not then redeemable, or (y) without the approval
of a majority of the Continuing Directors, or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company or, so long as there is
an Acquiring Person hereunder, from a majority of the Continuing Directors,
which states that the proposed supplement or amendment is in compliance with the
terms of this Section 27, the Rights Agent shall execute such supplement or
amendment. Prior to the Rights Distribution Date, the interests of the holders
of Rights shall be deemed coincident with the interests of the holders of Common
Stock.
28. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC. For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding shares of Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the last
sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the
Exchange Act. The Board of Directors of the Company shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board or to the Company, or as may be
necessary or advisable in the
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administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend this Agreement); provided, however, that from and after the first Stock
Acquisition Date, all references in this Section 29 to the Board of Directors
shall be deemed to refer to a majority of the Continuing Directors. All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board in good faith, shall (x) be final, conclusive
and binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board to any liability to the holders of
the Rights.
30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Rights
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Rights
Distribution Date, registered holders of the Common Stock).
31. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this
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Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
32. GOVERNING LAW. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State; provided, however, that the
rights and obligations of the Rights Agent shall be governed by the law of the
State of New York.
33. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
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34. DESCRIPTIVE HEADINGS. Descriptive headings of the several sections
of this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
Attest: WHG RESORTS & CASINOS INC.
By:________________________________ By:_____________________________
Name: Name:
Title: Title:
Attest: THE BANK OF NEW YORK
By:_________________________________ By:_____________________________
Name: Name:
Title: Title:
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Exhibit A
CERTIFICATE OF DESIGNATION OF THE VOTING
POWERS, DESIGNATION, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTION OR OTHER SPECIAL RIGHTS AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF THE SERIES A PREFERRED STOCK
------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------
We, Louis J. Nicastro, Chairman of the Board, and George R. Baker,
Secretary of WHG Resorts & Casinos Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
the Corporation by its Amended and Restated Certificate of Incorporation (the
"Certificate"), and, pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, said Board of Directors, at a duly
called meeting held on ________________, at which a quorum was present and acted
throughout, adopted the following resolutions, which resolutions remain in full
force and effect on the date hereof creating a series of ______ shares of
Preferred Stock having a par value of $.01 per share, designated as Series A
Preferred Stock (the "Series A Preferred Stock"), out of the total number of two
million (2,000,000) shares of preferred stock of the par value of $.01 per share
(the "Preferred Stock") authorized by the Certificate:
RESOLVED that pursuant to the authority vested in the Board of
Directors in accordance with the provisions of the Certificate, the Board of
Directors does hereby create, authorize and provide for the issuance of the
Series A Preferred Stock having the voting powers, designation, relative,
participating, optional and other special rights, preferences, and
qualifications, limitations and restrictions thereof that are set forth as
follows:
1. DESIGNATION AND AMOUNT. The shares of such shall be designated
as "Series A Preferred Stock" and the number constituting such series shall be
______.
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, if any, the
holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
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available for the purpose, quarterly dividends payable in cash on the last day
of January, April, July and October in each year (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to, subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of common stock
or a subdivision of the outstanding shares of common stock (by reclassification
or otherwise), declared on the voting common stock, par value $.01 per share,
of the Corporation (the "Common Stock") since the immediately preceding
Quarterly Dividend Payment Date. In the event the Corporation shall at any time
after a Rights Declaration Date (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock into a greater number of shares, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividend shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
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(A) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock into a greater number
of shares, or (iii) combine the outstanding Common Stock into a smaller number
of shares, then in each such case the number of votes per share to which holders
of shares of Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of Shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, holders of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock, as provided in Section 2
hereof, are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable, or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares
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of any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
$100.00 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Preferred Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph C below to reflect such events as stock splits, stock
dividends and recapitalization with respect to the Common Stock) (such number in
clause (ii), the "Adjustment Number"). Following the payment of the full amount
of the Series A Liquidation Preference and the Common Adjustment in respect of
all outstanding shares of Preferred Stock and Common Stock, respectively,
holders of Series A Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
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(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, which rank on a parity with the Series A Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock into a
greater number of shares, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock into a greater number of shares, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
8. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
9. RANKING. The Series A Preferred Stock shall rank senior to all
other series of the Corporation's Preferred Stock as to the payment of dividends
and the distribution of assets, unless the terms of any such series shall
provide otherwise.
10. AMENDMENT. The Certificate shall not be further amended in
any manner which would materially alter or change the powers, preferences or
special rights of the Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a
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majority or more of the outstanding shares of Series A Preferred Stock, voting
separately as a class.
11. FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate of
Designation and do affirm the foregoing as true under the penalties of perjury
this __ day of _______, ______.
WHG RESORTS & CASINOS INC.
By: _________________________
Louis J. Nicastro,
Chairman of the Board
Attest:
______________________________________
George R. Baker, Secretary
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Exhibit B
[Form of Rights Certificate]
Certificate No. R- _____Rights
NOT EXERCISABLE AFTER DECEMBER 31, 2007 OR EARLIER
UNDER CERTAIN CIRCUMSTANCES OR IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE
OPTION OF THE COMPANY, AT $.01 PER RIGHT, ON THE TERMS
SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR IS AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]
Rights Certificate
WHG RESORTS & CASINOS INC.
This certifies that _______________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entities the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of April 21, 1997 (the "Rights
Agreement"), between WHG Resorts & Casinos Inc., a Delaware corporation (the
"Company"), and The Bank of New York (the "Rights Agent"), to purchase from the
Company at any time prior to 5:00 P.M. (New York City time) on the earlier to
occur of: (i) December 31, 2007; or (ii) the time at which the Rights are
redeemed or exchanged as provided in the Rights Agreement, at the office or
offices of the Rights Agent, designated for such purpose, or its successors as
Rights Agent, one one-hundredth of a fully paid, non-assessable share of Series
A Preferred Stock (the "Preferred Stock") of the Company, at a purchase price of
$____ per one one-hundredth of a share (the "Purchase Price"), upon presentation
and surrender of this
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Rights Certificate with the Form of Election to Purchase and related Certificate
duly executed. The Purchase Price shall be paid in cash. The number of Rights
evidenced by this Rights Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above, are the number and Purchase Price as of __________ __,
___, based on the Preferred Stock as constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement) or (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, such Rights shall become null and void and no holder hereof shall
have any right with respect to such Rights from and after the occurrence of such
Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events (as such term is defined in the Rights Agreement).
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
reference to the Rights Agreement is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one-hundredth of a
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share of Preferred Stock as the Rights evidenced by the Rights Certificate or
Rights Certificates surrendered shall have entitled such holder to purchase. If
this Rights Certificate shall be exercised in part, the holder shall be entitled
to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company at its option at a redemption
price of $.01 per Right in cash or in shares of voting Common Stock at any time
prior to the earlier of the close of business on (i) the tenth day following the
Stock Acquisition Date (as such time period may be extended pursuant to the
Rights Agreement), or (ii) the Final Expiration Date (as defined in the Rights
Agreement). Under certain circumstances set forth in the Rights Agreement, the
decision to redeem shall require the concurrence of a majority of the Continuing
Directors.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depository receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or any other securities of the Company which may at any time be issuable
on the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or, to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
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This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
ATTEST: WHG RESORTS & CASINOS INC.
_____________________________ By:________________________
Name:
Title:
Countersigned:
By:__________________________
Name:
Title:
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[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED______________________________________________________________
hereby sells, assigns and transfers unto________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.
Dated:____________________, ____
_____________________________
Signature
Signature Guaranteed:
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CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is or was an Acquiring Person or an Affiliate or
Associate of an Acquiring person.
Dated:__________________________, ____
_____________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
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FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Rights Certificate.)
TO: WHG RESORTS & CASINOS INC.
The undersigned hereby irrevocably elects to exercise Rights represented
by this Rights Certificate to purchase the shares of Preferred Stock issuable
upon the exercise of the Rights (or such other securities of WHG Resorts &
Casinos Inc. or of any other person which may be issuable upon the exercise of
the Rights) and requests that certificates for such shares be issued in the name
of and delivered to:
Please insert social security or
other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated:_______________________, ____
_____________________________
Signature
Signature Guaranteed:
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CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Certificate [ ] are [ ] are not being
exercised by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is or was an Acquiring Person or an Affiliate or
Associate of an Acquiring person.
Dated:______________________, ____
_____________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
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Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
The following is a brief description of the Company's Rights Agreement,
dated as of April 21, 1997 (the "Rights Agreement"), between the Company and The
Bank of New York, as Rights Agent.
The Rights Agreement provides that one Right will be issued with each
share of the voting Common Stock, par value $.01 per share (the "Common Stock"),
issued (whether originally issued or from the Company's treasury) on or after
the effective date of the distribution of the Company's Common Stock by WMS
Industries Inc. (the "Distribution") and prior to the Rights Distribution Date
(as defined). The Rights are not exercisable after 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 of a share of the Company's Series A Preferred Stock, par value
$.01 per share (the "Preferred Stock"), at an exercise pace of S100.00, 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
Company's Board of Directors, with the concurrence of a majority of Continuing
Directors (as defined), 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 Company's 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, 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 or who is the
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Beneficial Owner of 15% or more of the outstanding shares of Common Stock on
the date when issued trading of the Company's Common Stock begins trading
on the New York Stock Exchange in connection with the Distribution or on the
Distribution Date) who, after the date of adoption of the Rights Agreement,
acquires beneficial ownership of 10% or more of the outstanding shares of
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 the Company's
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 of the Company 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 of Directors (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 of Directors (or after the Stock Acquisition Date, a
majority of 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
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Directors. In the event a majority of the Board of Directors of the Company
is changed by vote of the Company's stockholders, the Rights shall not be
redeemable for a period of ten 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 ten
business day period. At any time after any person becomes an Acquiring Person,
the Board of Directors of the Company 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 the Common Stock
certificates and will be transferred only with the Common Stock certificates;
separate certificates representing the Rights will be mailed, however, to
holders of the 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 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 reclassification of, the
shares of Common Stock prior to the Rights Distribution Date, and in certain
other events.
The Board of Directors of the Company may amend the Rights Agreement in
any manner 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.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 10 dated
February 28, 1997, as amended. A copy of the Rights Agreement is available free
of charge from the Rights Agent. This summary description of the Rights does not
purport to be complete and is qualified in its
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entirety by reference to the Rights Agreement, which is incorporated herein by
reference.
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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
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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
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<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
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<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
4
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<PAGE>
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):
5
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<PAGE>
(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
6
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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.
7
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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: ______________________________
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
WHG RESORTS & CASINOS INC.
By: ______________________________
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
ESJ HOTEL CORPORATION
By: ______________________________
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
WMS EL CON CORP.
By: ______________________________
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
WMS PROPERTY INC.
By: ______________________________
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
WILLIAMS HOTEL CORPORATION
By: ______________________________
Name: Harold H. Bach, Jr.
Title: Vice President - Finance
8
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EXHIBIT 23.1
[OPPENHEIMER LETTERHEAD]
We hereby consent to the reference to Oppenheimer & Co., Inc. under the
caption Distribution and elsewhere in the Information Statement filed as Exhibit
99 to the Form 10 Registration Statement of WHG Resorts & Casinos Inc.
OPPENHEIMER & CO., INC.
Dated: April 15, 1997
<PAGE>
<PAGE>
EXHIBIT 23.2
HOULIHAN LOKEY HOWARD & ZUKIN
-----------------------------------------------
A SPECIALTY INVESTMENT BANKING FIRM
April 15, 1997
To the Board of Directors of
WHG Resorts & Casinos Inc.
We consent to i) the attachment of our solvency opinion letter as an Annex to
the Form 10 for WHG Resorts & Casinos Inc. and ii) use of our firm's name and
description of our solvency opinion and analysis prepared in connection with WHG
Resorts & Casinos Inc.'s proposed spin off from WMS Industries Inc.
Very truly yours,
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
<PAGE>
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[WMS LETTERHEAD]
April , 1997
Dear Stockholder:
The Board of Directors of WMS Industries Inc. ('WMS') has approved a
pro-rata tax free dividend (the 'Distribution') of all of the outstanding shares
of voting common stock, par value $.01 per share ('Hotel Common Stock'), of WHG
Resorts & Casinos Inc., formerly known as WMS Hotel Corporation ('Hotel'), to
the holders of WMS common stock, par value $.50 per share (the 'WMS Common
Stock'). As a result of the Distribution, Hotel will be an independent
publicly-held company. Hotel will operate the Puerto Rico hotel and casino
business presently operated by WMS through its subsidiaries. The enclosed
Information Statement contains information about the Distribution and about
Hotel. Mr. Louis J. Nicastro will serve as Chairman of the Board and Chief
Executive Officer of Hotel and will continue as Chairman of the Board of WMS.
Mr. Nicastro resigned as an executive officer of WMS as of July 1, 1996.
If you are a holder of record of WMS Common Stock at the close of business
on March 31, 1997 (the 'Record Date'), upon consummation of the Distribution,
you will receive as a dividend one share of Hotel Common Stock for every four
shares of WMS Common Stock you hold on that date. We expect to mail the Hotel
Common Stock certificates starting on April 21, 1997. Fractional shares will be
paid in cash.
The completion of the Distribution will, among other things, relieve each
of WMS and Hotel of certain of the state regulatory burdens and risks which
exist as a result of the combined ownership by WMS of both a gaming equipment
business and a Puerto Rico casino business and will enhance Hotel's ability to
attract and retain skilled employees. Hotel Common Stock has been approved for
listing on the New York Stock Exchange under the symbol 'WHG', subject to notice
of issuance.
In connection with the Distribution, since WMS will continue forward, the
stockholders of WMS on the Record Date should retain their WMS share
certificates. You will receive new certificates representing your shares of
Hotel Common Stock.
We are enthusiastic about this separation and the growth opportunities it
will create for each company and its stockholders.
Sincerely,
/s/ NEIL D. NICASTRO
Neil D. Nicastro
President and Chief Executive Officer
WMS Industries Inc.
<PAGE>
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FOR INFORMATION ONLY -- PRELIMINARY COPY
SUBJECT TO COMPLETION, DATED APRIL 15, 1997
INFORMATION STATEMENT
WHG RESORTS & CASINOS INC.
COMMON STOCK
This Information Statement is being furnished in connection with the
distribution (the 'Distribution') to holders of common stock, par value $.50 per
share ('WMS Common Stock'), of WMS Industries Inc. ('WMS') of all of the
outstanding shares of voting common stock, par value $.01 per share ('Company
Common Stock'), of WHG Resorts & Casinos Inc., formerly known as WMS Hotel
Corporation ('Hotel' or the 'Company'), pursuant to the terms of a Plan of
Reorganization and Distribution Agreement among WMS, Williams Hotel Corporation
(the Company's then sole stockholder) and the Company dated as of March 20,
1997. Upon the effectiveness of the Distribution, WMS will cease to own any
interest in the Company. See 'The Distribution,' 'Risk Factors,' 'Relationship
Between the Company and WMS After the Distribution' and 'Business.'
Shares of Company Common Stock will be distributed to holders of record of
WMS Common Stock as of the close of business on March 31, 1997 (the 'Record
Date'). Each such holder will receive one share of Company Common Stock for
every four shares of WMS Common Stock held on the Record Date. The Distribution
is scheduled to occur on or about April 21, 1997 (the 'Distribution Date'). No
consideration will be paid by holders of WMS Common Stock for shares of Company
Common Stock. See 'The Distribution.'
There is no current trading market for Company Common Stock, although a
'when-issued' market is expected to develop prior to the Distribution Date. The
Company Common Stock has been approved for listing on the New York Stock
Exchange under the symbol 'WHG', subject to notice of issuance. See 'The
Distribution -- Listing and Trading of Company Common Stock.'
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION 'RISK FACTORS' BEGINNING ON PAGE 21.
------------------------
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
------------------------
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 INFORMATION STATEMENT.
------------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------------
Stockholders of WMS with inquiries related to the Distribution should
contact Barbara M. Norman, Vice President, Secretary and General Counsel, WMS
Industries Inc., 3401 North California Avenue, Chicago, Illinois 60618,
telephone: (773) 961-1667; or the Company's stock transfer agent: The Bank of
New York, 101 Barclay Street, 12W, New York, New York 10286, telephone: (800)
524-4458.
The date of this Information Statement is [ ].
<PAGE>
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TABLE OF CONTENTS
<TABLE>
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SUMMARY OF CERTAIN INFORMATION......................................................................... 5
The Distribution.................................................................................. 5
The Company....................................................................................... 9
Corporate Structure............................................................................... 11
Pre-Distribution............................................................................. 11
Post-Distribution............................................................................ 11
Summary Financial Data............................................................................ 12
THE DISTRIBUTION....................................................................................... 14
Reasons for the Distribution...................................................................... 14
Opinions of Financial Advisors.................................................................... 15
Distribution Agent................................................................................ 17
Manner of Effecting the Distribution.............................................................. 17
Results of the Distribution....................................................................... 18
Federal Income Tax Aspects of the Distribution.................................................... 18
Listing and Trading of Company Common Stock....................................................... 19
Conditions; Termination........................................................................... 19
Reasons for Furnishing the Information Statement.................................................. 20
RISK FACTORS........................................................................................... 21
Financial Leverage of El Conquistador; Ownership Interest in El Conquistador...................... 21
Operating and Financing Limitations Associated with Debt Covenants................................ 21
Lack of Operating History as a Separate Public Company............................................ 22
Tourism Tax Exemptions............................................................................ 22
Capital Requirements.............................................................................. 23
Dependence on Key Personnel....................................................................... 23
Series B Preferred Stock.......................................................................... 23
Lack of Full Control.............................................................................. 24
Changes in Tax Law................................................................................ 24
Competition....................................................................................... 24
Reliance on Single Market......................................................................... 25
Seasonality....................................................................................... 25
Casino Gaming Regulation.......................................................................... 25
Absence of Public Market for Company Common Stock................................................. 26
Changes in Trading Prices of WMS Common Stock..................................................... 26
Dividend Policy and Withholding Tax............................................................... 26
Effect on Conversion Price of WMS Convertible Subordinated Debentures............................. 26
Certain Tax Considerations........................................................................ 27
Certain Anti-Takeover Features.................................................................... 27
Certain Consents.................................................................................. 28
Fraudulent Transfer Considerations; Legal Dividend Requirements................................... 28
RELATIONSHIP BETWEEN THE COMPANY AND WMS AFTER THE DISTRIBUTION........................................ 30
Distribution Agreement............................................................................ 30
Additional Actions and Relationships.............................................................. 31
Tax Sharing Agreement............................................................................. 31
PRELIMINARY TRANSACTIONS............................................................................... 31
RELATIONSHIP BETWEEN THE COMPANY AND THE COMPANY'S SUBSIDIARIES AFTER THE DISTRIBUTION................. 33
The Condado Plaza................................................................................. 33
The El San Juan................................................................................... 34
The El Conquistador............................................................................... 34
WHGI.............................................................................................. 34
ACCOUNTING TREATMENT................................................................................... 35
HOTEL FINANCINGS AND CERTAIN CONTINGENT OBLIGATIONS.................................................... 35
The Condado Plaza................................................................................. 35
The El San Juan................................................................................... 35
The El Conquistador............................................................................... 36
WHGI.............................................................................................. 36
The Company....................................................................................... 37
CAPITALIZATION......................................................................................... 38
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DIVIDENDS.............................................................................................. 38
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................................ 39
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET............................................... 40
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS.................................... 41
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................... 42
SELECTED FINANCIAL DATA................................................................................ 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 45
General........................................................................................... 45
Results of Operations............................................................................. 46
Financial Condition............................................................................... 48
Inflation......................................................................................... 49
Seasonality....................................................................................... 50
INDUSTRY OVERVIEW...................................................................................... 50
BUSINESS............................................................................................... 51
The Condado Plaza................................................................................. 53
The El San Juan................................................................................... 54
The El Conquistador............................................................................... 54
WHGI.............................................................................................. 55
Casino Credit Policy.............................................................................. 55
Government Regulation and Licensing............................................................... 56
Seasonality....................................................................................... 57
Competition....................................................................................... 57
Employees......................................................................................... 58
Properties........................................................................................ 58
Legal Proceedings................................................................................. 59
MANAGEMENT............................................................................................. 61
Board of Directors and Committees of the Board.................................................... 61
Executive Officers................................................................................ 62
Other Significant Employees....................................................................... 63
Executive Officer Compensation.................................................................... 63
Option Grants in Last Fiscal Year................................................................. 64
Aggregated Stock Option Exercises and Year-End Values............................................. 64
Compensation of Directors......................................................................... 65
Employment Agreements............................................................................. 65
Stock Option Plan................................................................................. 67
RELATED PARTY TRANSACTIONS............................................................................. 71
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................... 72
Principal Stockholders............................................................................ 72
Security Ownership of Management.................................................................. 73
PURPOSES AND ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS............................................... 73
The Company Certificate and Bylaws................................................................ 74
Stockholder Rights Agreement...................................................................... 77
Series B Preferred Stock.......................................................................... 78
Certain Provisions of the Delaware General Corporation Law........................................ 79
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK............................................................. 79
General........................................................................................... 79
Preferred Stock................................................................................... 80
Series B Preferred Stock.......................................................................... 80
Common Stock...................................................................................... 81
Class A Common Stock.............................................................................. 81
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY................................. 82
</TABLE>
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INDEPENDENT AUDITORS................................................................................... 83
ADDITIONAL INFORMATION................................................................................. 83
INDEX TO FINANCIAL STATEMENTS.......................................................................... F-1
ANNEX I -- OPINION OF OPPENHEIMER & CO., INC. ......................................................... I-1
ANNEX II -- OPINION OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC............................................ II-1
ANNEX III -- AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY.......................... III-1
ANNEX IV -- AMENDED AND RESTATED BYLAWS OF THE COMPANY................................................. IV-1
ANNEX V -- STOCK OPTION PLAN........................................................................... V-1
</TABLE>
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SUMMARY OF CERTAIN INFORMATION
This Summary is qualified by the more detailed information set forth
elsewhere in this Information Statement, which should be read in its entirety.
Capitalized terms used but not defined in this Summary are defined elsewhere in
this Information Statement. References herein to the Company, unless the context
otherwise requires, are to the Company as the surviving corporation of the
Merger, as hereafter defined, after completion of all other Preliminary
Transactions, as hereafter defined, including the Company's subsidiaries. See
'Preliminary Transactions.'
THE DISTRIBUTION
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Distributing Company................ WMS Industries Inc, a Delaware corporation ('WMS'). References herein to
WMS include its consolidated subsidiaries except where the context
otherwise requires.
Distributed Company................. WHG Resorts & Casinos Inc. (the 'Company'), which is currently a
wholly-owned subsidiary of WMS, and as of the Distribution Date will be
the owner, through its subsidiaries, of the Puerto Rico hotel and casino
business which currently comprises the hotel and casino operations of WMS
(the 'Hotel & Casino Business').
Distribution Ratio.................. One share of Company Common Stock for every four shares of WMS Common Stock
held on the Record Date.
Securities to be Distributed........ Based on 24,200,800 shares of WMS Common Stock outstanding on the Record
Date, 6,050,200 shares of Company Common Stock will be distributed in the
Distribution. The Company Common Stock to be distributed will constitute
all of the outstanding Company Common Stock immediately after the
Distribution. See 'Description of the Company's Capital Stock -- Common
Stock.'
Fractional Share Interests.......... Fractional shares of Company Common Stock will not be distributed.
Fractional shares of Company Common Stock will be aggregated and sold in
the public market by the Distribution Agent (as defined) and the
aggregate net cash proceeds will be distributed ratably to those
stockholders entitled to fractional interests. See 'The Distribution --
Manner of Effecting the Distribution.'
Record Date......................... March 31, 1997 (5:00 p.m., Eastern Standard Time).
Distribution Date................... April 21, 1997.
Mailing Date........................ Certificates representing the shares of Company Common Stock to be
distributed pursuant to the Distribution will be delivered to the
Distribution Agent on the Distribution Date. The Distribution Agent will
mail certificates representing the shares of Company Common Stock to
holders of record of WMS Common Stock as soon as practicable thereafter.
Holders of WMS Common Stock should not send stock certificates to WMS,
the Company or the Distribution Agent. See 'The Distribution -- Manner of
Effecting the Distribution.'
Conditions to the Distribution...... The Distribution is conditioned upon, among other things, declaration of a
special dividend by the Board of Directors of WMS (the 'WMS Board'),
consummation of the Preliminary Transactions, receipt of a private letter
ruling from the Internal Revenue Service ('IRS') in form and substance
satisfactory to the WMS Board and receipt of a no-action letter from the
staff of the Securities and Exchange Commission (the 'Commission
</TABLE>
5
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Staff') in form and substance satisfactory to the WMS Board. See 'The
Distribution -- Federal Income Tax Aspects of the Distribution,'
' -- Listing and Trading of Company Common Stock,' ' -- Conditions;
Termination' and 'Preliminary Transactions.' The WMS Board has reserved
the right to waive any conditions to the Distribution or, even if the
conditions to the Distribution are satisfied, to abandon, defer or modify
the Distribution at any time prior to the Distribution Date. The WMS
Board declared the special dividend on March 20, 1997. WMS has received
the private letter ruling from the IRS and the no-action letter from the
Commission Staff referred to above. See 'The Distribution -- Conditions;
Termination.'
Reasons for the Distribution........ The Distribution is designed to relieve WMS and the Company from certain of
the regulatory burdens and risks which exist as a result of the combined
ownership by WMS of a gaming equipment business and a Puerto Rico casino
business and to enhance the Company's ability to attract and maintain
skilled employees through stock related compensation of the Company. The
Company, through its subsidiaries, will continue to operate the Hotel &
Casino Business. WMS, through its subsidiaries, will continue to conduct
the business of designing, publishing and marketing interactive
entertainment software played in both the coin-operated and home video
markets and designing, manufacturing and selling coin-operated pinball
and novelty games, video lottery terminals, slot machines and multigame
casino video machines (the 'Games Business'). See 'The
Distribution -- Reasons for the Distribution.'
Tax Consequences.................... The WMS Board conditioned the Distribution on receipt of a ruling from the
IRS to the effect, among other things, that receipt of shares of Company
Common Stock by holders of WMS Common Stock will be tax free. On October
9, 1996, application was made to the IRS for a ruling as to the
foregoing, as well as to confirm the treatment, for Federal income tax
purposes, of certain other matters pertaining to the Distribution. On
January 31, 1997, the IRS issued the requested ruling. See 'The
Distribution -- Federal Income Tax Aspects of the Distribution.'
Preliminary Transactions............ Prior to the Distribution, WMS intends to cause the merger (the 'Merger')
of the Company with the Company's sole stockholder, Williams Hotel
Corporation, a Delaware corporation, with the Company as the surviving
corporation of such Merger. At or about the time of the Merger and prior
to the Distribution Date, WMS shall perform and/or cause the following
transactions to occur, but not necessarily in the order listed: (a) WMS
shall contribute to the Company's capital (i) $4,100,000 of 8% Class A
Preferred Stock (the 'Condado Plaza Preferred Stock') of Posadas de
Puerto Rico Associates, Incorporated ('PPRA') and (ii) net intercompany
accounts due WMS from the Hotel & Casino Business (approximately
$4,500,000 as of December 31, 1996) excluding amounts due ESJ Hotel
Corporation ('ESJ'); (b) WMS shall pay its outstanding intercompany
receivable due ESJ (approximately $5,077,000 at December 31, 1996); (c)
WMS shall make a capital contribution in cash to the Company of an amount
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6
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<S> <C>
which when added to the amount of the intercompany receivable due ESJ
equals $6,000,000 cash; (d) cause Williams Hospitality Group Inc.
('WHGI') to declare dividends on its outstanding common stock (the 'WHGI
Common Stock') and PPRA to pay dividends on and redeem a portion of the
Condado Plaza Preferred Stock resulting in net cash received by the
Company of approximately $4,442,000; (e) merge WMS Property Inc. into
ESJ; and (f) transfer to PPRA the Company's interests in ESJ and WHGI in
exchange for additional shares of capital stock of PPRA. All of such
interests referred to in clause(f) are currently held directly by the
Company or Williams Hotel Corporation. See 'Preliminary Transactions.'
Trading Market...................... There is currently no public market for Company Common Stock. The Company
Common Stock has been approved for listing on the New York Stock Exchange
under the symbol 'WHG', subject to notice of issuance. See 'The
Distribution -- Listing and Trading of Company Common Stock' and 'Risk
Factors -- Absence of Public Market for Company Common Stock.'
Distribution Agent and Transfer
Agent for Company Common Stock.... The distribution agent (the 'Distribution Agent') and the transfer agent
for the Company Common Stock is The Bank of New York, 101 Barclay Street,
12W, New York, New York 10286, telephone: (800) 524-4458.
Dividends........................... The Company presently expects to retain all available earnings, if any,
generated by its operations and does not expect to pay any cash dividends
in the foreseeable future. See 'Risk Factors -- Operating and Financing
Limitations Associated with Debt Covenants,' ' -- Dividend Policy and
Withholding Tax' and 'Dividends.'
Anti-Takeover Provisions............ The Amended and Restated Certificate of Incorporation (the 'Certificate')
and Amended and Restated Bylaws (the 'Bylaws') of the Company, and
Delaware statutory law, contain provisions (the 'Control Provisions')
that may have the effect of discouraging an acquisition of control of the
Company not approved by the Board of Directors of the Company (the
'Company Board'). In addition, the Company has adopted a Stockholder
Rights Agreement (the 'Rights Agreement') and has provided for the
issuance under certain circumstances of a series of preferred stock
having enhanced voting rights (the 'Series B Preferred Stock'). The
Control Provisions, the Rights Agreement and the Series B Preferred Stock
have been designed to enable the Company to develop its business and
foster its long-term goals without disruptions caused by the threat of a
takeover not deemed by the Company Board to be in the best interests of
the Company and its stockholders. The Control Provisions, the Rights
Agreement and the Series B Preferred Stock may also have the effect of
discouraging third parties from making proposals involving an acquisition
or change of control of the Company, although such proposals, if made,
might be considered desirable by a majority of the Company's
stockholders. The Control Provisions, the Rights Agreement and the Series
B
</TABLE>
7
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<S> <C>
Preferred Stock could further have the effect of making it more difficult
for third parties to cause the replacement of the current management of
the Company without the concurrence of the Company Board. See 'Risk
Factors -- Series B Preferred Stock,' ' -- Certain Anti-Takeover
Features,' 'Related Party Transactions,' 'Purposes and Anti-Takeover
Effects of Certain Provisions' and 'Description of the Company's Capital
Stock.'
Risk Factors........................ See 'Risk Factors' for a discussion of factors that should be considered in
connection with Company Common Stock received in the Distribution.
Relationship with WMS after the
Distribution...................... WMS will have no stock ownership in the Company upon consummation of the
Distribution. Except as noted below, each of WMS and its subsidiaries
(excluding the Company and its subsidiaries) on the one hand and the
Company and its subsidiaries on the other hand have their own separate
and independent management. WMS has, however, provided certain financial
advice and assistance and corporate secretary type services to the Hotel
& Casino Business. For purposes of governing certain ongoing
relationships between the Company and WMS after the Distribution and to
provide for an orderly transition, the Company and WMS have entered into
or will enter into certain agreements. Such agreements include: (i) the
Plan of Reorganization and Distribution Agreement (the 'Distribution
Agreement'), providing for, among other things, the Distribution, the
Preliminary Transactions and indemnifications with respect to the
respective businesses of the Company and WMS and (ii) the Tax Sharing
Agreement pursuant to which the Company and WMS will agree to allocate
tax liabilities that relate to periods prior to the Distribution Date.
WMS may also continue to provide certain advice and assistance to the
Company on a transitional basis. After the Distribution the only person
who will serve as an officer and/or director of both the Company and WMS
and certain of their respective subsidiaries will be Mr. Louis J.
Nicastro. Mr. Nicastro is a Director, Chairman of the Board and Chief
Executive Officer of the Company, as well as an officer and director of
all of the Company's subsidiaries, and he will continue to serve as a
Director and Chairman of the Board of WMS and a Director of Midway Games
Inc., approximately 87% of which is owned by WMS. Although the Chairman
of the Board of WMS, Mr. Nicastro is not an executive officer of WMS and
will not be an employee of WMS or any of its subsidiaries after the
Distribution. See 'Relationship Between the Company and WMS After the
Distribution.'
</TABLE>
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THE COMPANY
The Company owns an interest 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 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
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 as well as attracting 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 two
full years of operation. During the fiscal year ended March 31, 1996, the
resort's second full fiscal year of operations, the El Conquistador had an
average occupancy of 70.9% and an average room rate of $198.99.
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 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.
9
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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 currently 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 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 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 prior to completion
of the Preliminary Transactions the Company owns 95% of PPRA, a 50% interest in
the El San Juan and 62% of WHGI. Following completion of the Preliminary
Transactions, the Company's ownership interest in PPRA will increase to 100%. 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
'Preliminary Transactions' and 'Relationship Between the Company and the
Company's Subsidiaries After the Distribution.'
The Company's principal executive offices are located at 6063 East Isla
Verde Avenue, Carolina, Puerto Rico 00979; telephone: (787) 791-2222.
10
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CORPORATE STRUCTURE
PRE-DISTRIBUTION
The Hotel & Casino Business is currently conducted by WMS through its
wholly-owned subsidiary Williams Hotel Corporation and its subsidiaries. Except
for certain legal and financial activities provided by WMS, the Hotel & Casino
Business operations are separate from the Games Business. Prior to the
Preliminary Transactions and the Distribution, the organization structure of the
significant entities comprising the Hotel & Casino Business is as follows:
[CORPORATE STRUCTURE CHART]
* Formerly known as WMS Hotel Corporation
POST-DISTRIBUTION
Upon consummation of the Preliminary Transactions and the Distribution, the
organization structure of the significant entities comprising the Company will
be as follows:
[CORPORATE STRUCTURE CHART]
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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 Williams Hotel Corporation for such
periods. The summary financial data set forth below for the six months ended
December 31, 1996 and 1995 have been derived from the unaudited consolidated
financial statements of 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 December 31, 1996 and
the unaudited pro forma statement of income data for the six months ended
December 31, 1996 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
Unaudited Pro Forma Condensed Consolidated Financial Statements and related
notes thereto, the Consolidated Financial Statements of Williams Hotel
Corporation and related notes thereto, separate statements of nonconsolidated
affiliates and other financial information included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
------------------------------- ----------------------------------------------------------------
(UNAUDITED)
SELECTED STATEMENT OF 1996 1996
INCOME DATA PRO FORMA 1996 1995 PRO FORMA 1996 1995 1994 1993 1992(1)
--------- ------- ------- --------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $30,054 $30,054 $30,856 $68,694 $68,694 $70,878 $75,480 $70,680 $62,352
--------- ------- ------- --------- ------- ------- ------- ------- -------
--------- ------- ------- --------- ------- ------- ------- ------- -------
Operating income......... 4,670 5,102 3,843 12,194 13,558 7,624 13,892 14,162 6,909
Interest expense, net.... (583) (583) (1,053) (1,859) (1,859) (1,752) (3,551) (3,873) (4,074)
Equity in income (loss)
of nonconsolidated
affiliates............. (3,028) (3,028) (3,597) (3,465) (3,465) (7,003) (3,534) (135) 2,992
--------- ------- ------- --------- ------- ------- ------- ------- -------
Income (loss) before tax
provision and minority
interests.............. 1,059 1,491 (807) 6,870 8,234 (1,131) 6,807 10,154 5,827
Credit (provision) for
income taxes........... (1,315) (224) 295 (2,621) (1,645) 234 7 (1,050) (1,881)
Minority interests in
(income) loss.......... (1,263) (1,262) (1,194) (3,684) (3,636) (2,910) (4,597) (3,332) 1,383
Dividend on Condado Plaza
Preferred Stock........ -- (164) (296) -- (516) (557) -- -- --
--------- ------- ------- --------- ------- ------- ------- ------- -------
Net income (loss)........ $(1,519) $ (159) $(2,002) $ 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)........ $(1,240) $(3,262) $ 1,537 $(6,500) $ 1,257 $ 5,579 $ 2,407
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Pro forma net income
(loss) per share of
common stock (3)....... $ (0.25) $ 0.09
--------- ---------
--------- ---------
Pro forma shares
outstanding (3)........ 6,050 6,050
--------- ---------
--------- ---------
SELECTED BALANCE SHEET
DATA
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
PRO FORMA HISTORICAL
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Investments in,
receivables and
advances to
nonconsolidated
affiliates............. $ 27,890 $ 27,890
Property and equipment,
net.................... 45,157 44,126
Total assets............. 109,515 104,850
Long-term debt, including
current maturities..... 25,226 25,226
Minority interests....... 18,122 19,921
Shareholders' equity..... 47,069 37,341
</TABLE>
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(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
(footnotes continued on next page)
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(footnotes continued from previous page)
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 for utilization of partnership
losses in the WMS consolidated Federal income tax return.
(3) Pro forma net income (loss) per share of the Company was calculated using
anticipated distribution of one share of Company Common Stock for every four
of the 24,200,800 shares of WMS Common Stock outstanding on the Record Date.
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THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
In addition to ownership and operation of the Hotel & Casino Business, WMS,
through its subsidiaries, designs, publishes and markets interactive
entertainment software for both the coin-operated and home video game markets
('Video Games') and designs, manufactures and sells coin-operated pinball and
novelty games ('Pinball & Novelty Games') and video lottery terminals, slot
machines and multigame casino video machines ('Gaming Equipment'). The WMS Board
believes that the Distribution will relieve WMS and the Company from the
regulatory burdens and risks which exist as a result of the operations of the
Gaming Equipment business and Hotel & Casino Business within the same affiliated
group. These burdens and risks include risks to obtaining and retaining WMS'
Gaming Equipment and regulatory licenses, increased administrative costs,
increased time demands on personnel who have to monitor regulatory compliance,
and competitive disadvantages to both WMS and the Company.
In its Gaming Equipment business, WMS manufactures video lottery terminals
('VLTs'), slot machines and multigame casino video machines. The manufacture and
distribution of such Gaming Equipment is subject to extensive Federal, state,
local and foreign regulation. Although the laws and regulations of the various
jurisdictions in which WMS operates vary in their technical requirements,
virtually all of these jurisdictions require registrations, licenses, findings
of suitability, permits, documentation or qualification, including evidence of
financial stability and other forms of approval for companies engaged in the
manufacture and distribution of VLTs and gaming machines as well as for
officers, directors, major stockholders and key personnel of such companies.
Many jurisdictions have legalized gaming, but management of WMS believes
that success in Nevada is critical to success in the slot/video gaming machine
business inasmuch as Nevada is, by far, the largest single market for slot/video
gaming machines in the United States. Nevada's requirements, as well as the
requirements of gaming authorities in other states and countries with respect to
the Company's casino operations, impose risks and burdens on WMS and burdens on
the Company which management believes could be arduous. If the Hotel & Casino
Business is not conducted in a manner acceptable to gaming authorities located
outside of Puerto Rico, licenses may not be granted to WMS, or if granted, may
not be renewed or may be revoked, conditioned or limited. Furthermore, the
gaming authorities can take such action based on the operations of all three of
the Puerto Rico hotels and casinos in which the Company has an interest, even
though the Company is the majority owner of only the Condado Plaza. Neither the
Company nor WMS is aware of any matters in connection with current operations of
the Hotel & Casino Business which are considered unacceptable conduct to gaming
authorities in any of the jurisdictions where the Company or WMS operates.
Moreover, the hotel and casino properties in which the Company has an
interest could be constrained from a competitive standpoint by the requirement
that their operations be run in accordance with Nevada standards which are much
more demanding than the regulatory requirements of Puerto Rico. In order to
maximize the potential of Puerto Rico's operations, management of the Company
and its hotels and casinos must be permitted to run the business as cost
effectively as possible within the permissible limits of the applicable Puerto
Rico regulatory environment. Furthermore, even if it were economically desirable
for the Puerto Rico casinos to operate in accordance with Nevada regulatory
requirements, meeting those requirements is not within the full control of the
Company. Two of the three Puerto Rico hotels in which the Company has an
interest have substantial outside ownership interests, i.e., there is
approximately 50% outside ownership interest in the case of the El San Juan and
approximately 77% in the case of the El Conquistador. The Other Owners and
Kumagai have been required to submit information to Nevada and to undergo
scrutiny by Nevada even though they have no gaming business interests in Nevada,
nor would they benefit in any way from WMS' success in the Gaming Equipment
business. Not only is gathering information about such Other Owners difficult
and time consuming, but if such Other Owners should determine at any time not to
provide information or to transfer their interests, or if they should have any
difficulties in their other business affairs which Nevada finds unsatisfactory,
WMS' Gaming Equipment licenses could be put at risk.
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The Company could be hampered in any attempts to expand its business or
restructure its financings by the requirement to have such transactions
scrutinized by Nevada and other gaming authorities outside Puerto Rico. The
Company may expand its business by acquiring or forming affiliations with other
hotels and casinos in Puerto Rico, other areas in the Caribbean and elsewhere.
Such growth may entail joint ventures or other relationships which will subject
persons or operations to the scrutiny of Nevada and other gaming authorities
solely because of WMS' Gaming Equipment business. Management of WMS is also
concerned that the conduct of the Gaming Equipment and Hotel & Casino Businesses
under common ownership raises the possibility that owners of casinos which
compete with the Company's casinos may be less likely to acquire WMS' Gaming
Equipment than they would if WMS did not own any casinos.
In addition to such regulatory risks and burdens, management believes that
the separation of the Hotel & Casino Business as a separate public corporation
will enhance the Company's ability to attract and retain skilled employees.
Management believes highly-skilled employees in the hotel and casino business
are better able to be attracted and retained if their compensation arrangements
include opportunities to acquire equity, and thus, afford them the ability to
benefit directly from the success of their employer's business. At the current
time, it is only feasible for employees to be offered options or equity
interests in WMS since that is the only public company available for such
purpose. Because of the relative contributions of WMS' business segments, the
value of such equity interests is affected in large part by the fortunes of the
Video Games, Pinball & Novelty Games and Gaming Equipment businesses, and not
the Hotel & Casino Business. As such, equity interests in WMS are highly
inefficient mechanisms to compensate or incentivize employees of the Hotel &
Casino Business. If the Games Business does poorly, the equity interests of the
hotel and casino employees are likely to be of limited value regardless of how
well the hotels and casinos perform. Additionally, management also believes that
the separation will permit the Company and WMS to focus exclusively on their own
respective businesses.
Although it is intended that WMS and the Company will conduct their
respective businesses substantially independently following the Distribution and
that the Company will conduct its business almost exclusively with companies
other than WMS, it is contemplated that various agreements will be entered into
which will govern in certain respects the relationship between WMS and the
Company and certain other matters following the Distribution. For example, WMS
may provide certain administrative services to the Company on a transitional
basis. Ms. Barbara M. Norman, currently Vice President, Secretary and General
Counsel of WMS will resign those positions some time after the Distribution
Date. It is intended that Ms. Norman become Vice President, Secretary and
General Counsel and a Class III Director of the Company at such time. In
addition, the agreements governing the Distribution will contain
cross-indemnities, tax sharing arrangements and other provisions relating to the
separation of the companies.
OPINIONS OF FINANCIAL ADVISORS
In reaching a decision to undertake the Distribution, the WMS Board
considered, among other things, the advice of its financial advisors,
Oppenheimer & Co., Inc. ('Oppenheimer') and Houlihan, Lokey, Howard & Zukin,
Inc. ('Houlihan Lokey'). Summaries of the opinions rendered by WMS' financial
advisors with respect to the Distribution are set forth below. The opinions
rendered by WMS' financial advisors assume that the Distribution is consummated
substantially as described in this Information Statement.
Fairness Opinion. Oppenheimer was engaged as a financial advisor to WMS on
July 16, 1996 to, among other things, provide financial advice to WMS with
respect to the Distribution. In rendering such advice, Oppenheimer assisted WMS'
management in determining the capital structures of the two companies following
the Distribution. At the request of WMS, Oppenheimer rendered an opinion dated
March 20, 1997 (the 'Declaration Date') to the WMS Board that, based upon the
matters set forth in such opinion and on other factors such firm deemed
relevant, and subject to the assumptions set forth therein, it was of the
opinion that the Distribution is fair, from a financial point of view, to the
holders of WMS Common Stock. Oppenheimer's opinion is addressed to the WMS Board
in connection with its consideration of the Distribution and addresses only the
fairness, from a financial point of view, of the
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Distribution to the holders of WMS Common Stock. Oppenheimer's opinion is not a
recommendation to any current or prospective stockholder of WMS or the Company
as to any investment decision such person may make, nor any opinion or estimate
as to the trading prices of the WMS Common Stock or the Company Common Stock
following the Distribution. The full text of the opinion of Oppenheimer, which
sets forth certain assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex I hereto and is incorporated herein by
reference and should be read in its entirety in connection with this Information
Statement. The summary of Oppenheimer's opinion set forth herein is qualified in
its entirety by reference to the full text of such opinion. It is a condition to
the consummation of the Distribution that Oppenheimer deliver the opinion to the
WMS Board on the Declaration Date and it has done so. See ' -- Conditions;
Termination.'
In preparing its opinion, Oppenheimer was not responsible for independent
verification of any information, whether publicly available or furnished to it,
concerning the Company or WMS, including, without limitation, any financial
information, forecasts or projections, considered by it in connection with the
rendering of its opinion. Accordingly, Oppenheimer assumed and relied upon the
accuracy and completeness of all such information and did not prepare or obtain
any independent evaluation or appraisal of any of the assets or liabilities of
the Company or WMS. With respect to the financial forecasts and projections made
available by WMS to Oppenheimer and used in its analysis, Oppenheimer assumed
that the financial forecasts and projections were reasonably prepared on bases
reflecting the best available estimates and judgments of the measurement of the
Company and WMS as to the matters covered thereby, and in rendering its opinion,
Oppenheimer expressed no view as to the reasonableness of such forecasts and
projections or the assumptions on which they are based. In addition, Oppenheimer
has reviewed the opinion of Houlihan Lokey referred to below. Oppenheimer's
opinion is necessarily based upon economic, market and other conditions as in
effect on, and the information made available to it as of, the date of its
opinion.
Oppenheimer's opinion is also based on, among other things, its review of
the terms of the Distribution, historical and pro forma financial information
and certain business information relating to WMS, including information
contained in this Information Statement, the historical stock prices of WMS
Common Stock, as well as certain financial forecasts and other data provided by
WMS relating to the businesses and prospects of WMS and the Company. Oppenheimer
also conducted discussions with WMS' management with respect to the businesses
and prospects of the Company and WMS, physically inspected certain of the
Company's properties and assets and conducted such financial studies, analyses
and investigations as such firm deemed appropriate in rendering its opinion.
Oppenheimer is an internationally recognized investment banking firm that,
among other things, provides financial advisory services in connection with
mergers and acquisitions and corporate restructuring. WMS selected Oppenheimer
based on its long-standing familiarity with WMS and its experience in analyses
of transactions of this type.
In connection with the Distribution, WMS will pay Oppenheimer a fee of not
less than $500,000, including $200,000 upon delivery of Oppenheimer's fairness
opinion. Oppenheimer has from time to time performed other investment banking
services for WMS and Midway Games Inc., approximately 87% of which is owned by
WMS, for which it has received customary compensation. Mr. Richard D. White, a
Managing Director of Oppenheimer, is a director of Midway Games Inc.
In addition, WMS has agreed, among other things, to reimburse Oppenheimer
for reasonable fees and disbursements of counsel and other reasonable
out-of-pocket expenses incurred in connection with the services provided by
Oppenheimer, not to exceed $25,000 in the aggregate unless otherwise agreed to
by WMS. WMS has also agreed to indemnify and hold harmless Oppenheimer and
certain of its related parties to the full extent lawful from and against
liabilities, including certain liabilities under the Federal securities laws,
incurred in connection with the firm's engagement.
Solvency Opinion. In a written opinion dated March 20, 1997 Houlihan Lokey
stated that, based upon the considerations set forth therein and on other
factors it deemed relevant, it was of the opinion that, assuming the
Distribution is consummated as proposed, with respect to the Company,
immediately after giving effect to the Distribution: (a) on a pro forma basis,
the fair value and present fair saleable value of the Company's assets would
exceed the Company's stated liabilities and identified contingent liabilities;
(b) the Company should be able to pay or refinance its debts as they become
absolute and
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mature; and (c) the capital remaining in the Company after the Distribution
would not be unreasonably small for the business in which the Company is
engaged, as management has indicated it is now conducted and is proposed to be
conducted following consummation of the Distribution. The full text of Houlihan
Lokey's opinion is set forth in Annex II hereto and is incorporated herein by
reference and should be read in its entirety in connection with this Information
Statement. The summary of Houlihan Lokey's opinion set forth herein is qualified
in its entirety by reference to the text of such opinion. It is a condition to
the consummation of the Distribution that Houlihan Lokey deliver the opinion to
the WMS Board on the Declaration Date and it has done so. See ' -- Conditions;
Termination.'
In preparing its opinion, Houlihan Lokey relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
the Company, and did not independently verify such information or undertake any
independent appraisal of the assets or liabilities of the Company. Such opinion
was based on business, economic, market and other conditions existing on the
date such opinion was rendered.
Houlihan Lokey's opinion is also based on, among other things, its review
of: (i) (a) the audited consolidated financial statements of Williams Hotel
Corporation for the fiscal years ended June 30, 1995 and 1996 and the unaudited
consolidated financial statements of Williams Hotel Corporation for the six
months ended December 31, 1996, (b) the audited financial statements of WKA,
Posadas de San Juan Associates, PPRA and WHGI for the fiscal years ended June
30, 1994, 1995 and 1996, (c) the unaudited financial statements of WKA, Posadas
de San Juan Associates, PPRA and WHGI for the six months ended December 31, 1996
and (d) the audited financial statements of the El Conquistador Partnership L.P.
for the fiscal years ended March 31, 1994, 1995 and 1996 and the unaudited
financial statements of the El Conquistador Partnership L.P. for the six months
ended September 30, 1996; (ii) certain forecasts and projections prepared by the
Company's management; (iii) the historical market prices and trading volume for
WMS Common Stock from March 1, 1996 to March 19, 1997 as a reference point for
determining the value of the Company which was a part of WMS during that period;
(iv) certain business information relating to the Company, including that
contained in this Information Statement; (v) other publicly-available financial
data for the Company and seven companies deemed comparable to the Company; and
(vi) the agreements relating to the Distribution, as well as drafts of certain
other documents to be delivered upon the Distribution, including, but not
limited to, the reports of the Company's independent public accountants. In
rendering its opinion, Houlihan Lokey also (i) visited the Condado Plaza, the El
San Juan and the El Conquistador as well as the business offices of the Company
and WHGI, (ii) conducted discussions with the Company's senior management with
respect to the operations, financial condition, future prospects and projected
operations and performance of the Company, (iii) conducted discussions with
representatives of the Company's counsel primarily with regard to the structure
of the Distribution, the corporate structure of the Company and its subsidiaries
and the structure of the various financings at the El Conquistador, and (iv)
conducted such other studies, analyses and investigations as it deemed
appropriate. As a result of Houlihan Lokey's studies, analyses and
investigations Houlihan Lokey was able to render its opinion as described above.
In connection with the Distribution, WMS has paid Houlihan Lokey a fee of
$65,000.
DISTRIBUTION AGENT
The Distribution Agent is The Bank of New York, 101 Barclay Street, 12W,
New York, New York 10286, telephone: (800) 524-4458.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement dated as of March 20, 1997 among the Company,
Williams Hotel Corporation and WMS.
WMS will effect the Distribution on the Distribution Date by delivering all
outstanding shares of Company Common Stock to the Distribution Agent for
distribution to the holders of record of WMS Common Stock as of the close of
business on the Record Date. The Distribution will be made on the basis of one
share of Company Common Stock for every four shares of WMS Common Stock held as
of the close of business on the Record Date. Based upon the 24,200,800 shares of
WMS Common Stock outstanding on the Record Date, 6,050,200 shares of Company
Common Stock will be distributed in the Distribution. The shares of Company
Common Stock will be fully paid and nonassessable, and the
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holders thereof will not be entitled to preemptive rights. See 'Description of
the Company's Capital Stock.' It is expected that certificates representing
shares of Company Common Stock will be mailed to holders of record of WMS Common
Stock as soon as practicable after the Distribution Date.
HOLDERS OF WMS COMMON STOCK SHOULD NOT SEND CERTIFICATES TO THE COMPANY,
WMS OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL THE STOCK
CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK AS SOON AS PRACTICABLE
AFTER THE DISTRIBUTION DATE. WMS STOCK CERTIFICATES WILL CONTINUE TO REPRESENT
SHARES OF WMS COMMON STOCK AFTER THE DISTRIBUTION IN THE SAME AMOUNT SHOWN ON
THE CERTIFICATES.
No certificates or scrip representing fractional interests in shares of
Company Common Stock ('Fractional Shares') will be issued to holders of WMS
Common Stock as part of the Distribution. The Distribution Agent, acting as
agent for holders of WMS Common Stock otherwise entitled to receive in the
Distribution certificates representing Fractional Shares, will aggregate and
sell in the open market all Fractional Shares at then prevailing prices and
distribute the net proceeds to the stockholders entitled thereto. WMS will pay
the fees and expenses of the Distribution Agent in connection with such sales.
No holder of WMS Common Stock will be required to pay any cash or other
consideration for the shares of Company Common Stock to be received in the
Distribution or to surrender or exchange shares of WMS Common Stock or to take
any other action in order to receive Company Common Stock pursuant to the
Distribution.
RESULTS OF THE DISTRIBUTION
After the Distribution, the Company will be a separate public company which
will own and operate the Hotel & Casino Business. The number and identity of the
holders of Company Common Stock immediately after the Distribution will be
substantially the same as the number and identity of the holders of WMS Common
Stock on the Record Date. Immediately after the Distribution, the Company
expects to have approximately 2,000 holders of record of Company Common Stock
and 6,050,200 shares of Company Common Stock outstanding based on the number of
record stockholders and outstanding shares of WMS Common Stock as of the close
of business on the Record Date and the distribution ratio of one share of
Company Common Stock for every four shares of WMS Common Stock. The Distribution
will not affect the number of outstanding shares of WMS Common Stock or any
rights of WMS stockholders.
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The WMS Board has conditioned the Distribution on the receipt of a ruling
from the IRS to the effect, among other things, that the Distribution will
qualify as a tax free spin-off under Section 355 of the Internal Revenue Code of
1986, as amended (the 'Code'), and that for Federal income tax purposes:
(1) No gain or loss will be recognized by (and no amount will be
included in the income of) a holder of WMS Common Stock upon the receipt of
Company Common Stock in the Distribution.
(2) The aggregate basis of the WMS Common Stock and the Company Common
Stock in the hands of the stockholders of WMS immediately after the
Distribution will be the same as the aggregate basis of the WMS Common
Stock held immediately before the Distribution, allocated in proportion to
the fair market value of each.
(3) Any stockholder of WMS receiving cash in lieu of Fractional Shares
will recognize gain or loss equal to the difference between the amount of
cash received and the basis such stockholder would have had in the
Fractional Shares.
(4) The holding period of the Company Common Stock received by the
stockholders of WMS will include the holding period of the WMS Common Stock
with respect to which the Distribution will be made, provided that such
stockholder held WMS Common Stock as a capital asset on the Distribution
Date.
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(5) No gain or loss will be recognized by WMS upon the Distribution.
Application was made to the IRS for a ruling to the foregoing effect on
October 9, 1996. On January 31, 1997 the IRS issued the requested ruling.
The summary of Federal income tax consequences set forth above does not
purport to cover all Federal income tax consequences that may apply to all
categories of stockholders. All stockholders should consult their own tax
advisors regarding the particular Federal, state, local and foreign tax
consequences of the Distribution to such stockholders.
For a description of the Tax Sharing Agreement pursuant to which the
Company and WMS have provided for various tax matters, see 'Relationship Between
the Company and WMS After the Distribution -- Tax Sharing Agreement.'
LISTING AND TRADING OF COMPANY COMMON STOCK
There is not currently a public market for Company Common Stock. Prices at
which Company Common Stock may trade prior to the Distribution on a
'when-issued' basis or after the Distribution cannot be predicted. Until Company
Common Stock is fully distributed and an orderly market develops, the prices at
which trading in such stock occurs may fluctuate significantly. The prices at
which Company Common Stock trades will be determined by the marketplace and may
be influenced by many factors, including, among others, the depth and liquidity
of the market for Company Common Stock, investor perception of the Company and
the industry in which the Company participates, the Company's dividend policy
and general economic and market conditions. Such prices may also be affected by
certain provisions of the Company's Certificate, Bylaws, Rights Agreement and
Series B Preferred Stock as each will be in effect following the Distribution,
which may have an anti-takeover effect. See 'Risk Factors -- Dividend Policy and
Withholding Tax,' ' -- Certain Anti-Takeover Features' and 'Purposes and
Anti-Takeover Effects of Certain Provisions.'
The Company Common Stock has been approved for listing on the New York
Stock Exchange under the symbol 'WHG', subject to notice of issuance. The
Company initially will have approximately 2,000 stockholders of record based
upon the number of stockholders of record of WMS as of the Record Date.
WMS filed a request for a no-action letter with the Commission Staff
setting forth, among other things, WMS' view that the Distribution of Company
Common Stock does not require registration under the Securities Act of 1933, as
amended (the 'Securities Act'). The WMS Board has conditioned the Distribution
on, among other things, receipt of the aforementioned no-action letter. On
February 25, 1997, the Commission Staff issued the requested no-action letter.
It is the Company's belief that Company Common Stock distributed to WMS'
stockholders in the Distribution will be freely transferable, except for (i)
securities received by persons who may be deemed to be 'affiliates' of WMS
within the meaning of Rule 144 promulgated under the Securities Act in which
case such persons may not publicly offer or sell Company Common Stock received
in connection with the Distribution except pursuant to a registration statement
under the Securities Act or pursuant to Rule 144 and (ii) securities received by
persons that were holders of restricted shares of WMS Common Stock in which case
such holders will receive Company Common Stock containing the same such
restrictions. For purposes of Rule 144(c), the Company will not be deemed to
satisfy the currently available public information requirements under the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), until 90 days
after the Distribution Date.
CONDITIONS; TERMINATION
The WMS Board has conditioned the Distribution upon, among other things,
(i) the IRS having issued a ruling in response to WMS' request in form and
substance satisfactory to the WMS Board; (ii) the Commission Staff having issued
a no-action letter in response to WMS' request in form and substance
satisfactory to the WMS Board; (iii) completion of the Preliminary Transactions
contemplated by the Distribution Agreement to occur prior to the Distribution
having been consummated; (iv) the Company Board having been elected by WMS, the
sole stockholder of the Company, and the Certificate and the Bylaws of the
Company, as each will be in effect after the
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Distribution, having been adopted and being in effect; (v) the Registration
Statement on Form 10 with respect to Company Common Stock (the 'Form 10
Registration Statement') having become effective under the Exchange Act; (vi)
Oppenheimer having delivered an opinion to the WMS Board, dated as of the
Declaration Date, in the same form as the opinion set forth in Annex I; and
(vii) Houlihan Lokey having delivered an opinion to the WMS Board, dated as of
the Declaration Date, in substantially the same form as the opinion set forth in
Annex II. WMS has received the private letter ruling from the IRS and the
no-action letter from the Commission Staff referred to above. Oppenheimer and
Houlihan Lokey have rendered the aforementioned opinions to the WMS Board on
March 20, 1997. There are certain individual consents, which, if not obtained,
might have a material adverse effect on the Company. Obtaining these consents is
not, however, a condition of the Distribution. See 'Risk Factors -- Certain
Consents.' WMS believes that there are no individual consents, which, if not
obtained, would have a material adverse effect on WMS. Any of these conditions
may be waived in the discretion of the WMS Board. Even if all of the above
conditions are satisfied, the WMS Board has reserved the right to abandon, defer
or modify the Distribution at any time prior to the Distribution Date; however,
the WMS Board will not waive any of the conditions to the Distribution or make
any changes in the terms of the Distribution unless the WMS Board determines
that such changes would not be materially adverse to the WMS stockholders. See
'Relationship Between the Company and WMS After the Distribution -- Distribution
Agreement.'
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by WMS solely to provide
information to WMS stockholders who will receive Company Common Stock in the
Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of the Company or WMS. The
information contained in this Information Statement is believed by the Company
and WMS to be accurate as of the date set forth on its cover. Changes may occur
after that date, and neither the Company nor WMS will update the information
except in the normal course of their respective disclosure practices.
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RISK FACTORS
Stockholders of WMS should be aware that the Distribution and ownership of
Company Common Stock involves certain risk factors, including those described
below and elsewhere in this Information Statement, which could adversely affect
the value of their holdings. Neither the Company nor WMS makes, nor is any other
person authorized to make, any representation as to the future market value of
Company Common Stock. Any forward-looking statements contained in this
Information Statement should not be relied upon as predictions of future events.
Such forward-looking statements may be found in the material set forth under
'Summary of Certain Information,' 'Risk Factors' and 'Management's Discussion
and Analysis of Financial Condition and Results of Operations,' as well as
elsewhere in this Information Statement 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 Information Statement.
FINANCIAL LEVERAGE OF EL CONQUISTADOR; OWNERSHIP INTEREST IN EL CONQUISTADOR
The El Conquistador is a highly leveraged property having at December 31,
1996 aggregate short-term and long-term indebtedness of approximately
$202,695,947, of which $145,000,000 represents term loans secured by
substantially all of the assets of the El Conquistador; $6,000,000 represents
outstanding amounts under a secured revolving credit facility; $5,070,910
represents equipment financing arrangements; $37,353,783 represents loans plus
accrued interest due its partners; $4,066,150 represents incentive management
fees due WHGI; $260,314 represents interest due WHGI on incentive management
fees; $4,569,262 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 $2,034,000 at December 31, 1996, a write-off by
WHGI of its incentive management fees and certain other amounts due from the El
Conquistador of approximately $7,621,685 at December 31, 1996 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 December
31, 1996 WHGI is contingently liable for approximately $3,033,000 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 a 23.3% indirect
interest. The balance of the ownership interests in the El Conquistador are
owned 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 the Company's
Subsidiaries After the Distribution -- 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
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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 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
The Hotel & Casino Business has been conducted by WMS through its
subsidiaries and affiliates and accordingly, does not have an operating history
as a separate public company. Historically, WMS on certain occasions has
provided credit enhancement, loans, advances or other capital in connection with
the Hotel & Casino Business. Following the Distribution, with the exception of
amounts paid or contributed by WMS in the Preliminary Transactions, the Company
will be dependent upon its own financial resources including 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 Hotel & Casino Business has historically relied upon WMS
for certain legal and financial services. After the Distribution Date, the
Company will be responsible for maintaining its own administrative functions,
except for certain transitional services provided by WMS pursuant to agreements
between the Company and WMS. See 'Relationship Between the Company and WMS After
the Distribution.'
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 applied
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for 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 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
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
Board including the completion of the refurbishment of the Condado Plaza lobby,
casino, restaurants and nightclub. For fiscal years 1996 and 1995, the El
Conquistador had capital expenditures of $864,000 and $3,002,000, respectively.
Expenditures at the El Conquistador in 1996 were low due to the newness of the
facility. Capital expenditures at the El Conquistador for fiscal 1997 and 1998
have been budgeted at $1,800,000 and $2,800,000, respectively. 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 the
Company's Subsidiaries After the Distribution -- WHGI.'
SERIES B PREFERRED STOCK
Prior to the Distribution, the Company will enter into an agreement with
Mr. Louis J. Nicastro 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 Company
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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 thereof to five votes per share of Series B Preferred Stock
and to vote together with the Company Common Stock as if one class. If such
Series B Preferred Stock were issued as of the Distribution Date, 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 the Company's Subsidiaries After the Distribution.'
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 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, five new hotels and casinos have
opened in Puerto Rico alone and four 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
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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.
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. On February 15, 1997, the Allied Pilots Association, a 9,300 member
pilots union, called a strike against American Airlines. Immediately thereafter,
President Clinton invoked emergency powers under the 1926 Railway Labor Act
halting the pilots' strike for a period of 60 days. The President named a
three-member panel to recommend a non-binding resolution of the dispute. The
panel had 30 days to devise recommendations and the parties have another 30 days
to consider them, with no work stoppage in the meantime. On March 19, 1997,
American Airlines reached an 'agreement in principle' with negotiators for its
pilots' union. Both sides have decided not to start the 30-day cooling off
period until either the union's board or its members reject the proposed
agreement. The proposed agreement was approved by the union's board of directors
on April 4, 1997. If the members reject the agreement, the cooling-off period
would likely begin sometime in early May 1997. There can be no assurance that
the parties will come to an agreement thereby avoiding a strike. Such a strike,
depending on the time of year it occurs and the length thereof, could have a
material adverse effect on the business and financial condition of the Company.
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 hotels and casinos is dependent in large part
to a successful high season, the ability of the 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.
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ABSENCE OF PUBLIC MARKET FOR COMPANY COMMON STOCK
Prior to the Distribution there has been no public market for Company
Common Stock. Although the Company Common Stock has been approved for listing on
the New York Stock Exchange under the symbol 'WHG', subject to notice of
issuance, there can be no assurance that an active trading market in Company
Common Stock will develop or, if it does develop, of the prices at which trading
Company Common Stock will occur after the Distribution Date. Prices for the
Company Common Stock will be determined in the marketplace and may be influenced
by many factors including quarterly variations in the financial results of the
Company. Until Company Common Stock is fully distributed and an orderly market
develops, the prices at which trading in such stock occurs may fluctuate
significantly and may not reflect the inherent value of Company Common Stock.
See 'The Distribution -- Listing and Trading of Company Common Stock.'
CHANGES IN TRADING PRICES OF WMS COMMON STOCK
It is expected that WMS Common Stock will continue to be listed and traded
on the New York Stock Exchange after the Distribution. As a result of the
Distribution, the trading price range of WMS Common Stock is expected to be
lower than the trading price range of WMS Common Stock prior to the
Distribution. The combined trading prices of Company Common Stock and WMS Common
Stock held by stockholders after the Distribution may be less than, equal to or
greater than the trading prices of WMS Common Stock prior to the Distribution.
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 Company 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. Following completion of the Preliminary
Transactions, the Company's interest in the El San Juan and WHGI will all be
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 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.
EFFECT ON CONVERSION PRICE OF WMS CONVERTIBLE SUBORDINATED DEBENTURES
Under the terms of WMS' 5 3/4% Convertible Subordinated Debentures due
2002, the debentures are convertible into WMS Common Stock at a conversion price
of $29.00 per share. As a result of the Distribution, the conversion price will
be adjusted to reflect a proportional decrease in value of WMS Common Stock.
Following the adjustment of the conversion price in connection with the
Distribution, the number of shares of WMS Common Stock issuable upon the
conversion of all outstanding 5 3/4% Convertible Subordinated Debentures will
increase.
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CERTAIN TAX CONSIDERATIONS
WMS has received a favorable ruling from the IRS to the effect, among other
things, that the Distribution will qualify as a tax free spin-off under Section
355 of the Code. See 'The Distribution -- Federal Income Tax Aspects of the
Distribution.' Such a ruling, while generally binding upon the IRS, is subject
to certain factual representations and assumptions. If such factual
representations and assumptions were incorrect in a material respect, such
ruling would be jeopardized. WMS is not aware of any facts or circumstances
which would cause such representations and assumptions to be untrue.
If the Distribution were not to qualify under Section 355 of the Code, then
in general, a corporate tax would be payable by the consolidated group of which
WMS is the common parent based upon the difference between (i) the fair market
value of Company Common Stock and (ii) the adjusted basis of Company Common
Stock. The corporate level tax would be payable by WMS. See 'Relationship
Between the Company and WMS After the Distribution -- Tax Sharing Agreement.' In
addition, under the consolidated return regulations, each member of the
consolidated group (including the Company) is severally liable for such tax
liability.
Furthermore, if the Distribution were not to qualify under Section 355 of
the Code, then each holder of WMS Common Stock who receives shares of Company
Common Stock in the Distribution would be treated as if such stockholder
received a taxable distribution in an amount equal to the fair market value of
Company Common Stock received, which would result in (i) a dividend to the
extent paid out of WMS' current and accumulated earnings and profits; then (ii)
a reduction in such stockholder's basis in WMS Common Stock to the extent the
amount received exceeds the amount referenced in clause (i); and then (iii) gain
from the exchange of WMS Common Stock to the extent the amount received exceeds
the sum of the amounts referenced in clauses (i) and (ii).
CERTAIN ANTI-TAKEOVER FEATURES
Upon consummation of the Distribution, certain provisions of the Company's
Certificate and 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 Company Common Stock. The Control
Provisions may also inhibit fluctuations in the market price of Company Common
Stock that could result from takeover attempts. See 'Purposes and Anti-Takeover
Effects of Certain Provisions.'
The Company 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 Company 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 will, upon consummation of the
Distribution, be 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 Company Common Stock. The Series B
Preferred Stock has enhanced voting rights. Based upon the number of outstanding
shares of Company Common Stock anticipated immediately following the
Distribution, the Series B Preferred Stock would represent 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
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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 to be issued pursuant to
the Rights Agreement will provide discount purchase rights to stockholders of
the Company upon certain acquisitions of beneficial ownership of 15% or more of
the outstanding shares of Company 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 Company 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 will have 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
Company 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 Company
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.'
CERTAIN CONSENTS
Certain financing documents in connection with the El Conquistador provide
in substance that a transfer which results in WHG El Con Corp. (the owner of the
Company's interest in the El Conquistador) ceasing to be wholly-owned by WMS,
while not prohibited, will constitute a default under such financing documents
and the El Conquistador Partnership L.P. joint venture agreement absent consent
from the respective lenders and Kumagai, the other 50% partner of El
Conquistador Partnership L.P. The Distribution will cause WHG El Con Corp. to
cease to be wholly-owned by WMS and, therefore, the Distribution may result in a
default under such financing documents the effect of which will permit such
lenders to accelerate the subject indebtedness. The Distribution would also
constitute a transfer of a partnership interest not permitted under the El
Conquistador Partnership L.P. joint venture agreement. If appropriate consents
are not obtained, there may be material adverse consequences to the El
Conquistador and ultimately to the Company. Consents have been requested from
the relevant parties. The Company has been advised orally by the holder of the
$120,000,000 first mortgage on the El Conquistador that such holder will provide
the necessary consent. The holder of the $25,000,000 second mortgage on the El
Conquistador is precluded under the applicable loan documents from accelerating
the second mortgage as a result of the Distribution if the holder of the first
mortgage provides the necessary consent. The Company believes that the necessary
consents will be obtained. There can be no assurance that such consents will be
obtained and if not obtained, that such lenders will not accelerate the
applicable indebtedness. See 'Hotel Financings and Certain Contingent
Obligations The El Conquistador.'
FRAUDULENT TRANSFER CONSIDERATIONS; LEGAL DIVIDEND REQUIREMENTS
It is a condition to the consummation of the Distribution that the WMS
Board shall have determined the permissibility of the Distribution under Section
170 of the DGCL and received a satisfactory opinion regarding the solvency of
the Company. On March 20, 1997, the WMS Board made such a determination after
receiving the relevant solvency opinion. See 'The Distribution -- Opinions of
Financial Advisors -- Solvency Opinion.' There is no certainty, however, that a
court would find the solvency opinion rendered by WMS' financial advisor to be
binding on creditors of the Company and WMS or that a court would reach the same
conclusions as the WMS Board in determining whether the Company or WMS was
insolvent at the time of, or after giving effect to, the Distribution.
If a court in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to find that at the time WMS
effected the Distribution, the Company or WMS, as the case may be, (i) was
insolvent; (ii) was rendered insolvent by reason of the Distribution; (iii) was
engaged in a business or transaction for which the Company's or WMS' remaining
assets, as the case may be, constituted unreasonably small capital; or (iv)
intended to incur, or believed it would incur, debts beyond its ability to pay
as such debts matured, such court may be asked to void the Distribution (in
whole or in part) as a fraudulent conveyance and require that the stockholders
return the special
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dividend (in whole or in part) to WMS or require the Company to fund certain
liabilities for the benefit of creditors. The measure of insolvency for purposes
of the foregoing will vary depending upon the jurisdiction whose law is being
applied. Generally, however, the Company or WMS, as the case may be, would be
considered insolvent if the fair value of their respective assets were less than
the amount of their respective liabilities or if they incurred debt beyond their
ability to repay such debt as it matures. In addition, under Section 170 of the
DGCL (which is applicable to the Distribution) a corporation generally may make
distributions to its stockholders only out of its surplus (net assets minus
capital) and not out of capital.
The WMS Board and management believe that, in accordance with the solvency
opinion rendered in connection with the Distribution and their own examination
of the financial statements of WMS, (i) the Company will be solvent at the time
of the Distribution (in accordance with the foregoing definitions), will be able
to repay or refinance its debts as they mature following the Distribution and
will have sufficient capital to carry on its business, and (ii) the Distribution
will be made entirely out of surplus, as provided under Section 170 of the DGCL.
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RELATIONSHIP BETWEEN THE COMPANY
AND WMS AFTER THE DISTRIBUTION
For the purpose of governing certain of the ongoing relationships between
the Company and WMS after the Distribution and to provide mechanisms for an
orderly transition, the Company and WMS have entered or will enter into the
various agreements, and will adopt policies, as described in this section.
DISTRIBUTION AGREEMENT
On March 20, 1997, the Company, Williams Hotel Corporation and WMS entered
into the Distribution Agreement, which provides for, among other things: (i) the
Preliminary Transactions (see 'Preliminary Transactions'); (ii) the
Distribution; (iii) cross-indemnification between the Company and WMS with
respect to the respective businesses of the Company and WMS; and (iv) 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 Hotel & Casino Business to the Company and its subsidiaries, and
financial responsibility for the liabilities arising out of or in connection
with the Games Business to WMS and its subsidiaries. See ' -- Tax Sharing
Agreement.'
The Distribution Agreement provides for the Preliminary Transactions to be
consummated prior to the Distribution Date, 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.
The Distribution Agreement also provides that by the Distribution Date, the
Company's Certificate and Bylaws shall be in the forms attached hereto as Annex
III and IV, respectively, and that the Company and WMS will take all actions
which may be required to elect or otherwise appoint, as directors of the
Company, the persons indicated herein. See 'Management,' 'Purposes and Anti-
Takeover Effects of Certain Provisions' and 'Description of the Company's
Capital Stock.'
The Distribution Agreement also provides that each of the Company and WMS
will be granted access to certain records and information in the possession of
the other, and requires the retention by each of the Company and WMS for a
period of 10 years following the Distribution of all such information in its
possession, and thereafter requires that each party give the other prior notice
of its intention to dispose of such information. In addition, the Distribution
Agreement provides for the allocation of shared privileges with respect to
certain information and requires each of the Company and WMS to obtain the
consent of the other prior to waiving any shared privilege.
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 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.
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ADDITIONAL ACTIONS AND RELATIONSHIPS
WMS, as sole stockholder of the Company, has approved the adoption by the
Company of a Stock Option Plan (the 'Plan') for purposes of granting awards of
options to purchase Company Common Stock to directors, officers, employees and
consultants and advisors of the Company and its subsidiaries subsequent to the
Distribution. WMS has also approved the reservation by the Company of 900,000
shares under the Plan. For a discussion of the principal terms and conditions of
the Plan, see 'Management -- Stock Option Plan.'
After the Distribution the only person who will serve as an officer and/or
director of the Company and WMS and their respective subsidiaries will be Mr.
Louis J. Nicastro. Mr. Nicastro, a Director, Chairman of the Board and Chief
Executive Officer of the Company, as well as an officer and director of all of
the Company's subsidiaries, will continue to serve as a Director and Chairman of
the Board of WMS and as a Director of Midway Games Inc., approximately 87% of
which is owned by WMS. Although the Chairman of the Board of WMS, Mr. Nicastro
is not an executive officer of WMS. There will be no other overlapping officers
or directors of WMS and its subsidiaries on the one hand and the Company and its
subsidiaries on the other hand.
Prior to the Distribution, the Company will enter into the Put and Call
Agreement (as defined) with respect to the Series B Preferred Stock. See
'Related Party Transactions.'
Some time after the Distribution, Barbara M. Norman, currently a Vice
President, Secretary and General Counsel of WMS will resign from WMS and become
a Director, Vice President, Secretary and General Counsel of the Company. She
will, however, continue to render limited advisory and consulting services to
WMS and its subsidiaries on matters on which she previously worked. She will be
paid directly by WMS for such services or be reimbursed by WMS for time devoted
to WMS matters based upon her base salary.
TAX SHARING AGREEMENT
Prior to the Distribution, the Company and WMS will enter into a tax
sharing agreement (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
occurs, 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 Hotel & Casino Business. The Company is responsible for filing
returns and paying taxes related to the Hotel & Casino 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.
PRELIMINARY TRANSACTIONS
Prior to the Merger, Williams Hotel Corporation was a direct wholly-owned
subsidiary of WMS whose only assets were 100% of the outstanding stock of each
of the Company, WHG El Con Corp., formerly known as WMS El Con Corp., and ESJ.
The Company in turn, owns (i) 95% of the outstanding common stock of PPRA, the
owner of the Condado Plaza, (ii) 100% of the outstanding common stock of WMS
Property Inc., the owner of approximately 150 acres of vacant land adjacent to
the El Conquistador, and (iii) 62% of the outstanding WHGI Common Stock. WMS
also owns 82 shares, consisting of all the outstanding shares, of Condado Plaza
Preferred Stock with an aggregate liquidation value of $4,100,000.
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<PAGE>
Set forth below is a diagram of the organization structure of the
significant entities comprising the Hotel & Casino Business before the
Preliminary Transactions and the Distribution.
HOTEL & CASINO BUSINESS BEFORE THE PRELIMINARY TRANSACTIONS AND THE DISTRIBUTION
[CORPORATE STRUCTURE CHART]
* Formerly known as WMS Hotel Corporation
Prior to the Distribution, WMS will perform and/or cause the following
transactions to occur, but not necessarily in the order listed: (i) the Merger
of Williams Hotel Corporation with and into the Company; (ii) WMS to contribute
to the Company's capital the Condado Plaza Preferred Stock together with accrued
and unpaid dividends, net intercompany accounts due WMS from the Hotel & Casino
Business (approximately $4,500,000 as of December 31, 1996) excluding amounts
due ESJ; (iii) PPRA to pay all accrued and unpaid dividends of approximately
$246,000 on the Condado Plaza Preferred Stock and redeem a portion of such
shares for an aggregate redemption price of approximately $2,050,000; (iv) WHGI
to pay dividends of approximately $3,500,000 to the holders of WHGI Common
Stock, $2,170,000 of which will be paid to the Company; (v) WMS to pay its
outstanding intercompany receivable due ESJ (approximately $5,077,000 at
December 31, 1996); (vi) WMS to make a capital contribution in cash to the
Company of an amount which when added to the amount of the intercompany
receivable due ESJ equals $6,000,000; (vii) WMS Property Inc. to merge with and
into ESJ; and (viii) the Company to transfer to PPRA all of the common stock of
ESJ, which owns a 50% general partnership interest in Posadas de San Juan
Associates, the owner of the El San Juan, and its 62% of the outstanding WHGI
common stock in consideration for the issuance of additional shares of capital
stock of PPRA.
32
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<PAGE>
Set forth below is a diagram of the organization structure of the
significant entities comprising the Company after the Preliminary Transactions
and the Distribution.
HOTEL & CASINO BUSINESS AFTER THE PRELIMINARY TRANSACTIONS AND THE DISTRIBUTION
[CORPORATE STRUCTURE CHART]
The Company has reached agreement with the 5% unaffiliated owner of PPRA to
purchase its interest in that entity at or about the Distribution Date. As a
result, the Company will own 100% of PPRA as of the Distribution Date.
The Company will be the surviving corporation of the Merger. The Company
has caused WMS El Con Corp. to change its name to WHG El Con Corp.
All of the foregoing transactions are referred to herein collectively as
the 'Preliminary Transactions.'
RELATIONSHIP BETWEEN THE COMPANY AND THE
COMPANY'S SUBSIDIARIES AFTER THE DISTRIBUTION
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
Following the Distribution, the Company will own 100% of PPRA, the owner of
the Condado Plaza. The Company will also own 82 shares of Condado Plaza
Preferred Stock with a liquidation preference of $50,000 per share or $4,100,000
in the aggregate of which approximately $2,050,000 will be redeemed prior to the
Distribution Date as part of the Preliminary Transactions. The Series A
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.
33
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<PAGE>
The Series A 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% 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 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
WHGI Common Stock. 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 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 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
34
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<PAGE>
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 and after the Distribution Date will remain
Chairman and Chief Executive Officer of the Company and WHGI. Mr. Nicastro will
not be separately compensated by WHGI in his capacity as Chief Executive Officer
of WHGI but he will be entitled to receive directors fees. See
'Management -- Compensation of Directors' and ' -- Employment Agreements.'
Mr. Brian R. Gamache is President and Chief Operating Officer of WHGI and,
as of the Distribution Date, will also be President and Chief Operating Officer
of the Company. Mr. Richard F. Johnson is Senior Vice President and Chief
Financial Officer of WHGI and, as of the Distribution Date, will be Treasurer
and Chief Financial Officer of the Company. See 'Management -- Executive
Officers,' ' -- Executive Officer Compensation' and ' -- Employment Agreements.'
ACCOUNTING TREATMENT
The historical consolidated financial statements of 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 December 31, 1996, PPRA, the owner of the Condado Plaza, had aggregate
long-term indebtedness (current and non-current) of $23,295,412 of which
$23,100,000 represents a term loan due to its secured mortgage lender (the
'Condado Term Loan'); and $195,412 represents equipment financing arrangements.
PPRA has available a revolving line of credit of up to $2,000,000. PPRA also has
outstanding $4,100,000 of Condado Plaza Preferred Stock (all of which will be
owned by the Company and of which approximately $2,050,000 is expected to be
redeemed as part of the Preliminary Transactions). 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.
THE EL SAN JUAN
At December 31, 1996, Posadas de San Juan Associates, the owner of the El
San Juan, had aggregate long-term indebtedness (current and non-current) of
$49,555,079 of which $24,749,737 represents a term loan due to its secured
mortgage lender (the 'ESJ Term Loan'); $799,627 represents equipment financing
arrangements; and $24,005,715 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
35
<PAGE>
<PAGE>
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.
THE EL CONQUISTADOR
At December 31, 1996, El Conquistador had aggregate short-term and
long-term indebtedness of $202,695,947 of which $145,000,000 represents term
loans provided by various secured mortgage lenders; $6,000,000 represents
amounts outstanding under a revolving credit facility; $5,070,910 represents
equipment financing arrangements; $37,353,783 represents loans plus accrued
interest from its partners and $9,271,254 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 $37,353,783 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 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 will assume and agree
to indemnify WMS in respect of such guaranty. The other partners of WKA have
provided indemnities and collateral to WMS 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.
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<PAGE>
WHGI has guaranteed certain equipment financing arrangements and other
obligations of the El Conquistador of approximately $3,033,000 as of December
31, 1996 of which $1,273,000 is secured by WHGI certificates of deposit.
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 to WMS as collateral for their obligation cash and 15 shares of
common stock of PPRA. As of the Distribution Date, shares of WHGI Common Stock
will be substituted for the 15 shares of common stock of PPRA. The Company will
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 will assume and agree to indemnify WMS in respect of its
obligations under the guaranty and will execute 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.
The Company, as assignee from WMS, is a party to a put option agreement
with American National Bank and Trust Company of Chicago ('ANB') whereby ANB can
require the Company to purchase up to 20 shares of WHGI Common Stock for a
purchase price of $53,000 per share. Such WHGI Common Stock is owned by one of
the Other Owners and was pledged by such Other Owner as collateral for a loan
made to Burton I. Koffman. The put agreement was initially entered into as April
30, 1993 and, as extended, currently continues until May 5, 1997. The Company
has been advised that the principal amount outstanding under the applicable loan
is $416,000. The Company does not believe that the put option will be exercised.
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<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of Williams
Hotel Corporation as of December 31, 1996 and such capitalization as adjusted to
give effect to the Distribution and to the Preliminary Transactions and other
transactions (the 'transactions') described in the Unaudited Pro Forma Condensed
Consolidated Financial Statements as if the Distribution and such transactions
had occurred on December 31, 1996. The table should be read in conjunction with
the historical consolidated financial statements and notes thereto of Williams
Hotel Corporation, the Unaudited Pro Forma Condensed Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained elsewhere in this Information Statement.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Short-term notes payable.......................................... $ 1,000 $ 2,000(1)
Long-term debt, including current maturities of $3,347............ 25,226 25,226
---------- ---------
Total debt................................................... 26,226 27,226
Minority interests in PPRA and WHGI.................................... 19,921 18,122(2)
Condado Plaza Preferred Stock held by WMS.............................. 4,100 -- (3)
Stockholders' 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, as adjusted........... 1 61(4)
Additional paid-in capital........................................ 3,849 13,621(3)(4)
Retained earnings................................................. 33,491 33,387(5)
---------- ---------
Total stockholders' equity................................... 37,341 47,069
---------- ---------
Total capitalization......................................... $ 87,588 $92,417
---------- ---------
---------- ---------
</TABLE>
- ------------
(1) Reflects the $1,000,000 draw down on the PPRA line of credit prior to the
Distribution.
(2) Reflects the payment of a $1,330,000 dividend by WHGI to its minority
stockholders prior to the Distribution and the anticipated purchase of the
5% minority interest in PPRA for $1,500,000 and the elimination of the
$469,000 in minority interest in PPRA.
(3) Reflects the contribution to additional paid-in capital of the Company by
WMS of $9,588,000 including $4,100,000 in Condado Plaza Preferred Stock, an
intercompany receivable of $4,565,000 and $923,000 in cash prior to the
Distribution. In addition, $244,000 of Condado Plaza Preferred Stock
dividend is added to additional paid-in capital.
(4) Reflects the issuance of 6,050,200 shares of Company Common Stock in the
Distribution and transfer of $60,000 of par value from additional paid-in
capital to common stock, based on a one for four distribution and the number
of shares of WMS Common Stock outstanding on the Record Date.
(5) Reflects the payment of the accumulated dividend on the Condado Plaza
Preferred Stock and certain tollgate taxes reducing retained earnings by
$104,000.
DIVIDENDS
The Company currently intends to retain all available earnings, if any,
generated by its operations. Accordingly, the Company does not anticipate paying
dividends on Company Common Stock in the foreseeable future. Any future
determination as to the payment of dividends will be at the discretion of the
Company Board and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions, if any, and other factors deemed
relevant by the Company Board. Credit arrangements of certain of the Company's
subsidiaries contain limitations on the ability of such subsidiaries to pay
dividends to the Company. See 'Risk Factors -- Dividend Policy and Withholding
Tax' and 'Hotel Financings and Certain Contingent Obligations.'
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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 Company Common Stock
for every four shares of WMS Common Stock expected to be outstanding on the
Distribution Date and reflect the 'Preliminary Transactions' described elsewhere
in this Information Statement.
The unaudited pro forma condensed consolidated balance sheet as of December
31, 1996 was prepared as if the Distribution was effectuated on December 31,
1996 and using the unaudited consolidated balance sheet of Williams Hotel
Corporation as of December 31, 1996 modified to include pro forma adjustments to
reflect the following Preliminary Transactions: (i) the Merger of Williams Hotel
Corporation into the Company; (ii) the contribution to capital of the Company by
WMS of $9,588,000 including $4,100,000 of Condado Plaza Preferred Stock, an
intercompany receivable from WHG El Con Corp. of $357,000, an intercompany
receivable from the Company of $4,208,000 and $923,000 in cash; (iii) the cash
payment by WMS of an intercompany payable to ESJ of $5,077,000 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 $1,000,000 draw down by
PPRA on its line of credit; (vi) the payment of the accumulated dividend on the
Condado Plaza Preferred Stock; (vii) the payment of a $3,500,000 dividend by
WHGI; and (viii) the purchase of the 5% minority interest in PPRA from the
minority stockholders.
The unaudited pro forma condensed consolidated statement of operations for
the six months ended December 31, 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 unaudited
statement of operations of Williams Hotel Corporation for the six months ended
December 31, 1996. 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 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 six months ended December 31, 1996
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 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
Information Statement.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1996
<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) $ 8,942
2,050 (d)
244 (e)
2,148 (f)
(1,500)(g)
Cash and cash
equivalents -- subsidiaries....... 5,663 (1,050)(d) 867
(246)(e)
(3,500)(f)
----------- -------- ---------
Total cash and cash
equivalents............ 5,663 4,146 9,809
Receivables, net................... 4,696 4,696
Receivables from nonconsolidated
affiliates........................ 2,687 2,687
Intercompany with WMS:
WMS El Con Corp. (now known as
WHG El Con Corp.) and the
Company payable to WMS...... (4,565) 357 (c) --
4,208 (c)
ESJ receivable from WMS....... 5,077 (5,077)(b) --
----------- -------- ---------
Net receivable from
WMS.................... 512 (512) --
Other current assets............... 1,332 1,332
----------- -------- ---------
Total current assets..... 14,890 3,634 18,524
Investments in, receivables and advances
to nonconsolidated affiliates......... 25,203 25,203
Property and equipment, net............. 44,126 1,031 (g) 45,157
Excess of purchase cost over amount
assigned to net assets acquired,
net................................... 8,909 8,909
Other assets............................ 11,722 11,722
----------- -------- ---------
$ 104,850 $ 4,665 $109,515
----------- ---------
----------- -------- ---------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals...... $ 10,085 $ 10,085
Dividend payable on Condado Plaza
Preferred Stock................... 164 $ (164)(e) --
Notes payable...................... 1,000 1,000 (d) 2,000
Current maturities of long-term
debt.............................. 3,347 3,347
----------- -------- ---------
Total current
liabilities............ 14,596 836 15,432
Long-term debt, less current
maturities............................ 21,879 21,879
Deferred income taxes................... 2,291 2,291
Other noncurrent liabilities............ 4,722 4,722
Minority interests...................... 19,921 (1,330)(f) 18,122
(469)(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) 13,621
923 (b)
4,565 (c)
244 (e)
(60)(h)
Retained earnings.................. 33,491 (82)(e) 33,387
(2,170)(f)
2,148 (f)
----------- -------- ---------
Total shareholders'
equity................. 37,341 9,728 47,069
----------- -------- ---------
$ 104,850 $ 4,665 $109,515
----------- -------- ---------
----------- -------- ---------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
40
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996
---------------------------------------
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............ $ 4,904 $ $ 4,904
Condado Plaza hotel and casino
revenues.............................. 25,150 25,150
----------- ----------- ---------
Total revenues..................... 30,054 30,054
Costs and expenses:
WHGI operating expenses (excl.
depreciation)......................... 1,827 1,827
Condado Plaza operating expenses (excl.
depreciation)......................... 15,766 15,766
Selling and administrative.............. 4,550 400 (i) 4,950
Depreciation and amortization........... 2,809 32 (k) 2,841
----------- ----------- ---------
Total costs and expenses........... 24,952 432 25,384
----------- ----------- ---------
Income from operations....................... 5,102 (432) 4,670
Interest income, primarily from
nonconsolidated affiliates, and other
income..................................... 1,091 1,091
Interest expense............................. (1,674) (1,674)
Equity in loss of nonconsolidated
affiliates................................. (3,028) (3,028)
----------- ----------- ---------
Income before tax provision and minority
interests.................................. 1,491 (432) 1,059
Provision for income taxes................... (224) (1,091)(l) (1,315)
Minority interests in income................. (1,262) (1)(k) (1,263)
Dividend on Condado Plaza Preferred Stock.... (164) 164 (j) --
----------- ----------- ---------
Net income (loss)............................ $ (159) $(1,360) $(1,519)
----------- ----------- ---------
----------- ----------- ---------
Pro forma net income (loss) per share of
common stock............................... $ (0.25)
---------
---------
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 (loss)............................ $ 2,437 $(1,872) $ 565
---------- ----------- ---------
---------- ----------- ---------
Pro forma net income (loss) per share of
common stock............................... $ 0.09
---------
---------
Shares used in calculating per share
amounts.................................... 6,050
---------
---------
</TABLE>
Pro forma net income (loss) per share of the Company was calculated using the
distribution of one share of Company Common Stock for every four of the
24,200,800 shares of WMS Common Stock outstanding on the Record Date.
See notes to unaudited pro forma condensed consolidated financial statements.
41
<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 December
31, 1996 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 $5,077,000 by WMS to ESJ to pay the
intercompany balance in full and the subsequent loan of the $5,077,000 cash
to the Company and payment by WMS of $923,000 to the Company as a
contribution to capital.
<TABLE>
<S> <C>
Cash and cash equivalents -- the Company....................................... $ 6,000,000
ESJ receivable from WMS........................................................ (5,077,000)
Additional paid-in capital..................................................... (923,000)
</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.......................................................................... $ 357,000
Intercompany payable from the Company to WMS................................... 4,208,000
Additional paid-in capital..................................................... (4,565,000)
</TABLE>
(d) To reflect the redemption by PPRA of $2,050,000 of Condado Plaza
Preferred Stock from the Company and a draw down on the PPRA line of credit
by $1,000,000 to facilitate the redemption.
<TABLE>
<S> <C>
Cash and cash equivalents -- the Company....................................... $ 2,050,000
Notes payable.................................................................. (1,000,000)
Cash and cash equivalents -- subsidiaries...................................... (1,050,000)
</TABLE>
(e) To reflect the anticipated payment of the accumulated dividend on
the Condado Plaza Preferred Stock, assuming the Distribution is March 31,
1997, of $246,000 of which $82,000 is charged to retained earnings for the
preferred dividend subsequent to December 31, 1996. Also, to reflect
payment of the tollgate tax of $2,000 on the preferred dividend.
<TABLE>
<S> <C>
Cash and cash equivalents -- subsidiaries........................................ $(246,000)
Dividend payable on Condado Plaza Preferred Stock................................ 164,000
Retained earnings................................................................ 82,000
Cash and cash equivalents -- the Company......................................... $ 244,000
Additional paid-in capital....................................................... (244,000)
</TABLE>
(f) To reflect the anticipated payment of a dividend by WHGI of
$3,500,000 of which $1,330,000 is shown as a reduction in minority
interests for the thirty-eight percent minority ownership and $2,148,000 is
received by the Company which is net of a $22,000 payment of tollgate tax.
<TABLE>
<S> <C>
Cash and cash equivalents -- subsidiaries...................................... $(3,500,000)
Minority interests............................................................. 1,330,000
Retained earnings.............................................................. 2,170,000
Cash and cash equivalents -- the Company....................................... $ 2,148,000
Retained earnings.............................................................. (2,148,000)
</TABLE>
42
<PAGE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(g) To reflect the anticipated 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............................................................. 469,000
Property and equipment, net.................................................... 1,031,000
</TABLE>
(h) To reflect the anticipated issuance of 6,050,200 shares of Company
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 Six Months Ended December 31, 1996 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>
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Administrative expenses.................................... $ 400,000 $ 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 six months ended December 31, 1996 include approximately
$250,000 of these costs, therefore, the pro forma amount of $400,000 is required
to result in $650,000 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>
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Dividend on Condado Plaza Preferred Stock.................. $(164,000) $(516,000)
</TABLE>
(k) To eliminate the 5% minority interest in the earnings (loss) of
PPRA because of the anticipated 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>
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Minority interest in PPRA.................................. $ 1,000 $48,000
Depreciation and amortization.............................. 32,000 64,000
</TABLE>
(l) To eliminate Federal income tax benefits allocated to the Company
by WMS 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 new ownership
structure described in the 'Preliminary Transactions' elsewhere in this
Information Statement.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
Eliminate Federal income tax credit for equity in loss of
nonconsolidated affiliates............................... $ 1,081,000 $ 900,000
Add Puerto Rico income tax provision on WHGI dividend...... 10,000 76,000
----------------- -------------
$ 1,091,000 $ 976,000
----------------- -------------
----------------- -------------
</TABLE>
43
<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 Williams Hotel Corporation for such
periods. The selected financial data set forth below for the six months ended
December 31, 1996 and 1995 have been derived from the unaudited consolidated
financial statements of 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 Williams Hotel Corporation and related notes thereto,
separate statements of nonconsolidated affiliates and other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------
1996 1995
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Selected Statement of Income Data:
Revenues........................... $ 30,054 $ 30,856
-------- --------
-------- --------
Operating income................... $ 5,102 $ 3,843
Interest expense, net.............. (583) (1,053)
Equity in income (loss) of
nonconsolidated affiliates....... (3,028) (3,597)
-------- --------
Income (loss) before tax provision
and minority interests........... 1,491 (807)
Credit (provision) for income
taxes............................ (224) 295
Minority interests in (income)
loss............................. (1,262) (1,194)
Dividend on preferred stock of
Condado Plaza.................... (164) (296)
-------- --------
Net income (loss).................. $ (159) $ (2,002)
-------- --------
-------- --------
Pro forma net income (loss)
reflecting income taxes on a
separate return basis
(unaudited)(2)................... $ (1,240) $ (3,262)
-------- --------
-------- --------
Selected Balance Sheet Data:
Investments in, receivables and
advances to nonconsolidated
affiliates....................... $ 27,890 $ 27,775
Property and equipment, net........ 44,126 46,837
Total assets....................... 104,850 107,870
Long-term debt, including current
maturities....................... 25,226 28,337
Minority interests................. 19,921 17,556
Shareholder's equity............... 37,341 33,061
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------
1996 1995 1994 1993 1992(1)
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
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 for utilization of partnership
losses in the WMS consolidated Federal income tax return.
44
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis relates to the consolidated financial statements of
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 is owned by the Company, 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, 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. On February 15, 1997, the
Allied Pilots Association, a 9,300 member pilots union, called a strike against
American Airlines. Immediately thereafter, President Clinton invoked emergency
powers under the 1926 Railway Labor Act halting the pilots' strike for a period
of 60 days. The President named a three-member panel to recommend a non-binding
resolution of the dispute. The panel had 30 days to devise recommendations and
the parties have another 30 days to consider them, with no work stoppage in the
meantime. On March 19, 1997, American Airlines reached an 'agreement in
principle' with negotiators for its pilots' union. Both sides have decided not
to start the 30-day cooling off period until either the union's board or its
members reject the proposed agreement. The proposed agreement was approved by
the union's board of directors on April 4, 1997. If the members reject the
agreement, the cooling-off period would likely begin sometime in early May 1997.
There can be no assurance that the parties will come to an agreement thereby
avoiding a strike. Such a strike, depending on the time of year it occurs and
the length thereof, could have a material adverse effect on the business and
financial condition of the Company. See 'Risk Factors -- Reliance on a Single
Market.'
The Company began experiencing a decline in casino net revenues during 1994
as a result, among other things, of increased competition from other gaming
jurisdiction. 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.
45
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995
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 information in the notes to the year-end audited
consolidated financial statements included elsewhere herein:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Condado Plaza................................................................ $25,150 $25,576
WHGI......................................................................... 6,711 6,836
Intersegment revenue elimination-WHGI fees charged to Condado Plaza.......... (1,807) (1,556)
-------- --------
Total revenues.......................................................... $30,054 $30,856
-------- --------
-------- --------
Segment operating income (loss):
Condado Plaza................................................................ $ 1,609 $ 108
WHGI......................................................................... 3,752 3,765
General corporate administrative expenses.................................... (259) (30)
-------- --------
Total operating income.................................................. $ 5,102 $ 3,843
-------- --------
-------- --------
</TABLE>
Consolidated revenues decreased by $802,000 or 2.6% in the six months ended
December 31, 1996 to $30,054,000 from $30,856,000 in the six months ended
December 31, 1995. The decrease was attributable to both the Condado Plaza and
WHGI industry segments.
Operating income in the Condado Plaza segment increased by $1,501,000 to
$1,609,000 in the six months ended December 31, 1996 from $108,000 in the six
months ended December 31, 1995. 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 was approximately the same in each six
month period.
The equity in loss of nonconsolidated affiliates was ($3,028,000) for the
six months ended December 31, 1996 compared with ($3,597,000) for the six months
ended December 31, 1995. The decreased loss was due primarily to lower costs and
expenses at both the El San Juan and the El Conquistador resulting from cost
reduction efforts by management and reduced provision for doubtful accounts
receivable. The 50% equity in loss of the El San Juan was ($780,000) in the six
months ended December 31, 1996 compared with ($1,089,000) in the six months
ended December 31, 1995. The 23.3% equity in loss of the El Conquistador was
($2,248,000) in the six months ended December 31, 1996 compared with
($2,508,000) in the six months ended December 31, 1995.
The income tax provision of $224,000 in the six months ended December 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. The income tax credit of $295,000 in the six months
ended December 31, 1995 results from the tax benefit allocated from WMS on the
equity in the loss of nonconsolidated affiliates exceeding the Puerto Rico and
Federal income tax provision for WHGI.
Net loss in the six months ended December 31, 1996 was ($159,000) compared
with a net loss of ($2,002,000) in the six months ended December 31, 1995. The
net loss decreased by approximately 92% due primarily to cost reductions and
reduced provision for doubtful accounts receivable at all the hotels and casinos
in which the Company owns interests notwithstanding the change in income taxes.
46
<PAGE>
<PAGE>
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 Williams Hotel Corporation
included elsewhere herein.
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
47
<PAGE>
<PAGE>
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 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.
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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.
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 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.' The 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 which was
fully utilized at June 30, 1996. The El San Juan has a $1,000,000 bank line of
credit available of which $300,000 was used at June 30, 1996. The El
Conquistador has a $6,000,000 bank revolving credit facility which was fully
utilized at December 31, 1996. 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 year ending June 30,
1997. 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 -- The Company.'
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.
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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.'
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 an interest 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 as well as attracting 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 provides 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 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.
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Management -- The Company currently 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 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 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 prior to completion of the Preliminary Transactions the Company
owns 95% of PPRA, a 50% interest in the El San Juan and 62% of WHGI. Following
completion of the Preliminary Transactions, the Company's ownership interest in
PPRA will increase to 100%. 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 'Preliminary
Transactions' and 'Relationship Between the Company and the Company's
Subsidiaries After the Distribution.'
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
San Juan 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
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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 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 Williams
Hotel Corporation included elsewhere in this Information Statement 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 as of the Distribution Date will
be owned 100% by the Company. Such ownership interest was increased from 92.5%
to 95% effective July 13, 1994 and will be increased to 100% as of the
Distribution Date. 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 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
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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.
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,
among others, the owners of the minority interest in PPRA. 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 23.3% owned by the Company, 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
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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 second consecutive year, the American Automobile
Association awarded the resort a 'Four Diamond' rating.
During the fiscal years ended March 31, 1996 and 1995, the El
Conquistador's capital expenditures for the purchase of property and equipment
were $864,000 and $3,002,000, respectively. For the year ending March 31, 1997,
the El Conquistador has budgeted $1,800,000 for capital expenditures. 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 second full fiscal year ended March 31,
1996 with an average occupancy of 70.9% and gross revenues of $90,351,000. This
compares to an average occupancy of 73.3% and gross revenues of $85,948,000 for
the fiscal year ended March 31, 1995. The average daily room rate at the El
Conquistador was $198.99 for the fiscal year ended March 31, 1996 compared to
$188.87 during the fiscal year ended March 31, 1995.
WHGI
At the time of the Distribution, 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
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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 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 (i.e., '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.
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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.
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, 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
graphical 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.
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EMPLOYEES
At December 31, 1996, the Condado Plaza employed approximately 850 persons,
561 of whom are represented by two labor unions (434 employees belong to the
hotel union and 127 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 93 non-managerial casino employees and a
contract was signed on May 31, 1996 and expires May 31, 1999.
The El Conquistador employs approximately 1,574 persons of which 134 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 and the annual
rental and lease expiration date, where leased, or encumbrances, where owned by
the Company, at December 31, 1996.
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 95% 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 95% Owned by Company -- (4)
Parking Lots
San Juan, PR Condado Plaza 8,343 95% 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>
(footnotes on next page)
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(footnotes from previous page)
(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 $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 WMS Property
Inc., to be merged into 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.
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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 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.
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.
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MANAGEMENT
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Upon consummation of the Distribution, the Company Board will be comprised
of five directors. The members of the Company Board have been elected by WMS as
sole stockholder of the Company and will serve for terms expiring at the
Company's 1998, 1999 and 2000 Annual Meetings. Set forth below is certain
information concerning the individuals who will serve as Directors of the
Company following the Distribution:
CLASS I DIRECTORS: Initial term expiring at the Company's 2000 Annual
Meeting.
Louis J. Nicastro, 68, is the Chairman of the Board and Chief
Executive Officer of the Company. Mr. Nicastro 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 has
served as Chairman of the Board of Directors of WMS since its incorporation
in 1974 and will continue in such office after the Distribution. 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, is the Vice Chairman of the Board and Secretary
of the Company. Mr. Baker has also been a Director of WHGI since 1983. He
has served as a private consultant and director of WMS since 1983. Mr.
Baker will resign as a Director of WMS as of the Distribution Date. 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, is the President and Chief Operating Officer of
the Company. 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 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 member of the law firm of
Lamendella & Daniel, P.C., Chicago, Illinois, for in excess of five years.
The business of the Company will be managed under the direction of its
Board of Directors. The Company Board will have two standing committees: an
audit committee and a compensation committee.
The Audit Committee will be 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 independent auditors, management
representatives and internal auditors. The Audit Committee will recommend to the
Company 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
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<PAGE>
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. Initially the members
of the Audit Committee will be Messrs. Satz (Chairman) and Lamendella.
The Compensation Committee will be comprised of certain directors who are
not employees of the Company or any of its subsidiaries. The Compensation
Committee's functions will 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. Initially the members of the
Compensation Committee will be Messrs. Lamendella (Chairman) and Satz.
At the time of the Distribution, the Company's designees on each of the
Boards of Directors of PPRA and WHGI will be Messrs. Nicastro, Baker, Gamache,
Satz and Lamendella. At the time of the Distribution, the Company's designees on
the Venturers Committee of the El San Juan will be Messrs. Nicastro, Baker and
Satz. At the time of the Distribution, the Company's designees on the Venturers
Committee of WKA will be Messrs. Nicastro, Baker and Lamendella.
It is intended that Ms. Barbara M. Norman will become an executive officer
of the Company at some time following the Distribution. See ' -- Executive
Officers.' At such time it is also intended that she become a Class III
Director.
EXECUTIVE OFFICERS
Following the Distribution, it is intended that the Company will continue
to be operated in substantially the same manner in which it is currently
operated. The following table sets forth certain information concerning the
persons who shall serve as executive officers of the Company from and after the
Distribution Date. Each such person shall have been elected to the indicated
office and shall serve at the pleasure of the Company 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 and Secretary
Brian R. Gamache...... President and Chief Operating Officer
Richard F. Johnson.... Chief Financial Officer and Treasurer
</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 will become Chief Financial Officer and
Treasurer of the Company effective upon the consummation of the Distribution.
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, 58, is currently Vice President, Secretary and General
Counsel of WMS and Midway Games Inc., positions she has held since June 1992. It
is intended that Ms. Norman will join the Company as a Director, Vice President,
Secretary and General Counsel some time after the Distribution and, therefore,
she is not included in the table of Executive Officers set forth above or the
Summary
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Compensation Table set forth below. At the time she joins the Company, Ms.
Norman will resign from her positions at WMS and Midway Games Inc. and their
various subsidiaries. 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 has 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.
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 Hotel & Casino Business has functioned as
separate subsidiaries of WMS and, with the exception of the advice and guidance
of the WMS Board and in particular Mr. Louis J. Nicastro, its management has
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 will be serving as the Company's Chief Executive Officer and two of the four
next most highly-compensated executive officers of the Company. Mr. Richard F.
Johnson, who upon consummation of the Distribution will become 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 position at WMS
and/or its subsidiaries. For a description of the compensation arrangements of
certain of these individuals by the Company after the Distribution, see
'Employment Agreements.'
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL ANNUAL COMPENSATION
POSITION WITH THE ----------------------------------------------
COMPANY AS OF THE OTHER ANNUAL
DISTRIBUTION DATE YEAR SALARY($) BONUS($) COMPENSATION($)
- ------------------------- ---- --------- -------- --------------
<S> <C> <C> <C> <C>
Louis J. Nicastro, ...... 1996 832,500 -- 6,127(1)
Chairman of the 1995 682,500 300,000 4,775(1)
Board and Chief 1994 682,500 600,000 4,173(1)
Executive Officer
George R. Baker, ........ 1996 67,500(3) -- --
Vice Chairman of the 1995 67,500(3) -- --
Board and Secretary 1994 83,500(4) -- --
Brian R. Gamache, ....... 1996 290,000 75,000 --
President and Chief 1995 280,000 50,000 --
Operating Officer 1994 280,000 50,000 --
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
NAME AND PRINCIPAL (WMS)
POSITION WITH THE SECURITIES
COMPANY AS OF THE UNDERLYING ALL OTHER
DISTRIBUTION DATE OPTIONS(#) COMPENSATION($)
- ------------------------------------- ---------------
<S> <C> <C>
Louis J. Nicastro, ...... -- 629,971(2)
Chairman of the -- 409,784(2)
Board and Chief 500,000 327,252(2)
Executive Officer
George R. Baker, ........ -- --
Vice Chairman of the -- --
Board and Secretary 50,000 --
Brian R. Gamache, ....... -- --
President and Chief -- --
Operating Officer -- --
</TABLE>
- ------------
(1) Amounts shown for tax gross up payments.
(2) Amounts shown include accrual for contractual retirement for Mr. Nicastro.
(3) Includes Directors fees for services as a Director of WMS and WHGI.
(4) Includes Directors fees for services as a Director of WMS and WHGI and fees
for special consulting services.
------------------------
As stated above, it is anticipated that some time after the Distribution,
Ms. Barbara M. Norman will join the Company as a Director, Vice President,
Secretary and General Counsel.
OPTION GRANTS IN LAST FISCAL YEAR
Neither the Company nor WMS granted stock options to the persons listed on
the Summary Compensation Table during fiscal year 1996.
AGGREGATED STOCK OPTION EXERCISES AND YEAR-END VALUES
The table below sets forth, on an aggregated basis, information regarding
the exercise during the 1996 fiscal year of options to purchase WMS Common Stock
by each of the persons listed on the Summary Compensation Table above and the
value on June 30, 1996 of all unexercised options held by such individuals.
AGGREGATED STOCK OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR OPTIONS AT FISCAL
SHARES YEAR-END ($) 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.................. -- -- -- --
</TABLE>
The Company has not made any determinations with respect to the grant of
options to employees or directors.
64
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COMPENSATION OF DIRECTORS
Upon consummation of the Distribution, 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 Company 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. Until June 30, 1996, Mr. Louis J. Nicastro was employed
by WMS under the terms of an Amended and Restated Employment Agreement dated
October 27, 1994, which was due to expire July 31, 1999, subject to automatic
one-year extensions thereafter unless notice was given six months prior to any
termination date. The agreement provided for salaried compensation at the rate
of $832,500 per annum, or such greater amount as the WMS Board may have
determined. The agreement also provided for full participation in all benefit
plans available to senior executives and for reimbursement of all medical and
dental expenses incurred by Mr. Nicastro and his spouse. Upon Mr. Nicastro's
retirement date of July 31, 1999 ('Retirement Date'), or in the event Mr.
Nicastro became disabled, WMS was required to pay Mr. Nicastro until his death
an annual benefit equal to one-half of the aggregate annual base salary being
paid to him at the time of such occurrence, but in no event less than $416,250
per year payable in monthly installments. Such benefit (to the extent not
previously vested) vested ratably during the period October 27, 1994 through
July 31, 1999 (or such earlier date as Mr. Nicastro's employment may have
terminated by reason of any violation by WMS of the agreement or the occurrence
of a change in control of WMS). The vested amount of such retirement or
disability benefit was payable notwithstanding Mr. Nicastro's termination of
employment for any reason, provided, he was not in material breach of the terms
of the agreement and, upon his death, was payable to his designee or estate.
Upon Mr. Nicastro's death, whether during the term of his employment or after
his Retirement Date, WMS agreed to pay in monthly installments to his designee
or estate for a period of 15 years thereafter, an annual benefit equal to
one-half of the amount of the annual base salary paid to him on his date of
death if such death occurred during his employment or the amount of his
retirement benefit but no less than $416,250 per annum.
In connection with the Distribution, the WMS Board requested Mr. Nicastro,
and Mr. Nicastro agreed, to become the Chairman of the Board and Chief Executive
Officer of the Company and to relinquish his position as Co-Chief Executive
Officer of WMS. Effective July 1, 1996, Mr. Nicastro also agreed to the early
termination and full settlement of his employment agreement with WMS pursuant to
which, in lieu of all future payments of base salary, bonus, retirement and
death benefits, Mr. Nicastro received a lump sum payment of $9,125,000 with
interest from July 1, 1996.
Effective as of the Distribution Date, Mr. Nicastro has entered into an
employment agreement with the Company pursuant to which he will serve 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 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 Company 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
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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 Company
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 Company Board, or successors approved by such Company Board
members, cease for any reason to constitute at least a majority of the Company
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.
Upon consummation of the Distribution, Mr. Nicastro will also receive
additional compensation of $22,500 per annum for his services as a Director of
WHGI. See ' -- Compensation of Directors.'
George R. Baker. Prior to the Distribution Date, Mr. George R. Baker served
as a Director of WMS and WHGI. As of the Distribution Date, Mr. Baker will
resign as a Director of WMS and will be a Director, Vice Chairman and Secretary
of the Company. Mr. Baker will enter 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 Company 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 Company 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
Company Board, or successors approved by such Company Board members, cease for
any reason to constitute at least a majority of the Company 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 Company 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 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 shall also be 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
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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.
Effective as of the Distribution Date, 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 will be
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. Upon
consummation of the Distribution, Mr. Johnson will become Chief Financial
Officer and Treasurer of the Company.
STOCK OPTION PLAN
WMS, as sole stockholder of the Company, has approved the adoption by the
Company of the Stock Option Plan (the 'Plan'). No approval of the creation of
the Plan is required to be obtained from the WMS stockholders. A copy of the
Plan is attached as Annex V to this Information Statement. 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 Company 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 Company 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. Although the number and identity of individuals
who will be eligible to participate in the Plan have not been determined, each
of the persons identified in the Summary Compensation Table above and all
executive officers and directors of the Company will be 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 Company Board consisting of two or more
persons who are appointed by, and serve at the pleasure of, the Company 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 of the Plan, the Committee has the sole discretion to
determine to whom among
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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 Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company Common Stock in installments or (iii) the guarantee by the Company
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of a loan obtained by the optionee from a third party. Such loans, installment
payments or guarantees may be authorized without 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 Company 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 Company 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 Company 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 Company
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 Company 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
Prior to the Distribution Date, the Company intends to enter into an
agreement (the 'Put and Call Agreement') with Mr. Louis J. Nicastro which will
provide 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 Company Common Stock. The Put and
Call Agreement will also provide 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 Company 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 Company 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 Company Common Stock including the election
of the Company Board, prohibits the issuance of any capital stock having voting
rights other than the 12,000,000 authorized shares of Company Common Stock (or
such greater number of shares of Company 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 Company Common Stock at a conversion
price equal to the lower of the closing price of Company Common Stock on the
first day of trading of such Company Common Stock (on a when-issued basis or
otherwise) on the New York Stock Exchange or the closing price on the date
immediately prior to the conversion date. Mr. Nicastro will also have
registration rights with respect to any shares of Company 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
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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 the
Company's Subsidiaries After the Distribution.'
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Company Common Stock as of the Distribution Date (and following the
Distribution) as if the Distribution took place on the Record Date by each
person known by WMS who would beneficially own more than 5% of the outstanding
Company Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING COMPANY
BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK(2)
---------------- ------------ -------------------
<S> <C> <C>
Sumner M. Redstone and ........................................... 1,729,425(3) 28.6%
National Amusements, Inc.
200 Elm Street
Dedham, MA 02026
FMR Corp. ........................................................ 698,163(4) 11.5%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ------------
(1) The number of shares beneficially owned has been calculated based on the
Distribution being made on the basis of one share of Company Common Stock
for every four shares of WMS Common Stock.
(2) Based upon 24,200,800 shares of WMS Common Stock outstanding on the Record
Date which, after the Distribution, will result in 6,050,200 outstanding
shares of Company Common Stock.
(3) The number of shares reported is based upon information contained in
Amendment No. 20, dated January 7, 1997 to the Schedule 13D filed by Mr.
Summer M. Redstone with the Securities and Exchange Commission (the
'Commission'). Pursuant to such Schedule, Mr. Redstone and National
Amusements, Inc., a Maryland corporation, reported beneficial ownership of
and sole investment power with respect to 3,433,800 and 3,483,900 shares,
respectively, of WMS Common Stock (858,450 and 870,975 shares, respectively,
of Company Common Stock) and that Mr. Redstone is the beneficial owner of 66
2/3% of the issued and outstanding shares of the common stock of National
Amusements, Inc. Although the shares of WMS Common Stock are the subject of
a Proxy Agreement entered into between WMS and Messrs. Louis J. and Neil D.
Nicastro, pursuant to which Messrs. Nicastro have the power to vote such
shares, shares of Company Common Stock will not be covered by such Proxy
Agreement.
(4) The number of shares reported is based upon information with respect to WMS
Common Stock contained in a Schedule 13G/A dated February 14, 1997 filed
with the Commission by FMR Corp. 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
Company 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
(footnotes continued on next page)
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(footnotes continued from previous page)
WMS Common Stock (12,975 shares of Company 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 of WMS Common Stock and Company Common Stock as of the Distribution
Date (and following the Distribution) as if the Distribution took place on the
Record Date by (i) each of the Company's Directors and the Executive Officers
identified on the Summary Compensation Table above and (ii) all of the Company's
Directors and Executives Officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL PERCENT OF BENEFICIAL OWNERSHIP OUTSTANDING
OWNERSHIP OF WMS OUTSTANDING WMS OF COMPANY COMMON COMPANY
NAME OF BENEFICIAL OWNER COMMON STOCK(1) COMMON STOCK(2) STOCK COMMON STOCK
- -------------------------------- ----------------- --------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Louis J. Nicastro............... 7,422,332(3) 30.1% 1,158 *
George R. Baker................. 50,800(4) * 200 *
Brian R. Gamache................ 0 * 0 *
David M. Satz, Jr............... 0 * 0 *
Joseph A. Lamendella............ 100 * 25 *
Richard F. Johnson.............. 0 * 0 *
Directors and Executive Officers
as a group (six persons)...... 7,473,232(3)(4) 30.1% 1,383 *
</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. In
connection with the Distribution, it is contemplated that options to
purchase WMS Common Stock will be adjusted appropriately in order to
decrease the exercise price and target price, if any, and increase the
number of shares which can be purchased upon exercise of each option so that
the aggregate exercise price of the options will be the same both before and
after the adjustment. The aforementioned adjustments are not reflected in
this column.
(2) For purposes of calculating the percentage of shares of WMS Common Stock
owned by each director or officer, shares beneficially owned and issuable
upon the exercise of his options exercisable within 60 days have been deemed
to be outstanding.
(3) The number of shares reported as beneficially owned includes 6,917,700
shares owned by Sumner M. Redstone and National Amusements, Inc. for which
the reporting person has shared voting power but no dispositive power
pursuant to the Proxy Agreement referred to in note 3 to the table set forth
under ' -- Principal Stockholders.' Additionally, the number of shares
reported as beneficially owned includes 500,000 shares for which the
reporting person has sole voting and sole dispositive power, which the
reporting person has the right to acquire pursuant to stock options which
require that WMS Common Stock attain a market price of $35.00 per share
prior to exercise.
(4) Includes 50,000 shares which the reporting person has the right to acquire
pursuant to stock options which require that WMS Common Stock attain a
market price of $35.00 per share prior to exercise.
PURPOSES AND ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS
WMS, as sole stockholder of the Company, as part of the Preliminary
Transactions, has approved an amendment to the Company's Certificate and Bylaws,
effective as of the Merger of the Company with Williams Hotel Corporation. See
'Preliminary Transactions.' 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 Company Board. The Bylaws also contain provisions that could
have an anti-takeover effect.
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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
Company 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. WMS and the Company believe 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 WMS and
the Company, will help ensure that the Company Board, if confronted by a
surprise proposal from a third-party which has acquired a block of Company
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.
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
Company 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 Company Board, but which the holders of a majority of the
shares of Company Common Stock may deem to be in their best interests or in
which stockholders may receive a substantial premium for their Company 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 forms of which are
attached to this Information Statement as Annex III and IV, respectively.
THE COMPANY 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 Company 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 Company
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 Company Board in a relatively short
period of time and, accordingly, provides the Company 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 Company Board.
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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 Company 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 Company 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
Company Board then in office or the sole remaining director shall have the
authority to fill any vacancies on the Company Board, including vacancies
created by an increase in the number of directors. Moreover, because the
Certificate provides for a classified board, Delaware law provides that the
stockholders may remove a member of the Company 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 Company Common Stock to remove a director for
cause. These provisions relating to removal and filling of vacancies on the
Company Board will make it difficult for stockholders to enlarge the Company
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 Company Board or by
the President or Chairman of the Board. Stockholders are not permitted to call a
special meeting or to require that the Company 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 Company Board. These provisions prohibit a
significant stockholder from proposing a stockholder vote at a special meeting
on issues not approved by the Company 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 Company 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 Company 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
Company Common Stock beneficially owned, the consent of such person to be
nominated and
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<PAGE>
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 Company Board a meaningful
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by the Company 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 Company Board, to provide the
Company 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 Company 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
Company Board as to the disposition of any such proposal. Although the Bylaws do
not give the Company 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 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
Company 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 Company 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 Company 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 Company 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 Company 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
Company 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 Company Board in
opposing a takeover bid that the Company 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 Company 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 Company 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
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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 (the 'Rights
Agreement') is qualified in its entirety by reference to the Rights Agreement, a
copy of which is filed as an Exhibit to the Form 10 Registration Statement of
which this Information Statement is a part.
The Company Board has adopted the Rights Agreement prior to the
Distribution. The Rights Agreement provides that one Right will be issued with
each share of Company Common Stock issued (whether originally issued or from the
Company's treasury) on or after the Distribution Date and 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 Company 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 Company 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 Company 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 Company Common 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 Company Board in advance) who,
after the date of adoption of the Rights Agreement, acquires beneficial
ownership of 15% or more of the Company 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 Company
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 Company 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
Company 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 Company 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
Company Board (or after the Stock Acquisition Date, a majority of the Continuing
Directors) for all outstanding shares of Company 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 Company 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 Company Board is changed by vote of the Company's
stockholders, the Rights shall not be
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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 Company 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 Company Common Stock on the basis of an exchange ratio of one share of
Company Common Stock for each Right (subject to adjustment).
As long as the Rights are attached to the Company Common Stock, each share
of Company Common Stock issued by the Company will also evidence one Right.
Until the Rights Distribution Date, the Rights will be represented by Company
Common Stock certificates and will be transferred only with Company Common Stock
certificates; separate certificates representing the Rights will be mailed,
however, to holders of Company 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 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 Company Common Stock prior to the Rights Distribution Date, and in
certain other events.
The Company Board may amend the Rights Agreement prior to the Rights
Distribution Date. After the Rights Distribution Date, the Company 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.
SERIES B PREFERRED STOCK
Prior to the Distribution Date, the Company intends to enter into the Put
and Call Agreement which will provide 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 Company Common Stock. The Put and
Call Agreement will also provide 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 Company Common Stock including the election of the
Company Board, requires that the issuance of any capital stock having voting
rights, other than the 12,000,000 authorized shares of Company Common Stock (or
such greater number of shares of Company 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 Company Common Stock at a conversion price equal to the lower of
the closing price of Company Common Stock on the first day of official trading
of such Company Common Stock (on a when-issued basis or otherwise) on the New
York Stock Exchange 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
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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 the Company's Subsidiaries After the
Distribution.'
The existence of the Call Option and the features of the Series B Preferred
Stock have the effect, based upon the expected number of outstanding shares of
Company Common Stock as of the Distribution Date, of permitting Mr. Nicastro to
acquire 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 Company 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 Company 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 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 Company Common Stock. This could
have the effect of inhibiting changes in management and may also prevent
temporary fluctuations in the market price of Company 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
Prior to the Merger, the Company's authorized capital stock consisted of
1,000 shares of common stock, of which 1,000 shares were issued and outstanding
and were owned by Williams Hotel Corporation. Based on the number of shares and
holders of WMS Common Stock outstanding at the Record Date, and after giving
effect to the Preliminary Transactions, the Company's authorized capital stock
shall consist of 17,000,000 shares of which (i) 12,000,000 shares will be
Company Common Stock, of which 6,050,200 shares, constituting approximately 40%
of the authorized Company Common Stock, will be issued to WMS and distributed to
the stockholders of WMS in the Distribution, (ii) 3,000,000 shares will be Class
A non-voting common stock, par value $.01 per share (the 'Class A Common
Stock'), none of which will be outstanding and (iii) 2,000,000 shares will be
Preferred Stock, none of which will be 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 will be designated for issuance as Series B Preferred Stock in connection
with the
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Put and Call Agreement. All of the shares of Company Common Stock issued in the
Distribution will be validly issued, fully paid and non-assessable.
There will be no material differences between the rights of holders of the
Company Common Stock and the rights of holders of WMS Common Stock following the
Distribution.
PREFERRED STOCK
The Certificate provides that the Company 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 will be outstanding immediately following the Distribution,
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
will be 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 will designate 300,000 shares of Series B Preferred Stock prior
to the Distribution Date pursuant to the Put and Call Agreement. 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 Company 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 Company 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 'Purposes and Anti-Takeover Effects of Certain
Provisions -- Series B Preferred Stock.'
Dividend Rights. The Series B Preferred Stock shall be senior as to
dividends over the Company Common Stock, Class A Common Stock and Series A
Preferred Stock. Subject to the rights of the holders of any other shares
of the Company's 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 Company
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 Company
Common Stock on its first day of official trading (on a when-issued basis
or otherwise) on the New York Stock Exchange and the closing price on the
New York Stock Exchange (or other recognized trading
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<PAGE>
market for the Company 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 Company 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 Company Common Stock will be 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 Company Common Stock
will vote as one class, subject to the right of the holders of Series B
Preferred Stock to vote together with the holders of Company Common Stock and
except as otherwise required by law. The shares of Company Common Stock will not
have cumulative voting rights. As a result, the holders of Company Common Stock
entitled to exercise more than 50% of the voting rights in an election of
directors will be 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 Company
Common Stock voting for the election of directors will not be able to elect any
persons to the Company Board. The Certificate and Bylaws contain certain
provisions that could have an anti-takeover effect. See 'Purposes and Anti-
Takeover Effects of Certain Provisions.'
Dividend Rights. Subject to the rights of the holders of any shares of the
Company's 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 Company Common Stock will be
entitled to such dividends as the Company 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 Company 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 Company Preferred Stock which may be
outstanding from time to time, the holders of Company Common Stock are entitled
in the event of liquidation, dissolution or winding up to share pro rata in the
distribution of all remaining assets.
Company Common Stock is not liable for any calls or assessments and 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
Company Common Stock, and the Certificate provides that there shall be no
preemptive rights.
The transfer agent and registrar for Company Common Stock will be 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 Company 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 will be
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outstanding immediately following the Distribution 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 Company Common Stock but will not have voting rights,
except as otherwise required by the DGCL.
LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS OF THE COMPANY
Articles Eleventh and Twelfth of the Certificate and Section 4 of Article V
of 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 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.
The Director Liability and Indemnification Provisions have been approved,
along with the rest of the Certificate and Bylaws, by WMS, as sole stockholder
of the Company prior to the Distribution Date.
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 which
are attached hereto as Annex III and IV, respectively.
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 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.
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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, a copy of which is filed as an Exhibit to the Form 10 Registration
Statement of which this Information Statement is a part.
The Company also intends to maintain directors' and officers' liability
insurance providing for $10.0 million in coverage.
INDEPENDENT AUDITORS
The Company Board has selected Ernst & Young LLP to audit the Company's
financial statements for the year ending June 30, 1997. Ernst & Young LLP has
served as independent auditors of WMS and the Company throughout the periods
covered by the financial statements included in this Information Statement.
ADDITIONAL INFORMATION
The Company has filed with the Commission the Form 10 Registration
Statement under the Exchange Act with respect to the Company Common Stock being
received by stockholders of WMS in the Distribution as well as certain stock
purchase rights. This Information Statement does not contain all of the
information set forth in the Form 10 Registration Statement and the exhibits
thereto, to which
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reference is hereby made. Statements made in this Information Statement as to
the contents of any contract, agreement and other document referred to herein
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Form 10 Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Form 10 Registration Statement and the exhibits thereto filed by the
Company with the Commission, as well as reports and other information submitted
by the Company to the Commission, may be inspected and copied at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W. Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or part of such materials can be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material
may also be accessed electronically by means of the Commission's Web Site
(http://www.sec.gov).
Following consummation of the Distribution, the Company will be subject to
the informational reporting requirements of the Exchange Act. In accordance with
the Exchange Act, the Company will file with the Commission the reports and
other information required to be filed under the Exchange Act.
The Company intends to furnish holders of Company Common Stock with annual
reports containing consolidated financial statements audited by an independent
public accounting firm and quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY OR
WMS SINCE THE DATE HEREOF.
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WILLIAMS HOTEL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Williams Hotel Corporation
Report of Independent Auditors........................................................................ F-2
Consolidated Balance Sheets at December 31, 1996 and at June 30, 1996 and 1995........................ F-3
Consolidated Statements of Operations for Six Months Ended December 31, 1996 and 1995 and for Years
Ended June 30, 1996, 1995 and 1994................................................................... F-4
Consolidated Statements of Cash Flows for Six Months Ended December 31, 1996 and 1995 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 December 31, 1996 and at June 30, 1996 and 1995..................................... F-20
Statements of Operations and Deficit for Six Months Ended December 31, 1996 and 1995 and for Years
Ended June 30, 1996, 1995 and 1994................................................................... F-21
Statements of Cash Flows for Six Months Ended December 31, 1996 and 1995 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 December 31, 1996 and at June 30, 1996 and 1995..................................... F-29
Statements of Operations and Deficit for Six Months Ended December 31, 1996 and 1995 and for Years
Ended June 30, 1996, 1995 and 1994................................................................... F-30
Statements of Cash Flows for Six Months Ended December 31, 1996 and 1995 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 September 30, 1996 and at March 31, 1996 and 1995................................... F-36
Statements of Operations and (Deficiency in) Partners' Capital for Six Months Ended September 30, 1996
and 1995 and for Years Ended March 31, 1996, 1995 and 1994........................................... F-37
Statements of Cash Flows for Six Months Ended September 30, 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
WILLIAMS HOTEL CORPORATION
We have audited the accompanying consolidated balance sheets of 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
Williams Hotel Corporation 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>
WILLIAMS HOTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------------------
1996 1996 1995
------------ -------- --------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 5,663 $ 6,616 $ 3,627
Receivables, net of allowances of $578, $475 in 1996 and $399 in
1995............................................................... 4,696 2,534 4,333
Receivables from nonconsolidated affiliates.......................... 2,687 608 3,376
Inventories.......................................................... 604 651 804
Receivable from WMS Industries Inc. ................................. 512 -- --
Other current assets................................................. 728 689 946
------------ -------- --------
Total current assets............................................ 14,890 11,098 13,086
Investments in, receivables and advances to nonconsolidated affiliates.... 25,203 27,126 26,320
Property and equipment, net............................................... 44,126 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 $3,540, $3,340 in 1996 and $2,939 in
1995.................................................................... 8,909 9,109 9,510
Deferred income taxes..................................................... -- -- 948
Other assets.............................................................. 6,627 7,387 7,687
------------ -------- --------
$104,850 $104,734 $111,306
------------ -------- --------
------------ -------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................................... $ 4,993 $ 3,297 $ 3,581
Accrued compensation and related benefits............................ 2,097 2,128 1,833
Other accrued liabilities............................................ 2,995 2,721 2,744
Dividend payable on preferred stock of Condado Plaza................. 164 94 557
Notes payable........................................................ 1,000 2,000 2,000
Current maturities of long-term debt................................. 3,347 3,299 3,813
------------ -------- --------
Total current liabilities....................................... 14,596 13,539 14,528
Long-term debt, less current maturities................................... 21,879 23,555 26,928
Deferred income taxes..................................................... 2,291 2,291 --
Other noncurrent liabilities.............................................. 4,722 4,542 4,252
Payable to WMS Industries Inc. ........................................... -- 397 6,672
Minority interests........................................................ 19,921 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.................................................... 33,491 33,650 31,213
------------ -------- --------
Total shareholder's equity................................. 37,341 37,500 35,063
------------ -------- --------
$104,850 $104,734 $111,306
------------ -------- --------
------------ -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<PAGE>
WILLIAMS HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
-------------------- -----------------------------
1996 1995 1996 1995 1994
-------- -------- ------- ------- -------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenues:
Williams Hospitality management fees from
nonconsolidated affiliates......................... $ 4,904 $ 5,280 $13,372 $13,348 $12,880
Condado Plaza hotel/casino:
Casino.......................................... 10,809 11,137 22,438 24,584 29,560
Casino promotional allowances................... (3,454) (3,973) (6,986) (6,872) (8,379)
Rooms........................................... 11,161 11,507 25,477 25,210 26,183
Food and beverages.............................. 5,275 5,475 11,478 11,412 11,713
Other........................................... 1,359 1,430 2,915 3,196 3,523
-------- -------- ------- ------- -------
25,150 25,576 55,322 57,530 62,600
-------- -------- ------- ------- -------
Total revenues............................. 30,054 30,856 68,694 70,878 75,480
Costs and expenses:
Williams Hospitality operating expenses (excl.
depreciation)...................................... 1,827 1,954 3,882 5,175 5,724
Condado Plaza operating expenses (excl.
depreciation):
Casino.......................................... 5,284 5,718 12,375 13,737 14,612
Rooms........................................... 3,674 4,278 8,593 9,081 8,969
Food and beverages.............................. 4,378 4,938 10,088 10,503 10,153
Other........................................... 2,430 2,615 5,281 6,463 5,909
-------- -------- ------- ------- -------
15,766 17,549 36,337 39,784 39,643
Selling and administrative........................... 4,550 4,820 9,487 12,301 10,877
Depreciation and amortization........................ 2,809 2,690 5,430 5,994 5,344
-------- -------- ------- ------- -------
Total costs and expenses................... 24,952 27,013 55,136 63,254 61,588
-------- -------- ------- ------- -------
Operating income.......................................... 5,102 3,843 13,558 7,624 13,892
Interest income, primarily from nonconsolidated
affiliates, and other income............................ 1,091 837 1,830 2,548 1,171
Interest expense.......................................... (1,674) (1,890) (3,689) (4,300) (4,722)
Equity in loss of nonconsolidated affiliates.............. (3,028) (3,597) (3,465) (7,003) (3,534)
-------- -------- ------- ------- -------
Income (loss) before tax provision and minority
interests............................................... 1,491 (807) 8,234 (1,131) 6,807
Credit (provision) for income taxes....................... (224) 295 (1,645) 234 7
Minority interests in income.............................. (1,262) (1,194) (3,636) (2,910) (4,597)
Dividend on preferred stock of Condado Plaza.............. (164) (296) (516) (557) --
-------- -------- ------- ------- -------
Net income (loss)......................................... $ (159) $(2,002) $ 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.......................................... $ 1,491 $ (807) $ 8,234 $(1,131) $ 6,807
Provision for income taxes........................... (1,305) (965) (2,545) (1,902) (953)
Minority interests in income......................... (1,262) (1,194) (3,636) (2,910) (4,597)
Dividend on preferred stock of Condado Plaza......... (164) (296) (516) (557) --
-------- -------- ------- ------- -------
Net income (loss).................................... $(1,240) $(3,262) $ 1,537 $(6,500) $ 1,257
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
<PAGE>
WILLIAMS HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
-------------------- -------------------------------
1996 1995 1996 1995 1994
-------- -------- -------- ------- --------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)...................................... $ (159) $(2,002) $ 2,437 $(4,364) $ 2,217
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................ 2,809 2,690 5,430 5,994 5,344
Provision for loss on receivables............ 69 625 1,457 1,842 1,840
Undistributed loss of nonconsolidated
affiliates................................ 3,028 3,597 3,465 7,003 3,534
Deferred income taxes........................ -- -- 3,239 (1,626) (963)
Minority interests........................... 1,262 1,194 3,636 2,910 4,597
Increase (decrease) resulting from changes in
operating assets and liabilities:
Receivables............................. (2,231) (1,171) 342 (541) (1,252)
Other current assets.................... 8 290 459 471 (283)
Accounts payable and accruals........... 1,939 2,445 (12) (1,152) 220
Net amounts due from nonconsolidated
affiliates........................... (3,008) (1,950) (1,931) (5,906) (5,526)
Other assets and liabilites not
reflected elsewhere.................. 319 (156) (618) 218 (2,971)
-------- -------- -------- ------- --------
Net cash provided by operating activities.............. 4,036 5,562 17,904 4,849 6,757
Investing activities:
Purchase of property and equipment..................... (1,727) (599) (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............ -- 217 985 2,010 1,973
Purchase of land held for investment................... -- -- -- -- (5,095)
Other investing........................................ 612 -- -- -- (1,712)
-------- -------- -------- ------- --------
Net cash used by investing activities.................. (1,301) (382) (164) (5,341) (19,938)
Financing activities:
Payment of long-term debt and notes payable............ (2,628) (2,404) (3,887) (4,568) (4,674)
Proceeds from long-term debt........................... -- -- -- -- 4,664
Net intercompany transactions with WMS Industries
Inc................................................. (909) (1,867) (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...................................... -- (600) (3,400) -- --
Dividends paid to minority shareholders of
subsidiary.......................................... (151) -- (1,189) (783) (2,108)
-------- -------- -------- ------- --------
Net cash (used) provided by financing activities....... (3,688) (4,871) (14,751) 274 9,855
Increase (decrease) in cash and cash equivalents......... (953) 309 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............... $ 5,663 $ 3,936 $ 6,616 $ 3,627 $ 3,845
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<PAGE>
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>
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 six 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
consolidated balance sheet as of December 31, 1996 and the consolidated results
of operations and cash flows for the six months ended December 31, 1996 and
1995. Due to the seasonality of the businesses, operating results for the six
month period ended December 31, 1996 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>
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>
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>
WILLIAMS HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results of operations for fiscal 1996, 1995 and 1994 and the six months ended
December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1996 1995 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.......................................... $ 22,161 $ 22,663 $ 50,124 $ 51,797 $ 55,923
Management fees and interest payable to Williams
Hospitality..................................... 2,099 2,073 4,738 4,691 5,041
Other costs and expenses.......................... 21,621 22,768 46,746 49,507 53,330
------------ ------------ -------- -------- --------
Net (loss)........................................ $ (1,559) $ (2,178) $ (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 six months ended December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1996 1995 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........................... $ (11) $ (97) $ (178) $ (356) $ (239)
Equity in net loss of El Conquistador to March 31
for fiscal years and to September 30 for six
months ended December 31....................... (4,819) (5,584) (6,120) (13,739) (5,024)
Equity in income of Las Casitas.................. -- 313 313 1,627 297
------------ ------------ -------- -------- --------
Net (loss)....................................... $ (4,830) $ (5,368) $ (5,985) $(12,468) $ (4,966)
------------ ------------ -------- -------- --------
------------ ------------ -------- -------- --------
</TABLE>
F-10
<PAGE>
<PAGE>
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>
SEPTEMBER 30, SEPTEMBER 30, 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...................................... $ 37,801 $ 37,410 $ 89,214 $ 84,743 $ 32,973
Management fees and interest payable to
Williams Hospitality........................ 2,227 2,061 5,820 3,874 1,425
Interest payable to partners.................. 1,241 1,312 2,598 1,898 1,082
Other costs and expenses...................... 39,415 39,950 82,538 95,324 36,240
Depreciation and amortization................. 4,554 5,256 10,499 11,124 4,274
------------- ------------- --------- --------- ---------
Net (loss).................................... $ (9,636) $ (11,169) $ (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>
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>
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>
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 WMS Hotel Corporation and in
connection with such merger to authorize the issuance of 15,000,000
F-14
<PAGE>
<PAGE>
WILLIAMS HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Condado Plaza). Total net future lease commitments for minimum rentals at
June 30, 1997, 1998, 1999,
F-15
<PAGE>
<PAGE>
WILLIAMS HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
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>
DECEMBER JUNE 30,
31, --------------------------
1996 1996 1995
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 1,620,603 $ 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 $815,617 at December 31, 1996.............. 3,808,890 2,370,700 4,152,800
Due from affiliated companies:
El Conquistador Partnership L.P........................... -- -- 82,000
Posadas de Puerto Rico Associates, Incorporated........... 8,083 -- 49,000
----------- ----------- -----------
8,083 -- 131,000
Inventories.................................................... 888,091 906,400 1,045,500
Prepaid expenses............................................... 571,846 837,100 891,600
----------- ----------- -----------
Total current assets...................................... 6,897,513 6,557,900 7,745,200
Land, building and equipment:
Land........................................................... 3,300,000 3,300,000 3,300,000
Building....................................................... 14,350,723 14,350,700 14,350,700
Building improvements.......................................... 12,512,302 12,439,600 11,828,100
Furniture, fixtures and equipment.............................. 36,292,422 33,814,000 32,324,100
----------- ----------- -----------
66,455,447 63,904,300 61,802,900
Less accumulated depreciation.................................. 31,655,328 30,080,700 27,459,900
----------- ----------- -----------
34,800,119 33,823,600 34,343,000
Operating equipment, net............................................ 558,048 570,700 649,500
Deferred financing costs, less accumulated amortization of $530,900
and $388,100 at June 30,1996 and 1995, respectively, and $601,648
at December 31, 1996.............................................. 462,768 533,500 676,300
Other assets........................................................ 254,627 270,500 260,000
----------- ----------- -----------
Total assets.............................................. $42,973,075 $41,756,200 $43,674,000
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND DEFICIENCY IN
PARTNERSHIP CAPITAL
Current liabilities:
Trade accounts payable......................................... $ 5,510,993 $ 4,039,900 $ 4,381,800
Accrued compensation and related benefits...................... 964,640 1,139,300 1,439,100
Other accrued liabilities...................................... 1,762,634 1,458,700 1,807,600
Due to affiliated companies.................................... 1,095,577 11,600 --
Note payable to bank........................................... 1,000,000 300,000 --
Current portion of long-term debt.............................. 3,151,996 3,152,000 2,306,400
----------- ----------- -----------
Total current liabilities................................. 13,485,840 10,101,500 9,934,900
Long-term debt, net of current portion.............................. 22,397,368 23,805,000 26,474,000
Due to Williams Hospitality Group Inc............................... 24,005,715 23,206,700 21,262,600
Deficiency in partnership capital:
Capital contribution........................................... 7,000,000 7,000,000 7,000,000
Deficit........................................................ (23,915,848) (22,357,000) (20,997,500)
----------- ----------- -----------
Total deficiency in partnership capital................... (16,915,848) (15,357,000) (13,997,500)
----------- ----------- -----------
Total liabilities and deficiency in partnership capital... $42,973,075 $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>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
--------------------------- ------------------------------------------
1996 1995 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms......................... $ 8,895,258 $ 9,276,458 $ 22,016,700 $ 21,517,300 $ 21,517,300
Food and beverage............. 6,075,706 6,218,198 13,424,400 12,688,200 12,731,100
Casino........................ 8,233,625 9,133,246 18,117,600 22,575,400 31,834,800
Rental and other income....... 1,443,262 1,591,036 3,503,000 2,852,400 2,884,500
Less casino promotional
allowances.................. (2,486,830) (3,555,710) (6,937,900) (7,836,300) (13,045,200)
------------ ------------ ------------ ------------ ------------
Net revenues....................... 22,161,021 22,663,228 50,123,800 51,797,000 55,922,500
Costs and expenses:
Rooms......................... 3,082,297 3,152,007 6,891,000 6,775,000 7,388,000
Food and beverage............. 4,421,091 4,563,102 9,506,100 9,340,600 9,940,400
Casino........................ 4,650,642 5,010,532 10,716,800 14,027,100 16,112,400
Selling, general and
administrative.............. 4,480,963 4,550,197 9,094,000 8,953,700 9,623,300
Management and incentive
management fees............. 1,605,483 1,633,831 3,850,100 3,893,000 4,332,300
Property operation,
maintenance and energy
costs....................... 2,337,870 2,505,696 4,803,200 4,416,800 4,483,000
Depreciation and
amortization................ 1,661,449 1,877,303 3,595,300 3,617,300 3,423,600
------------ ------------ ------------ ------------ ------------
22,239,795 23,292,668 48,456,500 51,023,500 55,303,000
------------ ------------ ------------ ------------ ------------
(Loss) income from operations...... (78,774) (629,440) 1,667,300 773,500 619,500
Interest income.................... -- -- -- 2,500 1,000
Interest expense................... 1,479,929 1,548,798 (3,026,800) (3,176,800) (3,069,800)
------------ ------------ ------------ ------------ ------------
Net loss........................... (1,558,703) (2,178,238) (1,359,500) (2,400,800) (2,449,300)
Deficit at beginning of period..... (22,357,145) (20,998,514) (20,997,500) (18,596,700) (16,147,400)
------------ ------------ ------------ ------------ ------------
Deficit at end of period........... $(23,915,848) $(23,176,752) $(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>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
------------------------- ---------------------------------------
1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss..................................... $(1,558,703) $(2,178,238) $(1,359,500) $(2,400,800) $(2,449,300)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization........... 1,661,449 1,877,305 3,595,300 3,617,300 3,423,600
Provision for losses on accounts
receivable........................... 157,800 857,300 1,278,200 3,880,400 4,442,000
Gain or sale of equipment............... -- -- (46,600) -- --
Changes in operating assets and
liabilities:
Amounts due to/from affiliated
companies.......................... 1,874,955 2,086,466 2,086,700 639,600 2,166,200
Trade accounts receivable............ (1,619,969) (3,129,165) 503,900 833,200 (4,161,600)
Inventories and prepaid expenses..... 299,434 216,418 193,600 21,600 439,000
Other assets......................... (16,110) (741,582) (10,500) (125,600) 591,500
Trade accounts payable, accrued
expenses and other accrued
liabilities........................ 1,624,230 5,538,684 (990,600) (2,493,100) 267,600
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities.... 2,423,086 4,527,188 5,250,500 3,972,600 4,719,000
Investing activities
Proceeds from sale of equipment.............. -- -- 119,300 -- --
Purchases of property and equipment.......... (2,387,150) (1,631,051) (2,502,800) (3,310,000) (2,737,300)
Purchases of operating equipment -- net...... 12,666 18,562 78,800 635,900 (98,800)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities........ (2,374,484) (1,612,489) (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..... 700,000 800,000 300,000 -- --
Payments of long-term debt................... (1,571,650) (1,027,081) (2,326,400) (2,046,800) (2,017,700)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities........ (871,650) (227,081) (2,026,400) (1,890,600) (1,829,000)
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash................ (823,048) 2,687,618 919,400 (592,100) 53,900
Cash at beginning of period.................... 2,443,651 1,524,263 1,524,300 2,116,400 2,062,500
----------- ----------- ----------- ----------- -----------
Cash at end of period.......................... $ 1,620,603 $ 4,211,881 $ 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 six 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 six months ended December 31, 1996 and 1995. 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,
DECEMBER 31, ----------------------------
1996 1996 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............ 17,321,000 16,116,000 14,043,200
Investment in Las Casitas Development Company.................... 692,600 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
$85,700 at December 31, 1996................................... 1,382,800 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 $547,600 at December 31, 1996.......... 820,800 872,200 984,800
------------ ------------ ------------
Total assets........................................... $ 20,220,800 $ 19,681,500 $ 19,066,800
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND (DEFICIENCY) PARTNERS' CAPITAL
Liabilities:
Long-term note payable...................................... $ 5,390,900 $ 5,197,000 $ 4,797,100
Due to affiliated company................................... 78,100 64,200 1,130,600
Due to partners............................................. 10,132,900 9,790,700 9,940,600
Losses in excess of equity investment in El Conquistador
Partnership L. P. ........................................ 12,581,900 7,762,600 1,642,100
------------ ------------ ------------
Total liabilities...................................... 28,183,800 22,814,500 17,510,400
(Deficiency) partners' capital:
Contributed................................................. 20,286,200 20,286,200 18,990,500
Deficit..................................................... (28,249,200) (23,419,200) (17,434,100)
------------ ------------ ------------
Total (deficiency) partners' capital................... (7,963,000) (3,133,000) 1,556,400
------------ ------------ ------------
Total liabilities and (deficiency) partners' capital... $ 20,220,800 $ 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>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------------------- -------------------------------------------
1996 1995 1996 1995 1994
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income.................. $ 605,500 $ 597,400 $ 1,150,100 $ 1,027,600 $ 337,400
Cost and expenses:
Interest.................... 536,200 589,700 1,145,800 1,137,600 474,800
Professional fees........... 13,900 32,800 40,100 83,400 18,300
Amortization................ 65,900 71,600 142,000 163,200 84,000
------------ ------------ ------------ ------------ -----------
616,000 694,100 1,327,900 1,384,200 577,100
------------ ------------ ------------ ------------ -----------
Loss before equity in operations
of investees................... (10,500) (96,700) (177,800) (356,600) (239,700)
Equity in operations of
investees:
El Conquistador Partnership
L.P....................... (4,819,500) (5,584,700) (6,120,500) (13,738,400) (5,023,800)
Las Casitas Development
Company................... -- 313,200 313,200 1,627,100 297,300
------------ ------------ ------------ ------------ -----------
(4,819,500) (5,271,500) (5,807,300) (12,111,300) 4,726,500
------------ ------------ ------------ ------------ -----------
Net loss......................... (4,830,000) (5,368,200) (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......................... $(28,249,200) $(22,802,300) $(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>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------------- ------------------------------------------
1996 1995 1996 1995 1994
----------- ----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss................................. $(4,830,000) $(5,368,200) $(5,985,100) $(12,467,900) $(4,966,200)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Amortization.......................... 65,900 71,600 142,000 163,200 84,000
Equity in operations of affiliates
including $950,000 in cash
distributions received in fiscal
year 1996 and $600,000 and $350,000
cash received during the six months
ended December 31, 1996 and 1995.... 5,419,500 5,621,500 6,757,300 12,111,300 4,726,500
Changes in operating assets and
liabilities:
Accrued interest income added to
notes receivable................. (605,000) (579,300) (1,122,800) (1,000,600) (320,200)
Other receivables................... -- -- -- 13,200 (13,200)
Accrued interest expense added to
long-term liabilities............ 536,100 552,900 1,102,900 974,500 373,600
Accounts payable.................... -- -- -- (36,700) 18,300
Due to affiliated company........... 13,900 51,500 58,900 -- --
----------- ----------- ----------- ------------ -----------
Net cash provided by (used in) operating
activities............................ 600,400 350,000 953,200 (243,000) (97,200)
Investing activities
Sale (purchase) of certificate of deposit
held in escrow........................ -- 225,000 682,500 100,000 (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............................. (600,000) -- (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............................ (600,000) 225,000 (267,500) (553,900) (5,051,300)
Financing activities
Partners' contributed capital............ -- -- 1,295,700 1,870,500 2,417,200
Partners' loans -- net................... -- (225,000) (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............................ -- (225,000) (682,500) 796,900 5,148,500
----------- ----------- ----------- ------------ -----------
Net increase in cash....................... 400 350,000 3,200 -- --
Cash at beginning of period................ 3,200 -- -- -- --
----------- ----------- ----------- ------------ -----------
Cash at end of period...................... $ 3,600 $ 350,000 $ 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 six 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 six months ended December 31, 1996 and 1995. 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,
SEPTEMBER 30, ----------------------------
1996 1996 1995
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash....................................................... $ 716,600 $ 856,983 $ 877,970
Restricted cash and investments held by bank............... 2,584,000 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 $325,000 at September 30, 1996... 2,325,100 5,302,884 7,653,918
Due from affiliated companies.............................. 417,500 314,999 377,424
Inventories................................................ 1,485,700 1,522,463 2,051,966
Prepaid expenses and other current assets.................. 1,443,200 945,905 972,010
------------- ------------ ------------
Total current assets............................. 8,972,100 11,822,589 15,315,996
Due from affiliated company..................................... 523,100 817,868 1,189,574
Land, building and equipment:
Land....................................................... 14,372,700 14,372,707 14,372,707
Building................................................... 159,134,400 158,039,190 158,039,190
Furniture, fixture and equipment........................... 30,718,800 31,359,202 30,504,887
Construction in-process.................................... -- -- 42,978
------------- ------------ ------------
204,225,900 203,771,099 202,959,762
Less accumulated depreciation.............................. 17,927,200 14,777,283 8,402,779
------------- ------------ ------------
186,298,700 188,993,816 194,556,983
Operating equipment, net........................................ 1,491,100 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 $5,220,700 at September 30, 1996............ 3,469,600 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 $9,635,200 at September 30, 1996............ 3,744,400 4,628,254 7,759,760
------------- ------------ ------------
Total assets..................................... $ 204,499,000 $211,690,501 $225,190,845
------------- ------------ ------------
------------- ------------ ------------
LIABILITIES AND (DEFICIENCY IN) PARTNERS' CAPITAL
Current liabilities:
Trade accounts payable..................................... $ 5,915,200 $ 7,657,546 $ 9,662,586
Advance deposits........................................... 3,283,700 3,568,390 5,227,153
Accrued interest........................................... 1,566,600 1,510,080 1,510,200
Other accrued liabilities.................................. 4,341,100 4,673,189 5,893,127
Due to affiliated companies................................ 943,700 652,896 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............................. 24,768,700 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....................................................... 3,165,100 4,324,358 6,759,225
Due to affiliated companies..................................... 9,405,500 8,531,671 5,917,725
Due to partners................................................. 35,321,000 34,079,309 31,510,445
(Deficiency in) partners' capital:
Limited partners........................................... (11,187,105) (2,996,497) 7,408,382
General partners........................................... (1,974,195) (528,793) 1,307,361
------------- ------------ ------------
Total (deficiency in) partners' capital............... (13,161,300) (3,525,290) 8,715,743
------------- ------------ ------------
Total liabilities and (deficiency in) partners'
capital............................................. $ 204,499,000 $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>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
--------------------------- -----------------------------------------
1996 1995 1996 1995 1994
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms.......................... $ 15,622,447 $15,449,431 $38,817,160 $37,942,821 $16,873,156
Food and beverage.............. 12,291,270 13,255,954 26,188,693 27,298,340 9,420,792
Casino......................... 2,324,912 2,430,342 6,179,133 6,054,569 2,487,552
Rental and other income........ 8,033,781 6,582,938 19,165,969 14,652,328 4,343,493
------------ ----------- ----------- ----------- -----------
38,272,410 37,718,665 90,350,955 85,948,058 33,124,993
Less casino promotional
allowances................... (471,005) (308,960) (1,136,499) (1,205,380) (151,923)
------------ ----------- ----------- ----------- -----------
Net revenues........................ 37,801,405 37,409,705 89,214,456 84,742,678 32,973,070
Costs and expenses:
Rooms.......................... 5,617,137 6,074,162 12,853,157 14,755,239 5,686,692
Food and beverage.............. 8,412,428 8,653,520 17,638,186 20,797,173 8,186,633
Casino......................... 1,801,762 1,705,410 3,686,904 3,923,817 2,065,525
Selling, general and
administrative............... 5,583,024 5,894,595 12,992,841 18,115,433 6,624,081
Management and incentive
management fees.............. 1,948,657 1,874,880 5,394,675 3,703,819 1,425,347
Property operation, maintenance
and energy costs............. 6,915,675 6,556,952 12,396,063 14,408,347 5,452,018
Depreciation and
amortization................. 4,553,644 5,255,840 10,499,296 11,124,075 4,273,902
Other expenses................. 4,347,915 4,247,096 9,201,228 9,722,662 4,118,222
------------ ----------- ----------- ----------- -----------
39,180,242 40,262,455 84,662,350 96,550,565 37,832,420
------------ ----------- ----------- ----------- -----------
Income (loss) from operations....... (1,378,836) (2,852,750) 4,552,106 (11,807,887) (4,859,350)
Interest income..................... 95,631 119,290 228,625 467,922 109,437
Interest expense.................... 8,352,804 8,435,945 17,021,764 16,136,755 5,297,771
------------ ----------- ----------- ----------- -----------
Net loss............................ (9,636,010) (11,169,405) (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..................... $(13,161,300) $(2,453,662) $(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>
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
-------------------------- ------------------------------------------
1996 1995 1996 1995 1994
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss............................................ $(9,636,010) $(11,169,405) $(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.................. 4,553,644 5,255,840 10,499,296 11,124,075 4,273,902
Provision for losses on accounts receivable.... 23,235 692,689 363,245 1,808,641 517,623
Incentive management fees...................... 605,750 550,551 2,224,381 679,259 263,363
Deferred interest expense to partners and
affiliates................................... 1,509,806 1,460,665 2,995,431 2,063,981 686,446
Changes in operating assets and liabilities:
Restricted cash and investments held by
bank..................................... (295,355) (235,752) 503,353 2,549,446 1,600,000
Trade accounts receivable.................. 2,954,549 2,146,230 1,987,789 2,187,211 (12,167,393)
Inventories................................ 36,763 636,280 529,503 61,249 (2,113,215)
Prepaid expenses and other current
assets................................... (497,294) 36,069 26,105 491,032 (1,463,042)
Trade accounts payable and advance
deposits................................. (2,027,036) (4,834,856) (3,663,803) (1,323,693) 12,226,578
Accrued interest and other accrued
liabilities.............................. 620,949 (288,362) (1,220,058) 1,156,483 6,246,846
Affiliated companies, net.................. 192,267 582,321 (97,985) 1,967,073 2,259,373
----------- ------------ ------------ ------------ ------------
Net cash (used in) provided by operating
activities........................................ (1,958,732) (5,167,730) 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................. (500,684) (139,355) (826,611) (3,525,762) (98,960,148)
(Usage) purchases of operating equipment, net....... (21,750) 287,488 (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) provided by investing
activities........................................ (522,434) 148,133 (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............. (1,159,258) (1,075,925) (2,198,146) (1,976,625) (704,240)
Proceeds from notes payable to bank................. 3,500,041 5,875,000 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............................. -- -- -- 8,698,134 15,411,995
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities........................................ 2,340,783 4,799,075 (1,063,146) 7,293,509 26,760,097
----------- ------------ ------------ ------------ ------------
Net (decrease) increase in cash......................... (140,383) (220,522) (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........................... $ 716,600 $ 657,448 $ 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 six months ended
September 30, 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 September 30, 1996 and the results of operations and cash
flows for the six months ended September 30, 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>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
ANNEX I
[LETTERHEAD OF OPPENHEIMER & CO., INC.]
March 20, 1997
Personal and Confidential
Board of Directors
WMS INDUSTRIES INC.
3401 North California Avenue
Chicago, Illinois 60618
Gentlemen:
You have asked Oppenheimer & Co., Inc. ('Oppenheimer') to render a written
opinion ('Fairness Opinion') to the Board of Directors as to the fairness from a
financial point of view of WMS Industries Inc.'s ('WMS' or the 'Company')
proposed tax free distribution (the 'Distribution') to the holders of WMS common
stock, par value $0.50 per share ('WMS Common Stock'), of 100% of the
outstanding shares of common stock, par value $0.01 per share ('Hotel Common
Stock'), of WMS Hotel Corporation ('Hotel'), which upon completion of the merger
of Williams Hotel Corporation with and into Hotel will be the beneficial owner
of all of the WMS interests in the Condado Plaza Hotel & Casino (the 'Condado
Plaza'), the El San Juan Hotel & Casino (the 'El San Juan'), the El Conquistador
Resort & Country Club (the 'El Conquistador') and Williams Hospitality Group
Inc. ('WHG'), as well as certain undeveloped land adjacent to the El
Conquistador. The Distribution is described more fully in the Information
Statement proposed to be sent to stockholders of WMS, a copy of which has been
furnished to us.
In arriving at our Fairness Opinion we:
(i) reviewed WMS' audited consolidated financial statements for the
fiscal years ended June 30, 1993, 1994, 1995 and 1996 and the unaudited
financial statements for the six months ended December 31, 1995 and 1996;
(ii) reviewed the audited consolidated financial statements of
Williams Hotel Corporation for the fiscal years ended June 30, 1994, 1995
and 1996 and the unaudited consolidated financial statements of Williams
Hotel Corporation for the six months ended December 31, 1995 and 1996;
(iii) reviewed Condado Plaza's, El San Juan's, El Conquistador's and
WHG's audited financial statements for the fiscal years ended 1994, 1995
and 1996, the unaudited financial statements for the six months ended
December 31, 1995 and 1996 for Condado Plaza, El San Juan and WHG, and the
unaudited financial statements for the six months ended September 30, 1995
and 1996 for El Conquistador;
(iv) held discussions with senior management of WMS and Hotel with
respect to the businesses and prospects of Hotel and WMS;
(v) reviewed financial projections of WMS prepared by WMS' management;
(vi) reviewed financial projections of Hotel prepared by Hotel's
management;
(vii) reviewed financial projections of Condado Plaza, El San Juan, El
Conquistador and WHG prepared by the management of each respective entity;
(viii) reviewed current and historical market prices and trading data
of WMS Common Stock;
(ix) reviewed financial and market data for certain public companies
we deemed comparable to WMS and Hotel;
(x) reviewed and analyzed recent mergers and acquisitions of companies
we deemed comparable to Hotel;
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(xi) reviewed and analyzed recent spin-off transactions we deemed
comparable to the Distribution;
(xii) reviewed the Information Statement in connection with the
Distribution, in the form contained in Hotel's registration statement on
Form 10, as filed with the Securities and Exchange Commission on February
28, 1997 (the 'Information Statement');
(xiii) reviewed Houlihan, Lokey, Howard & Zukin, Inc.'s solvency
opinion, dated March 20, 1997;
(xiv) reviewed public information concerning WMS and Hotel; and
(xv) performed such other analyses and reviewed such other information
as we deemed appropriate.
In rendering our Fairness Opinion we relied upon and assumed, without
independent verification or investigation, the accuracy and completeness of all
of the financial and other information provided to us by the Company, Hotel,
Condado Plaza, El San Juan, El Conquistador or WHG, and their respective
employees, representatives and affiliates. With respect to forecasts regarding
the future financial condition and operating results of WMS, Hotel, Condado
Plaza, El San Juan, El Conquistador and WHG provided to us, we assumed, without
independent verification or investigation, that such forecasts were reasonably
prepared on bases reflecting the best available information, estimates and
judgement of such entities' respective managements. We have neither made nor
obtained any independent evaluation or appraisals of the assets or liabilities
of WMS, Hotel, or such other entities, including the undeveloped land adjacent
the El Conquistador. We are not expressing any opinion as to the underlying
valuation, future performance or long-term viability of WMS or Hotel, as
independent public companies following the Distribution, or the prices at which
the Hotel Common Stock or WMS Common Stock will trade subsequent to the
Distribution. We were not requested or authorized to solicit, and did not
solicit, any proposals from any third parties for the acquisition of Hotel or
any of the assets or businesses of Hotel nor have we made any determination as
to whether any such proposals could be obtained if solicited.
In connection with our Fairness Opinion, we have assumed, without
independent verification or investigation that the Distribution will be
consummated on the terms and subject to the conditions described in the
Information Statement, including, without limitation, that prior to the
effective date of the Distribution, the Preliminary Transactions (as defined in
the Information Statement) will be effected as described in the Information
Statement. In addition, we have assumed, without independent verification, the
accuracy of, and relied on, the advice and the conclusions of WMS' legal counsel
and accountants with respect to tax and accounting matters as provided to
Oppenheimer by WMS' management, including, without limitation, that the
Distribution will be tax free to WMS and the holders of WMS Common Stock.
Further, we have also assumed that all necessary governmental and regulatory
approvals and consents of third parties will be obtained on terms and conditions
that will not have a material adverse effect on WMS or Hotel.
Our Fairness Opinion is based upon analyses of the foregoing factors in
light of our assessment of general economic, financial and market conditions as
of the date hereof that can be evaluated by us as of such date.
Oppenheimer has performed investment banking and other services for WMS in
the past and has been compensated for such services and an officer of
Oppenheimer serves on the Board of Directors of Midway Games Inc., a subsidiary
of WMS. Oppenheimer will also receive a fee upon the delivery of this Fairness
Opinion.
Based upon and subject to the foregoing, it is our opinion that, as of
March 20, 1997 the Distribution is fair, from a financial point of view, to the
stockholders of WMS.
Very truly yours,
OPPENHEIMER & CO., INC.
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ANNEX II
[LETTERHEAD OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.]
March 20, 1997
To The Board of Directors
WMS INDUSTRIES INC.
Dear Directors:
We understand that the Board of Directors of WMS Industries Inc. (the
'WMS') is contemplating entering into a plan of reorganization and distribution
agreement (the 'Distribution Agreement') to effectuate a corporate restructuring
that would involve a pro-rata tax-free dividend of all the shares of common
stock, $.01 par value per share, of WMS' wholly-owned subsidiary WMS Hotel
Corporation (the 'Company') to the holders of WMS common stock. The Distribution
Agreement provides for, among other things, (i) the Restructuring (as defined in
the Distribution Agreement); (ii) the Distribution (as defined in the
Distribution Agreement); (iii) cross-indemnification between the Company and WMS
with respect to the respective businesses of the Company and WMS; and (iv)
certain other arrangements for the furnishing of certain financial, legal and
corporate secretary functions by WMS to the Company for a transitional period
following the Distribution. The Distribution of the shares and related
transactions are referred to collectively herein as the 'Transaction.' It is our
understanding that following the Distribution the Company will be a separate
public company which will own and operate what was formerly WMS' hotel and
casino businesses.
You have requested our written opinion (the 'Opinion') as to the matters
set forth below. This Opinion values the Company as a going-concern (including
goodwill), on a pro forma basis, immedi-ately after and giving effect to the
Transaction. For purposes of this Opinion, 'fair value' shall be defined as the
amount at which the Company would change hands between a willing buyer and a
willing seller, each having reasonable knowledge of the relevant facts, neither
being under any compulsion to act, with equity to both; and 'present fair
saleable value' shall be defined as the amount that may be realized if the
Company's aggregate assets (including goodwill) are sold as an entirety with
reasonable promptness in an arm's length transaction under present conditions
for the sale of comparable business enterprises, as such conditions can be
reasonably evaluated by Houlihan Lokey. We have used the same valuation
methodologies in determining fair value and present fair saleable value for
purposes of rendering this Opinion. The term 'identified contingent liabilities'
shall mean the stated amount of contingent liabilities identified to us and
valued by responsible officers of the Company, upon whom we have relied upon
without independent verification; no other contingent liabilities will be
considered. Being 'able to pay or refinance its debts as they become absolute
and mature' shall mean that, assuming the Transaction has been consummated as
proposed, the Company's financial forecasts for the period 1997 to 2001 indicate
positive cash flow for such period. It is Houlihan Lokey's understanding, upon
which it is relying, that WMS' Board of Directors and any other recipient of the
Opinion will consult with and rely solely upon their own legal counsel with
respect to said definitions. No representation is made herein, or directly or
indirectly by the Opinion, as to any legal matter or as to the sufficiency of
said definitions for any purpose other than setting forth the scope of Houlihan
Lokey's Opinion hereunder.
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Notwithstanding the use of the defined terms 'fair value' and 'present fair
saleable value,' we have not been engaged to identify prospective purchasers or
to ascertain the actual prices at which and terms on which the Company can
currently be sold, and we know of no such efforts by others. Because the sale of
any business enterprise involves numerous assumptions and uncertainties, not all
of which can be quantified or ascertained prior to engaging in an actual selling
effort, we express no opinion as to whether the Company would actually be sold
for the amount we believe to be its fair value and present fair saleable value.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
<TABLE>
<S> <C> <C>
1. (i) reviewed Williams Hotel Corporation's audited consolidated financial statements for the fiscal
years ended June 30, 1995 and 1996 and unaudited financial statements for the six months ended
December 31, 1996 which management has stated is the most recent financial information
available;
(ii) reviewed audited financial statements for WKA El Con Associates, Posadas de San Juan
Associates, Posadas de Puerto Rico Associates, Incorporated, and Williams Hospitality Group
Inc. for the fiscal years ended June 30, 1994 through June 30, 1996;
(iii) reviewed unaudited financial statements for WKA El Con Associates, and Posadas de San Juan
Associates, for the six months ended December 31, 1996; and
(iv) reviewed audited financial statements for El Conquistador Partnership L.P. for the fiscal years
ended March 31, 1994 through March 31, 1996 and unaudited financial statements for the six
months ended September 30, 1996;
2. reviewed copies of the following agreements:
(i) Draft Plan of Reorganization and Distribution Agreement; and
(ii) Draft Tax Sharing Agreement;
3. reviewed the WMS Hotel Corporation Form 10, dated February 28, 1997;
4. met with certain members of the senior management of the Company to discuss the operations, financial
condition, future prospects and projected operations and performance of the Company, and met with
representatives of the Company's counsel to discuss certain matters;
5. visited certain facilities and business offices of the Company;
6. reviewed consolidated forecasts and projections prepared by the Company's management with respect to
the Company for the years ending June 30, 1997 through 2001;
7. reviewed forecasts and projections prepared by the Company's management with respect to WKA El Con
Associates, Posadas de San Juan Associates, Posadas de Puerto Rico Associates, Incorporated, Williams
Hospitality Group Inc. and El Conquistador Partnership L.P. for the fiscal years ending 1997 through
2002;
8. reviewed the historical market prices and trading volume for WMS' publicly traded securities;
9. reviewed other publicly available financial data for the Company and certain companies that we deem
comparable to the Company;
10. conducted such other studies, analyses and investigations as we have deemed appropriate.
</TABLE>
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material
adverse change in the assets, financial condition, business or prospects of the
Company since the date of the most recent financial statements made available to
us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not
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made an independent appraisal of any of the properties or assets of the Company.
Our opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion as of
the date of this letter that, assuming the Transaction had been consummated as
proposed, immediately after and giving effect to the Transaction:
(a) on a pro forma basis, the fair value and present fair saleable
value of the Company's assets would exceed the Company's stated liabilities
and identified contingent liabilities;
(b) the Company should be able to pay or refinance its debts as they
become absolute and mature; and
(c) the capital remaining in the Company after the Transaction would
not be unreasonably small for the business in which the Company is engaged,
as management has indicated it is now conducted and is proposed to be
conducted following the consummation of the Transaction.
This Opinion is furnished solely for your benefit and may not be relied
upon by any other person without our express, prior written consent. This
Opinion is delivered to each recipient subject to the conditions, scope of
engagement, limitations and understandings set forth in this Opinion and our
engagement letter dated October 31, 1996, and subject to the understanding that
the obligations of Houlihan Lokey in the Transaction are solely corporate
obligations, and no officer, director, employee, agent, shareholder or
controlling person of Houlihan Lokey shall be subjected to any personal
liability whatsoever to any person, nor will any such claim be asserted by or on
behalf of you or your affiliates.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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ANNEX III
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WHG RESORTS & CASINOS INC.
WHG Resorts & Casinos Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is WHG Resorts & Casinos Inc. and the
name under which the corporation was originally organized was Williams
Hotel Corporation. The date of filing of its original Certificate of
Incorporation with the Secretary of State was June 13, 1983.
2. This Amended and Restated Certificate of Incorporation restates,
integrates and further amends the Certificate of Incorporation, as amended,
of the corporation by amending and restating in its entirety such
Certificate of Incorporation, as amended.
3. This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the corporation and by the sole
stockholder of the corporation in accordance with Section 245 of the
General Corporation Law of the State of Delaware.
4. The Certificate of Incorporation, as amended, of the corporation,
as amended and restated herein, shall at the effective time of this Amended
and Restated Certificate of Incorporation read as follows:
FIRST: The name of the corporation (hereinafter called the
'Corporation') is: WHG Resorts & Casinos Inc.
SECOND: The address, including street, number, city and county, of
the registered office of the Corporation in the State of Delaware is:
1209 Orange Street, City of Wilmington, County of New Castle, and the
name of the registered agent of the Corporation in the State of Delaware
is: The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The Corporation is to have perpetual existence.
FIFTH: 5.1. The aggregate number of shares that the Corporation
shall have authority to issue is 17,000,000 shares, of which (a)
12,000,000 shares shall be voting common stock, par value $.01 per share
(the 'Voting Common Stock'); 3,000,000 shares shall be Class A non-
voting common stock, par value $.01 per share (the 'Non-Voting Common
Stock'); and (c) 2,000,000 shares shall be preferred stock, par value
$.01 per share (the 'Preferred Stock').
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of each class of stock of the
Corporation shall be the same in all respects, as though shares of one class,
except as follows:
5.2. Issuance
5.2.1 Authority is hereby expressly granted to and vested in the Board
of Directors of the Corporation to provide for the issue of the Non-Voting
Common Stock in one or more series and in connection therewith to fix by
resolution or resolutions providing for the issue of such series of the
number of shares to be included in such series and the Board of Directors
is authorized to determine any or all of the following, and the shares of
each series may vary from the shares of any other series in any or all of
the following aspects:
5.2.1.1 The number of shares of such series (which may subsequently
be increased, except as otherwise provided by a resolution or
resolutions of the Board of Directors providing for
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the issue of such series, or decreased to a number not less than the
number of shares then outstanding) and the distinctive designation
thereof;
5.2.1.2 The time or times during which, the price or prices at
which, and any other terms or conditions on which the shares of such
series may be redeemed, if redeemable; and
5.2.1.3 Whether shares of such series shall be convertible into or
exchangeable for shares of Voting Common Stock or other securities and
the terms and conditions, if any, applicable to such right.
5.2.2 Except as otherwise provided in this Section 5.2 or as otherwise
required by applicable law, the holders of shares of Non-Voting Common
Stock shall have no right to vote on any matters to be voted on by the
stockholders of the Corporation; provided that the holders of shares of
Non-Voting Common Stock shall have the right to vote as a separate class on
any merger or consolidation of the Corporation with or into another entity
or entities, or any recapitalization or reorganization, in each case in
which shares of Non-Voting Common Stock would receive or be exchanged for
consideration different on a per share basis than the consideration
received with respect to or in exchange for shares of Voting Common Stock
or would otherwise be treated differently from shares of Voting Common
Stock in connection with such transaction, except that shares of Non-Voting
Common Stock may, without such a separate class vote, receive or be
exchanged for non-voting securities that are otherwise identical on a per
share basis in amount and form to the voting securities received with
respect to or exchanged for the shares of Voting Common Stock so long as
(A) such non-voting securities are convertible into such voting securities
on the same terms as shares of Non-Voting Common Stock may be convertible
into shares of Voting Common Stock and (B) all other consideration is equal
on a per share basis. In no event shall holders of shares of Non-Voting
Common Stock be required to receive voting securities pursuant to any such
merger, consolidation, recapitalization or reorganization. Rather,
appropriate provision shall be made so that holders of shares of Non-Voting
Common Stock have the right to receive non-voting securities that are
otherwise identical to any voting securities offered in such merger,
consolidation, recapitalization or reorganization and that are convertible
into such voting securities on the same basis as shares of Non-Voting
Common Stock may be convertible into shares of Voting Common Stock.
5.2.3 As and when dividends are declared or paid thereon, whether in
cash, property or securities of the Corporation, the holders of shares of
Voting Common Stock and shares of Non-Voting Common Stock shall be entitled
to participate in such dividends ratably on a per share basis; provided
that (i) if dividends are declared that are payable in shares of Voting
Common Stock or shares of Non-Voting Common Stock then dividends shall be
declared that are payable at the same rate on both classes of stock and the
dividends payable in shares of Voting Common Stock (or rights to subscribe
for or purchase the same) shall be payable to holders of that class of
stock and the dividends payable in shares of Non-Voting Common Stock (or
rights to subscribe for or purchase the same) shall be payable to holders
of that class of stock and (ii) if the dividends consist of other voting
securities of the Corporation, the Corporation shall make available to each
holder of shares of Non-Voting Common Stock, at such holder's request,
dividends consisting of non-voting securities of the Corporation that are
otherwise identical to the voting securities and that are convertible into
or exchangeable for such voting securities on the same terms as shares of
Non-Voting Common Stock may be convertible into shares of Voting Common
Stock.
5.3. Issuance
5.3.1 Authority is hereby expressly granted to and vested in the Board
of Directors of the Corporation to provide for the issue of the Preferred
Stock in one or more series and in connection therewith to fix by
resolution or resolutions providing for the issue of such series of the
number of shares to be included in such series and the designations and
such voting powers, full or limited, or no voting powers, and such of the
preferences and relative, participating, operational or other special
rights, and the qualifications, limitations or restrictions thereof, of
such series of the Preferred Stock which are not fixed by this Amended and
Restated Certificate of Incorporation, to the full extent now or hereafter
permitted by the General Corporation Law of the State of Delaware. Without
limiting the generality of the grant of authority contained in the
preceding
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sentence, the Board of Directors is authorized to determine any or all of
the following, and the shares of each series may vary from the shares of
any other series in any or all of the following aspects:
5.3.1.1 The number of shares of such series (which may subsequently
be increased, except as otherwise provided by a resolution or
resolutions of the Board of Directors providing for the issue of such
series, or decreased to a number not less than the number of shares then
outstanding) and the distinctive designation thereof;
5.3.1.2 The dividend rights, if any, of such series, the dividend
preferences, if any, as between such series and any other class or
series of stock, whether and the extent to which shares of such series
shall be entitled to participate in dividends with shares of any other
series or class of stock, whether and the extent to which dividends on
such series shall be cumulative, and any limitations, restrictions or
conditions on the payment of such dividends;
5.3.1.3 The time or times during which, the price or prices at
which, and any other terms or conditions on which the shares of such
series may be redeemed, if redeemable;
5.3.1.4 The rights of such series, and the preferences, if any, as
between such series and any other class or series of stock, in the event
of any voluntary or involuntary liquidation, dissolution or winding-up
of the Corporation and whether and the extent to which shares of any
such series shall be entitled to participate in such event with any
other class or series of stock;
5.3.1.5 The voting powers, if any, in addition to the voting powers
prescribed by law of shares of such series, and the terms of exercise of
such voting powers;
5.3.1.6 Whether shares of such series shall be convertible into or
exchangeable for shares of any other series or class of stock, or any
other securities, and the terms and conditions, if any, applicable to
such right; and
5.3.1.7 The terms and conditions, if any, of any purchase,
retirement or sinking fund which may be provided for the shares of such
series.
5.3.2 Except as otherwise provided by law, the Board of Directors
shall have full authority to issue, at any time and from time to time,
shares of the Corporation's Voting Common Stock in any manner and amount
and for such consideration as it, in its absolute discretion, shall
determine.
5.4. Voting Rights
Except as otherwise expressly required by law, in all matters as to which
the vote of stockholders of the Corporation shall be required to be taken, the
holders of the shares of the Voting Common Stock shall be entitled to one vote
for each share of such stock held by them. Except as otherwise expressly
required by law, in all matters as to which the vote of stockholders of the
Corporation shall be required to be taken, the holders of the Preferred Stock
shall have such voting rights as may be determined from time to time by the
Board of Directors, by resolution or resolutions providing for the issuance of
such Preferred Stock or any series thereof. Except as otherwise expressly
required by law, the holders of Non-Voting Common Stock shall not have voting
rights.
5.5. Conversion
5.5.1 The Board of Directors of the Corporation, by the resolution adopted
for the purpose of establishing any series of Preferred Stock, may fix and
determine the ratios and the terms and conditions under which such series of
Preferred Stock may or shall be converted into shares of another series of
Preferred Stock or shares of any other class of stock of the Corporation.
5.5.2 The Board of Directors of the Corporation, by the resolution adopted
for the purpose of establishing any series of Non-Voting Common Stock, may fix
and determine the terms and conditions under which such series of Non-Voting
Common Stock may or shall be converted into shares of another series of
Non-Voting Common Stock or Voting Common Stock.
5.5.3 No fractional shares shall be issued upon any conversion pursuant to
this Section 5.5. In lieu thereof, the Corporation shall (1) pay to the holders
otherwise entitled to fractional shares cash, equal to the market value thereof
as at the date of conversion, such market value to be determined in good
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faith by the Board of Directors of the Corporation; or (2) issue and deliver to
them scrip or warrants which shall entitle the holder thereof to receive a
certificate for a full share upon surrender of such scrip or warrants
aggregating a full share, such scrip or warrants to be in such form and to
contain such provisions as shall be determined by the Board of Directors of the
Corporation. Upon conversion, no allowance or adjustment shall be made with
respect to shares of Non-Voting Common Stock or Preferred Stock for cash
dividends declared but unpaid on such stock.
5.6. Dividends
5.6.1 The holders of the Preferred Stock shall be entitled to fixed
dividends when and as declared and at the rates determined by the resolution or
resolutions of the Board of Directors which establishe(s) the series to which
the rates shall apply. Said resolution or resolutions may determine whether the
said dividends shall be cumulative, the time fixed for payment thereof, whether
the said dividends shall be set aside or paid before, on a par with, or only
after, the dividends shall be set aside or paid on the Voting Common Stock and
Non-Voting Common Stock.
5.6.2 The holders of Voting Common Stock and Non-Voting Common Stock shall
be entitled to receive, as and when declared and made payable by the Board of
Directors, and after all dividends, current and accrued, shall have been paid or
declared and set apart for payment upon the Preferred Stock, to the extent the
Board of Directors shall have directed the dividends on Preferred Stock to be
paid, or declared and set apart for payment before the payment or setting apart
of dividends on the Voting Common Stock and Non-Voting Common Stock, such
dividends as may be declared by the Board of Directors from time to time. Except
as otherwise provided in Section 5.2.3 hereof, each share of Voting Common Stock
and Non-Voting Common Stock shall in all ways be treated equally in respect of
dividends.
5.7. Liquidation or Dissolution
5.7.1 The Board of Directors, by the resolution or resolutions which
establishe(s) a series of Preferred Stock, shall determine a fixed liquidation
amount applicable to said series. Said resolution or resolutions may determine
(1) that said series shall participate in any distribution on liquidation,
dissolution or winding-up of the affairs of the Corporation before the payment,
in full or in part, of the fixed liquidation amounts payable with respect to the
Voting Common Stock and Non-Voting Common Stock; (2) that said series shall
participate in any distribution on liquidation, dissolution or winding-up of the
affairs of the Corporation, ratably with the Voting Common Stock and Non-Voting
Common Stock (or any other series of Preferred Stock having liquidation rights
on a par with the Voting Common Stock and Non-Voting Common Stock) in proportion
to amounts equal to the fixed liquidation amounts of the shares as participating
plus dividends thereon which have been declared and are unpaid; or (3) that said
shares shall participate in any distribution on liquidation, dissolution or
winding-up of the affairs of the Corporation only after the payment, in full or
in part, of the fixed liquidation amounts plus dividends thereon which have been
declared and are unpaid on the Voting Common Stock and Non-Voting Common Stock
(and any series of Preferred Stock having liquidation rights on a par with the
Voting Common Stock and Non-Voting Common Stock). Said shares shall have
liquidation preferences and rights as determined in said resolution or
resolutions.
5.7.2 In the event of liquidation or dissolution the holders of the Voting
Common Stock and Non-Voting Common Stock shall be entitled to receive out of the
assets of the Corporation, after payment of debts and liabilities, a pro rata
distribution in proportion to the respective number of shares of Voting Common
Stock and Non-Voting Common Stock held by each of them; provided, however, (1)
in the event the Board of Directors of the Corporation establishes one or more
series of Preferred Stock entitled to a distribution on liquidation, dissolution
or winding-up of the affairs of the Corporation before any such distribution
shall be made with respect to the Voting Common Stock and Non-Voting Common
Stock; such liquidation preference in favor of Preferred Stock shall be paid
before the liquidation amount payable to the holders of Voting Common Stock and
Non-Voting Common Stock pursuant to this subparagraph 5.7.2 shall be paid; and
(2) in the event the Board of Directors of the Corporation establishes one or
more series of Preferred Stock entitled to participate ratably with holders of
shares of the Voting Common Stock in any distribution on liquidation,
dissolution or winding-up of the affairs of the Corporation, the holders of the
Voting Common Stock and Non-Voting
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Common Stock shall participate ratably with each said series of Preferred Stock
so entitled as set forth in subparagraph 5.7.1(2) above.
SIXTH: For the management of the business and for the conduct of the
affairs of the Corporation, the powers of the Corporation and its directors and
stockholders, it is provided:
The business and affairs of the Corporation shall be managed by, or
under the direction of, the Board of Directors of the Corporation comprised
as follows:
6.1. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at
the time any such resolution is presented to the Board for adoption) but
in no event shall the total number be less than five (5) nor more than
fifteen (15).
6.2. Effective as of the effective date of this Amended and
Restated Certificate of Incorporation, the directors shall be divided
into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of Directors.
The term of the initial Class I directors shall terminate on the date of
the 2000 annual meeting of stockholders; the term of the initial Class
II directors shall terminate on the date of the 1999 annual meeting of
stockholders; and the term of the initial Class III directors shall
terminate on the date of the 1998 annual meetings of stockholders. At
each annual meeting of stockholders beginning in 1998, successors to the
class of directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of directors is changed,
any increase or decrease in directorships shall be apportioned among the
classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class
elected to fill a vacancy resulting from an increase in such class shall
hold office only until the next election of directors of that class by
the stockholders of the Corporation, but in no case will a decrease in
the number of directors shorten the term of any incumbent director.
Directors shall hold office until the annual meeting for the year in
which their terms expire and until their successors shall be duly
elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors, howsoever resulting, including
through an increase in the number of directors, shall only be filled by
the affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum, or by the sole remaining director.
Any director elected to fill a vacancy shall hold office for the same
remaining term as that of his or her predecessor, or if such director
was elected as a result of an increase in the number of directors, then
for the term indicated in this subsection 6.2 of this Article SIXTH.
6.3. Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation
shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the election,
term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Amended and
Restated Certificate of Incorporation, or the resolution or resolutions
adopted by the Board of Directors creating such class or series, as the
case may be, applicable thereto, and such directors so elected shall not
be divided into classes pursuant to this Article SIXTH unless expressly
provided by such terms.
6.4. Subject to the rights of holders of any class or series of
Preferred Stock,
6.4.1 nominations for the election of directors, and
6.4.2 business proposed to be brought before an annual meeting of
stockholders
may be made by the Board of Directors or proxy committee appointed by the Board
of Directors or by any stockholder entitled to vote in the election of directors
generally. However, any such stockholder may nominate one or more persons for
election as directors at an annual meeting or propose business to be brought
before an annual meeting, or both, only if such stockholder has given timely
notice in proper written form of his or her intent to make such nomination or
nominations or to propose such business. To be timely, a stockholder's notice
must be delivered to or mailed and received by the
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Secretary of the Corporation 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. To be in proper written form, a
stockholder's notice to the Secretary shall set forth:
6.4.2.1 the name and address of the stockholder who intends to
make the nominations or propose the business and, as the case may be,
of the person or persons to be nominated or of the business to be
proposed;
6.4.2.2 a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice;
6.4.2.3 if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder;
6.4.2.4 such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee
been nominated, or intended to be nominated, or the matter been
proposed, or intended to be proposed, by the Board of Directors, and
such other information about the nominee as the Board of Directors
deems appropriate, including, without limitation, the nominee's age,
business and residence addresses, principal occupation and the class
and number of shares of Voting Common Stock beneficially owned by the
nominee, or such other information about the business to be proposed
and about the stockholder making such business proposal before the
annual meeting as the Board of Directors deems appropriate,
including, without limitation, the class and number of shares of
Voting Common Stock beneficially owned by such stockholder; and
6.4.2.5 if applicable, the consent of each nominee to serve as
director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
SEVENTH: In accordance with Section 141 of the General Corporation Law of
the State of Delaware any or all of the directors of the Corporation may be
removed from office at any time, but only for cause. A director may be removed
only by the affirmative vote of the holders of eighty percent (80%) of the
outstanding stock of the Corporation then entitled to vote generally for the
election of directors, considered for purposes of this Article SEVENTH as one
class. Cause is defined 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 his or
her duty to the Corporation by a court of competent jurisdiction and such
adjudication is no longer subject to direct appeal.
EIGHTH: In furtherance, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
change, add to or repeal the By-laws of the Corporation and shall have the right
(which, to the extent exercised, shall be exclusive) to establish the rights,
powers, duties, rules and procedures that from time to time shall govern the
Board of Directors and each of its members, including, without limitation, the
vote required for any action by the Board of Directors, and that from time to
time shall affect the directors' powers to manage the business and affairs of
the Corporation, provided that such By-laws are not inconsistent with the
General Corporation Law of the State of Delaware or this Amended and Restated
Certificate of Incorporation, and such By-laws relate to the business of the
Corporation, the conduct of its affairs, and its rights or powers or the rights
or powers of its stockholders, directors, officers or employees. In addition,
the By-
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laws of the Corporation may be adopted, repealed, altered, amended or rescinded
by the affirmative vote of eighty percent (80%) of the outstanding stock of the
Corporation entitled to vote thereon, provided that such By-laws are not
inconsistent with the General Corporation Law of the State of Delaware or this
Amended and Restated Certificate of Incorporation, and such By-laws relate to
the business of the Corporation, the conduct of its affairs, and its rights or
powers or the rights or powers of its stockholders, directors, officers or
employees. In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the General
Corporation Law of the State of Delaware, this Amended and Restated Certificate
of Incorporation, and any By-laws adopted by the stockholders; provided,
however, that no By-laws hereafter adopted by the stockholders shall invalidate
any prior act of the directors which would have been valid if such By-laws had
not been adopted.
NINTH: Except as otherwise provided in the resolutions of the Board of
Directors designating any series of Preferred Stock, any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of stockholders and may not be effected
by a consent in writing by any such stockholders. Subject to the rights of
holders of any class or series of Non-Voting Common Stock or Preferred Stock,
special meetings of stockholders may be called only by the Chairman of the Board
or President of the Corporation or by the Board of Directors pursuant to a
resolution adopted by a majority vote of the total number of authorized
directors (whether or not there exists any vacancies in previously authorized
directorships) at the time any such resolutions are presented to the Board for
adoption. Stockholders of the Corporation are not permitted to call a special
meeting or to require that the Board call a special meeting of stockholders. The
business permitted at any special meeting of stockholders shall be limited to
the business brought before the meeting by or at the direction of the Board.
TENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the General Corporation Law of the State of
Delaware or on the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of Section 279 of
the General Corporation Law of the State of Delaware order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
ELEVENTH: To the fullest extent permitted by the General Corporation Law of
the State of Delaware, as the same may be amended and supplemented, no director
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
TWELFTH: The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, including but not limited to,
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, (i) indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said section
(including attorneys' fees), and (ii) advance expenses to any and all said
persons. The indemnification and advancement of expenses provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in their official capacities and as to
action in another capacity while holding such offices, and shall continue as to
persons who have ceased to be directors, officers,
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employees or agents and shall inure to the benefit of the heirs, executors and
administrators of such persons.
THIRTEENTH: Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation or the By-laws of this Corporation to the contrary
(and notwithstanding the fact that a lesser percentage or separate class vote
may be specified by law, this Amended and Restated Certificate of Incorporation,
the By-laws of this Corporation or any Non-Voting Common Stock or Preferred
Stock Designation), Articles SIXTH, SEVENTH, EIGHTH, NINTH, TENTH, ELEVENTH and
TWELFTH hereby shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of all the
outstanding stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class. Notwithstanding anything
contained in this Amended and Restated Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least eighty percent (80%)
of the voting power of all the stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to alter, amend or adopt any provision inconsistent with or repeal
this Article THIRTEENTH.
FOURTEENTH: The invalidity or unenforceability of this Amended and Restated
Certificate of Incorporation or any portion hereof, or of any action taken
pursuant to this Amended and Restated Certificate of Incorporation shall not
affect the validity or enforceability of any other provision of this Amended and
Restated Certificate of Incorporation or any other portion hereof, or any other
action taken pursuant hereto.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its Chairman of the Board and Chief
Executive Officer, this 8th day of April, 1997.
WHG RESORTS & CASINOS INC.
By: /s/ LOUIS J. NICASTRO
...................................
Name: Louis J. Nicastro
Title: Chairman of the Board and
Chief Executive Officer
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ANNEX IV
AMENDED AND RESTATED
BY-LAWS
OF
WHG RESORTS & CASINOS INC.
(Formed under the laws of the State of Delaware)
------------------------
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meeting. A meeting of the stockholders shall be held
annually for the election of directors, if necessary, and/or the transaction of
other business on such date in each year as may be determined by the Board of
Directors.
SECTION 2. Special Meetings. Special meetings of stockholders may be called
only by the Chairman of the Board or President of the Corporation or by the
Board of Directors pursuant to a resolution adopted by a majority vote of the
total number of authorized directors (whether or not there exists any vacancies
in previously authorized directorships at the time any such resolutions are
presented to the Board for adoption). Stockholders of the Corporation are not
permitted to call a special meeting or to require that the Board call a special
meeting of stockholders. The business permitted at any special meeting of
stockholders shall be limited to the business brought before the meeting by or
at the direction of the Board.
SECTION 3. Place of Meetings. Meetings of stockholders shall be held at
such place, within or without the State of Delaware, as may be fixed by the
Board of Directors. If no place is so fixed, such meetings shall be held at the
office of the Corporation in the State of Delaware.
SECTION 4. Notice of Meetings. Notice of each meeting of stockholders shall
be given in writing and shall state the place, date and hour of the meeting, and
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Notice of a special meeting shall indicate that it is being issued
by, or at the direction of, the person or persons calling the meeting.
If, at any meeting, action is proposed to be taken which would, if taken,
entitle objecting stockholders to receive payment for their shares, the notice
shall include a statement of that purpose and to that effect.
A copy of the notice of each meeting shall be given, personally or by first
class mail, not less than 10 nor more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice is given when deposited in the United States mail, with postage thereon
prepaid, directed to the stockholder at his address as it appears on the record
of stockholders. In the event of a change of address, the stockholder shall file
with the Secretary of the Corporation a written request that his address be
changed in the records of the Corporation, in which event notices to him shall
be directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, or if the adjourned meeting is more than 30 days
after the adjournment, a notice of the adjourned meeting shall be given to each
stockholder of record on the new record date entitled to notice under the
preceding paragraphs of this Section 4 of this Article I.
SECTION 5. Nominations of Directors and Stockholder Proposals. Nominations
for the election of directors and business proposed to be brought before an
annual meeting of stockholders may be made by the Board of Directors or proxy
committee appointed by the Board of Directors or by any
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stockholder entitled to vote in the election of directors generally. However,
any such stockholder may nominate one or more persons for election as directors
at an annual meeting or propose business to be brought before an annual meeting,
or both, only if such stockholder has given timely notice in proper written form
of his or her intent to make such nomination or nominations or to propose such
business. To be timely, a stockholder's notice must be delivered to or mailed
and received by the Secretary of the Corporation 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. To be in proper
written form, a stockholder's notice to the Secretary shall set forth:
(1) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
(2) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(3) if applicable, a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(4) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed, by the Board of Directors, and such other information about the
nominee as the Board of Directors deems appropriate, including, without
limitation, the nominee's age, business and residence addresses, principal
occupation and the class and number of shares of voting common stock, par
value $.01 per share (the 'Voting Common Stock'), beneficially owned by the
nominee, or such other information about the business to be proposed and
about the stockholder making such business proposal before the annual
meeting as the Board of Directors deems appropriate, including, without
limitation, the class and number of shares of Voting Common Stock
beneficially owned by such stockholder; and
(5) if applicable, the consent of each nominee to serve as director of
the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
SECTION 6. Waiver of Notice. Notice of a meeting need not be given to any
stockholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any stockholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
SECTION 7. Inspectors of Election. The Board of Directors, in advance of
any stockholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a stockholders' meeting may, and on the request of any
stockholder entitled to vote thereat shall, appoint two inspectors. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board of Directors in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive votes or
ballots, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes or ballots, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person
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presiding at the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them.
SECTION 8. List of Stockholders at Meetings. A list of stockholders as of
the record date, certified by the Secretary or Assistant Secretary or by a
transfer agent, shall be prepared at least 10 days prior to each meeting. Such
list shall be open to the examination of any stockholder for purposes germane to
the meeting and may be inspected by any stockholder who is present. If the right
to vote at any meeting is challenged, the inspectors of election, or person
presiding thereat, shall require such list of stockholders to be produced as
evidence of the right of the persons challenged to vote at such meeting, and all
persons who appear from such list to be stockholders entitled to vote thereat
may vote at such meeting.
SECTION 9. Qualification of Voters. Unless otherwise provided in the
Amended and Restated Certificate of Incorporation of the Corporation as the same
may be hereafter amended (the 'Certificate of Incorporation') or any resolution
or resolutions, which may be adopted by the Board of Directors from time to
time, governing the issuance of preferred stock or any series thereof or
non-voting common stock or any series thereof, every stockholder of record of
Voting Common Stock shall be entitled at every meeting of stockholders of Voting
Common Stock to one vote for every share standing in his name on the record of
stockholders.
Treasury shares as of the record date and shares held as of the record date
by another domestic or foreign corporation of any type or kind, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held as of the record date by the Corporation, shall not be
shares entitled to vote or to be counted in determining the total number of
outstanding shares.
Shares held by an administrator, executor, guardian, conservator,
committee, trustee or other fiduciary, may be voted by him, either in person or
by proxy, without transfer of such shares into his name.
Shares standing in the name of another domestic or foreign corporation of
any type or kind may be voted by such officer, agent or proxy as the by-laws of
such corporation may provide, or, in the absence of such provision, as the board
of directors of such corporation may determine.
A stockholder shall not sell his vote or issue a proxy to vote to any
person for any sum of money or anything of value except as permitted by law.
SECTION 10. Quorum of Stockholders. The holders of a majority of the shares
entitled to vote thereat shall constitute a quorum at a meeting of stockholders
for the transaction of any business, provided that when a specified item of
business is required to be voted on by a class or series, voting as a class, the
holders of a majority of the shares of such class or series shall constitute a
quorum for the transaction of such specified item of business except as may
otherwise be provided in the Certificate of Incorporation.
When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any stockholders.
The stockholders who are present, in person or by proxy, and who are
entitled to vote may, by a majority of votes cast, adjourn the meeting despite
the absence of a quorum.
SECTION 11. Proxies. Every stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy.
Every proxy must be signed by the stockholder or his attorney-in-fact. No
proxy shall be valid after the expiration of three years from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except as otherwise provided by law.
Except as otherwise required by applicable law, the authority of the holder
of a proxy to act shall not be revoked by the incompetence or death of the
stockholder who executed the proxy unless before the authority is exercised,
written notice of an adjudication of such incompetence or of such death is
received by the Secretary or any Assistant Secretary.
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SECTION 12. Vote of Stockholders. Directors shall, except as otherwise
required by law, be elected by a plurality of the votes cast at a meeting of
stockholders by the holders of shares entitled to vote in the election.
Whenever any corporate action, other than the election of directors or
except as otherwise required by law or the Certificate of Incorporation, is to
be taken by vote of stockholders, it shall, be authorized by a majority of the
votes cast at a meeting of stockholders by the holders of shares entitled to
vote thereon.
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing by any such
stockholders.
SECTION 13. Fixing Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or for the purpose of determining stockholders entitled
to receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of stockholders. Such date shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
When a determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Power of Board and Qualification of Directors. The business and
affairs of the Corporation shall be managed by, or under the direction of, the
Board of Directors. Each director shall be at least eighteen (18) years of age.
SECTION 2. Number of Directors. The number of directors shall be fixed from
time to time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any such resolution is presented to the Board for adoption) but in no event
shall the total number be less than five nor more than 15. Until otherwise fixed
by the directors, the number of directors shall be five, divided into three
classes as described in Section 3 of this Article II.
SECTION 3. Election and Term of Directors. Effective as of the adoption of
these By-law by the Corporation and the filing of the Certificate of
Incorporation with the Secretary of State of the State of Delaware, the
directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of one-third
of the total number of directors constituting the entire Board of Directors. The
term of the initial Class I directors shall terminate on the date of the 2000
annual meeting of stockholders; the term of the initial Class II directors shall
terminate on the date of the 1999 annual meeting of stockholders; and the term
of the initial Class III directors shall terminate on the date of the 1998
annual meeting of stockholders. At each annual meeting of stockholders beginning
in 1998, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease in directorships shall be apportioned among
the classes so as to maintain the number of directors in each class as nearly
equal as possible, and any additional directors of any class elected to fill a
vacancy resulting from an increase in such class shall hold office only until
the next election of directors of that class by the stockholders of the
Corporation, but in no case will a decrease in the number of directors shorten
the term of any incumbent director. Directors shall hold office until the annual
meeting for the year in which their terms expire and until their successors
shall be duly elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any vacancy on
the Board of Directors, howsoever resulting, including through an increase in
the number of directors, shall only be filled by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum,
or by the sole remaining director. Any director
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elected to fill a vacancy shall hold office for the same remaining term as that
of his or her predecessor, or if such director was elected as a result of an
increase in the number of directors, then for the term indicated in this Section
3 of this Article II.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Certificate of Incorporation, these By-laws or the resolution or
resolutions adopted by the Board of Directors creating such class or series, as
the case may be, applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Section 3 of this Article II unless
expressly provided by such terms.
SECTION 4. Quorum of Directors and Action by the Board. A majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business, except that when a Board of one director is authorized, then one
director shall constitute a quorum, and, except where otherwise provided by
these By-laws, the vote of a majority of the directors present at a meeting at
the time of such vote, if a quorum is then present, shall be the act of the
Board.
Any action required or permitted to be taken by the Board of Directors or
any committee thereof may be taken without a meeting if all members of the Board
or the committee consent in writing to the adoption of a resolution authorizing
the action. The resolution and the written consent thereto by the members of the
Board or committee shall be filed with the minutes of the proceedings of the
Board or committee.
SECTION 5. Meetings of the Board. An annual meeting of the Board of
Directors shall be held in each year directly after the annual meeting of
stockholders. Regular meetings of the Board shall be held at such times as may
be fixed by the Board. Special meetings of the Board may be held at any time
upon the call of the President or any two directors.
Meetings of the Board of Directors shall be held at such places as may
fixed by the Board for annual and regular meetings and in the notice of meeting
for special meetings. If no place is so fixed, meetings of the Board shall be
held at the office of the Corporation.
No notice need be given of annual or regular meetings of the Board of
Directors. Notice of each special meeting of the Board shall be given to each
director either by mail not later than noon, Eastern time, on the third day
prior to the meeting or by telegram, written message or orally to the director
not later than noon, Eastern time, on the day prior to the meeting. Notices are
deemed to have been given: by mail, when deposited in the United States mail; by
telegram at the time of filing; and by messenger and orally at the time of
delivery. Notices by mail, telegram or messenger shall be sent to each director
at the address designated by him for that purpose, or, if none has been so
designated, at his last known residence or business address.
Notice of a meeting of the Board of Directors need not to be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any meeting
of the Board of Directors.
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place. Notice of any adjournment of
a meeting to another time or place shall be given, in the manner described
above, to the directors who were not present at the time of the adjournment and,
unless such time and place are announced at the meeting, to the other directors.
SECTION 6. Resignations. Any director of the Corporation may resign at any
time by giving written notice to the Board of Directors, the President or the
Secretary of the Corporation. Such resignation shall take effect at the time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 7. Removal of Directors. In accordance with Section 141 of the
General Corporation Law of the State of Delaware any or all of the directors of
the Corporation may be removed from office at
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any time, but only for cause. A director may be removed only by the affirmative
vote of the holders of eighty percent (80%) of the outstanding stock of the
Corporation then entitled to vote generally for the election of directors,
considered for purposes of this Section 7 of this Article II as one class. Cause
is defined 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 his duty to the
Corporation by a court of competent jurisdiction and such adjudication is no
longer subject to direct appeal.
SECTION 8. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason, may be filled only
by the affirmative vote of a majority of the remaining directors then in office,
even if less than a quorum or by the sole remaining director. Any director
elected to fill a vacancy shall hold office for the same remaining term as that
of his predecessor, or if such director was elected as a result of an increase
in the number of directors, then for the term indicated in Section 3 of this
Article II.
SECTION 9. Executive and Other Committees of Directors. The Board of
Directors, by resolution adopted by a majority of the entire Board, may
designate from among its members an executive committee and other committees
each consisting of one or more directors and each of which, to the extent
provided in the resolution, shall have all the authority of the Board, except
that no such committee shall have authority as to the following matters:
(1) Approving or adopting, or recommending to the stockholders of the
Corporation, any action or matter expressly required by the General
Corporation Law of the State of Delaware to be submitted to stockholders
for approval; or
(2) Adopting, amending or repealing these By-laws.
pursuant to Section 253 of the General Corporation Law of the State of Delaware.
The Board of Directors may designate one or more directors as alternate
members of any such committee, who may replace any absent or disqualified member
or members at any meeting of such committee.
Unless a greater proportion is required by the resolution designating a
committee, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of the members present at a meeting at the time of such vote,
if a quorum is then present, shall be the act of such committee.
In the absence or disqualification of a member of any committee, the member
or members present at any meeting of such committee and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Each such committee shall serve at the pleasure of the Board of Directors.
SECTION 10. Compensation of Directors. The Board of Directors shall have
authority to fix the compensation of directors for services in any capacity.
ARTICLE III
OFFICERS
SECTION 1. Officers. The Board of Directors, as soon as may be practicable
after the annual election of directors, shall elect a Chairman of the Board, one
or more Vice Chairman, a President, a Secretary and a Treasurer, and from time
to time may elect or appoint one or more Vice Presidents or such other officers
as it may determine. Any two or more offices may be held by the same person.
SECTION 2. Other Officers. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
SECTION 3. Compensation. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
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SECTION 4. Term of Office and Removal. Each officer shall hold office for
the term for which he is elected or appointed, and until his successor has been
elected or appointed and qualified. Unless otherwise provided in the resolution
of the Board of Directors electing or appointing an officer, his term of office
shall extend to and expire at the meeting of the Board following the next annual
meeting of stockholders. Any officer may be removed by the Board, with or
without cause, at any time. Removal of an officer without cause shall be without
prejudice to his contract rights, if any, and the election or appointment of an
officer shall not of itself create contract rights.
SECTION 5. Power and Duties.
(a) Chairman of the Board: The Chairman of the Board shall preside at all
meetings of the Board of Directors and, in the absence of the Chief Executive
Officer, of the stockholders and shall have such powers and duties as the Board
of Directors assigns to him.
(b) Vice Chairman: The Vice Chairman of the Board shall, in the absence of
the Chairman of the Board, preside at all meetings of the Board of Directors
and, in the absence of the Chairman of the Board and the Chief Executive
Officer, of the stockholders and shall have such powers and duties as the Board
of Directors and the Chairman of the Board assign to him.
(c) Chief Executive Officer: The Chief Executive Officer of the Corporation
shall be responsible for the general and active management of the business of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall also preside at all meetings of the
stockholders.
He shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. The Chief Executive Officer shall counsel
freely with the President and shall exercise such other powers, shall perform
such other duties and have such other responsibilities as may be given from time
to time by the Board of Directors or the By-laws of the Corporation.
(d) President: The President shall have responsibility for general
operation of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors or Chief Executive Officer are carried
into effect. In the absence of the Chairman of the Board or a Vice-Chairman or
in the event of their inability or refusal to act, the President shall perform
the duties and exercise the powers of the Chairman of the Board. The President
shall perform such other duties and have such other responsibilities as from
time to time may be determined by the Board of Directors.
(e) Chief Operating Officer: The Chief Operating Officer shall have
responsibility for overseeing the day to day operations of the Corporation and
such other responsibilities as the Chief Executive Officer or the President may
from time to time prescribe.
(f) Chief Financial Officer: The Chief Financial Officer shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors.
He shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board, the Chief Executive Officer, the President
and the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as the Chief Financial
Officer and of the financial condition of the Corporation.
If required by the Board of Directors, he shall give the Corporation a bond
(which shall be renewed every six years) in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
(g) Vice Presidents: The Vice Presidents, in the order designated by the
Board of Directors, or in the absence of any designation, then in the order of
their election, during the absence or disability of or
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refusal to act by the President, shall perform the duties and exercise the
powers of the President, and shall perform such other duties as the Board of
Directors shall prescribe.
(h) Treasurer and Assistant Treasurer: The Treasurer shall have such
responsibilities as the Chief Financial Officer may from time to time prescribe.
The Assistant Treasurer, or if there shall be more than one, the Assistant
Treasurers in the order determined by the Board of Directors (or of there be no
such determination, then in the order of their election), shall, in the absence
of the Treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Chief Financial Officer may from time
to time prescribe.
(i) Secretary and Assistant Secretary: The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall have
custody of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there be no
such determination, then in the order of their election), shall, in the absence
of the Secretary or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
SECTION 6. Books to be Kept. The Corporation shall keep (a) correct and
complete books and records of account, (b) minutes of the proceedings of the
stockholders, Board of Directors and any committees of directors and (c) a
current list of the directors and officers and their residence addresses; and
the Corporation shall also keep at its office or at the office of its transfer
agent or registrar, if any, a record containing the names and addresses of all
stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
The Board of Directors may determine whether and to what extent and at what
times and places and under what conditions and regulations any accounts, books,
records or other documents of the Corporation shall be open to inspection, and
no creditor, security holder or other person shall have any right to inspect any
accounts, books, records or other documents of the Corporation except as
conferred by statute or as so authorized by the Certificate of Incorporation,
these By-laws or a resolution or resolutions.
SECTION 7. Checks, Notes, etc. All checks and drafts on, and withdrawals
from the Corporation's accounts with banks or other financial institutions, and
all bills of exchange, notes and other instruments for the payment of money,
drawn, made, endorsed, or accepted by the Corporation, shall be signed on its
behalf by the person or persons thereunto authorized by, or pursuant to
resolution of, the Board of Directors.
ARTICLE IV
FORMS OF CERTIFICATES AND LOSS AND TRANSFER OF SHARES
SECTION 1. Forms of Share Certificates. The shares of the Corporation shall
be represented by certificates, in such forms as the Board of Directors may
prescribe, signed by the Chairman of the Board, the President or a Vice
President and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation or its employee. In case any
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officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of issue.
Each certificate representing shares issued by the Corporation shall set
forth upon the face or back of the certificate, or shall state that the
Corporation will furnish to any stockholder upon request and without charge, a
full statement of the designation, relative rights, preferences and limitations
of the shares of each class of shares, if more than one, authorized to be issued
and the designation, relative rights, preferences and limitations of each series
of any class of preferred shares authorized to be issued so far as the same have
been fixed, and the authority of the Board of Directors to designate and fix the
relative rights, preferences and limitations of other series.
Each certificate representing shares shall state upon the face thereof:
(1) That the Corporation is formed under the laws of the State of
Delaware;
(2) The name of the person or persons to whom issued; and
(3) The number and class of shares, and the designation of the series,
if any, which such certificate represents.
SECTION 2. Transfers of Shares. Shares of the Corporation shall be
transferable on the record of stockholders upon presentment to the Corporation
or a transfer agent of a certificate or certificates representing the shares
requested to be transferred, with proper endorsement on the certificate or on a
separate accompanying document, together with such evidence of the payment of
transfer taxes and compliance with other provisions of law as the Corporation or
its transfer agent may require.
SECTION 3. Lost, Stolen or Destroyed Share Certificates. No certificate for
shares of the Corporation shall be issued in place of any certificate alleged to
have been lost, destroyed or wrongfully taken, except, if and to the extent
required by the Board of Directors, upon:
(1) Production of evidence of loss, destruction or wrongful taking;
(2) Delivery of a bond indemnifying the Corporation and its agents
against any claim that may be made against it or them on account of the
alleged loss, destruction or wrongful taking of the replaced certificate or
the issuance of the new certificate;
(3) Payment of the expenses of the Corporation and its agents incurred
in connection with the issuance of the new certificate; and
(4) Compliance with such other reasonable requirements as may be
imposed.
ARTICLE V
OTHER MATTERS
SECTION 1. Corporate Seal. The Board of Directors may adopt a corporate
seal, alter such seal at pleasure, and authorize it to be used by causing it or
a facsimile to be affixed or impressed or reproduced in any other manner.
SECTION 2. Fiscal Year. The fiscal year of the Corporation shall be the 12
months ending June 30 or such other period as may be fixed by the Board of
Directors.
SECTION 3. Amendments. In furtherance, and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
alter, amend, change, add to or repeal the By-laws of the Corporation and shall
have the right (which, to the extent exercised, shall be exclusive) to establish
the rights, powers, duties, rules and procedures that from time to time shall
govern the Board of Directors and each of its members, including, without
limitation, the vote required for any action by the Board of Directors, and that
from time to time shall affect the directors' powers to manage the business and
affairs of the Corporation. In addition, the By-laws of the Corporation may be
adopted, repealed, altered, amended or rescinded by the affirmative vote of
eighty percent (80%) of the outstanding stock of the Corporation entitled to
vote thereon, provided that such By-laws are not inconsistent with the General
Corporation Law of the State of Delaware or the Certificate of Incorporation,
and such By-laws relate to the business of the Corporation, the conduct of its
affairs, and
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its rights or powers, or the rights or powers of its stockholders, directors,
officers or employees. In addition to the powers and authority hereinbefore or
by statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation, and
any By-laws adopted by the stockholders; provided, however, that no By-laws
hereafter adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-laws had not been adopted.
If any By-law regulating an impending election of directors is made,
altered, amended, changed, added or repealed by the Board of Directors, there
shall be set forth in the notice of the next meeting of stockholders for the
election of directors the By-law so made, altered, amended, changed or repealed,
together with a concise statement of the changes made.
SECTION 4. Indemnification. To the fullest extent permitted by the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented, no director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Delaware, including but not limited to, Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, (i) indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said section
(including attorneys' fees), and (ii) advance expenses to any and all said
persons. The indemnification and advancement of expenses provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any provision of the Certificate of Incorporation, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
such offices, and shall continue as to persons who have ceased to be directors,
officers, employees or agents and shall inure to the benefit of the heirs,
executors and administrators of such persons.
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ANNEX V
WHG RESORTS & CASINOS INC.
1997 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The 1997 Stock Option Plan (the 'Plan') is intended to provide a method
whereby 'Employees,' 'Directors' and 'Consultants and Advisers' of WHG Resorts &
Casinos Inc. (the 'Company') and its 'Subsidiaries' (as such quoted terms are
hereinafter defined) may be encouraged to acquire a proprietary interest in the
Company and whereby such individuals may realize benefits from an increase in
the value of the shares of Voting Common Stock, $0.01 par value per share (the
'Common Stock'), of the Company; to encourage and provide such Employees,
Directors and Consultants and Advisers with greater incentive and to encourage
their continued provision of services to the Company; and, generally, to promote
the interests of the Company and all of its stockholders. Under the Plan, from
time to time on or before March 19, 2007, options to purchase shares of Common
Stock and related Stock Appreciation Rights may be granted to such persons as
may be selected in the manner hereinafter provided on the terms and subject to
the conditions hereinafter set forth. Capitalized terms are defined in Article
XV hereof.
ARTICLE II
ADMINISTRATION OF THE PLAN
SECTION 1. Subject to the authority as described herein of the Board of
Directors (the 'Board') of the Company, the Plan shall be administered by the
Compensation Committee of the Company's Board of Directors (the 'Committee')
which is composed of at least two members of the Board who are Non-Employee
Directors. The Committee is authorized to interpret the Plan and may from time
to time adopt such rules and regulations for carrying out the Plan as it may
deem best. All determinations by the Committee shall be made by the affirmative
vote of a majority of its members but any determination reduced to writing and
signed by a majority of its members shall be fully enforceable and effective as
if it had been made by a majority vote at a meeting duly called and held.
Subject to any applicable provisions of the Plan, all determinations by the
Committee or by the Board pursuant to the provisions of the Plan, and all
related orders or resolutions of the Committee or the Board, shall be final,
conclusive and binding on all Persons, including the Company and its
stockholders, employees, directors and optionees.
SECTION 2. All authority delegated to the Committee pursuant to the Plan,
may also be exercised by the Board except with respect to matters which under
Rule 16b-3 and Section 16 of the 1934 Act or Section 162(m) of the Code are
required to be determined in the absolute discretion of the Committee. Subject
to the foregoing, in the event of any conflict or inconsistency between
determinations, orders, resolutions or other actions of the Committee and the
Board, the actions of the Board shall control.
SECTION 3. With respect to Section 16 of the 1934 Act, transactions under
the Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the 1934 Act. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void to
the extent permitted by law and deemed advisable by the Committee.
ARTICLE III
STOCK SUBJECT TO THE PLAN
SECTION 1. The shares to be issued or delivered upon exercise of options or
rights granted under the Plan shall be made available, at the discretion of the
Board, either from the authorized but unissued shares of Common Stock of the
Company or from shares of Common Stock reacquired by the Company, including
shares purchased by the Company in the open market or otherwise obtained.
SECTION 2. Subject to the provisions of Article X, the aggregate number of
shares of Common Stock which may be purchased pursuant to options granted at any
time under the Plan shall not exceed
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900,000. Such number shall be reduced by the aggregate number of shares covered
by options in respect of which Stock Appreciation Rights are exercised. The
maximum number of shares with respect to which options may be granted in any
calendar year to any one employee shall be 500,000 as such number may be
adjusted by the Committee in accordance with Article X hereof. The Committee
shall calculate such limit in a manner consistent with Section 162(m) of the
Code. Shares subject to any options which are canceled, lapse or are otherwise
terminated shall be immediately available for reissuance under the Plan.
ARTICLE IV
PURCHASE PRICE OF OPTIONED SHARES
Unless the Committee shall fix a greater or lesser purchase price, the
purchase price per share of Common Stock under each option granted to Employees,
Directors, Consultants and Advisers shall not be less than one hundred percent
(100%) of the Fair Market Value (as hereinafter defined) of the Common Stock at
the time such option is granted, but in no case shall such price be less than
the par value of the Common Stock or 85% of the Fair Market Value of the Common
Stock as of the time of grant; provided, however, that in the case of an
Incentive Stock Option granted to an Employee who, at the time of the grant,
owns stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company (a 'Ten Percent Stockholder'), such
purchase price per share shall be at least one hundred and ten percent (110%) of
the Fair Market Value.
ARTICLE V
ELIGIBILITY OF RECIPIENTS
Options will be granted only to Persons who are Employees, Directors,
Consultants or Advisers of the Company or a Subsidiary.
ARTICLE VI
DURATION OF THE PLAN
Unless previously terminated by the Committee or the Board, the Plan will
terminate on March 19, 2007. Such termination will not terminate any option or
Stock Appreciation Right then outstanding.
ARTICLE VII
GRANT OF OPTIONS TO EMPLOYEES,
DIRECTORS, CONSULTANTS AND ADVISERS
SECTION 1. Each option granted under the Plan to Employees shall constitute
either an Incentive Stock Option or a Non-Qualified Stock Option, as determined
in each case by the Committee and each option granted under the Plan to
Directors, Consultants and Advisers shall constitute a Non-Qualified Stock
Option. With respect to Incentive Stock Options granted to Employees, to the
extent that the aggregate Fair Market Value (determined at the time an option is
granted) of Common Stock of the Company with respect to which such Incentive
Stock Options are exercisable for the first time by any individual during any
calendar year (under the Plan and any other stock option plan of the Company)
exceeds $100,000, such Incentive Stock Options shall be treated as Non-Qualified
Stock Options to the extent of such excess. The foregoing rule shall be applied
by taking Incentive Stock Options into account in the order in which they were
granted. In the event outstanding Incentive Stock Options become immediately
exercisable under the terms hereof, such Incentive Stock Options will, to the
extent the aggregate Fair Market Value thereof exceeds $100,000, be treated as
Non-Qualified Stock Options.
SECTION 2. The Committee shall from time to time determine the Employees,
Directors, Consultants and Advisers to be granted options, it being understood
that options may be granted at different times to the same person, provided,
however, that no one person may receive an option or options under the Plan
covering more than fifty percent (50%) of the total number of shares subject to
the Plan. In addition, the Committee shall determine subject to the terms of the
Plan (a) the number of
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shares subject to each option, (b) the time or times when the options will be
granted, (c) whether such options shall be Incentive Stock Options,
Non-Qualified Stock Options or both, (d) whether Stock Appreciation Rights will
be granted in connection with the grant of options, (e) the purchase price of
the shares subject to each option, which price shall be not less than that
specified in Article IV, (f) the time or times when each option and any related
Stock Appreciation Rights may be exercised and (g) any other matters which the
Committee shall deem appropriate.
SECTION 3. All instruments evidencing options granted to Employees,
Directors, Consultants and Advisers under the Plan shall be in such form, which
shall be consistent with the Plan and any applicable determinations, orders,
resolutions or other actions of the Committee or the Board.
SECTION 4. The Committee, in its sole discretion, on the granting of an
option to an Employee, Director, Consultant or Adviser under the Plan may also
grant Stock Appreciation Rights relating to any number of shares but, except as
hereinafter provided, not more than fifty percent (50%) of the number of shares
covered by such option shall include Stock Appreciation Rights. Such options
shall be subject to such terms and conditions, not inconsistent with the Plan,
that the Committee shall impose, including the following:
(i) Stock Appreciation Rights may be granted only in writing and only
attached to an underlying option at the time of the grant of the option;
(ii) Stock Appreciation Rights may be exercised only at the time when
the option to which it is attached is exercisable;
(iii) Stock Appreciation Rights shall entitle the optionee (or any
person entitled to act under the provisions of the Plan) to surrender
unexercised all or part of the then exercisable portion of the option to
which the Stock Appreciation Rights are attached to the Company and to
receive from the Company in exchange therefor a payment in cash equal to
the excess, if any, of the then value of one share covered by such portion
over the option price per share specified in such option, multiplied by the
number of shares covered by the portion of the option so surrendered (which
excess is herein called the 'Appreciated Value'). For purposes of
computation of the Appreciated Value, the value of one share shall be
deemed to be the average Fair Market Value of such share during the
four-week period immediately preceding the date of notice of exercise of
the Stock Appreciation Rights;
(iv) if Stock Appreciation Rights attached to an option are exercised,
such option shall be deemed to have been canceled to the extent of the
number of shares surrendered on exercise of the Stock Appreciation Rights
and no further options may be granted covering such shares; and
(v) if an option to which Stock Appreciation Rights are attached is
exercised, such Stock Appreciation Rights shall be canceled to the extent
necessary to cause the number of shares to which such Stock Appreciation
Rights relate not to exceed the number of remaining shares subject to such
option.
ARTICLE VIII
NON-TRANSFERABILITY OF OPTIONS
No Incentive Stock Option or any related Stock Appreciation Rights granted
under the Plan shall be transferable by the optionee otherwise than by will or
by the laws of descent and distribution, and any such Incentive Stock Option or
any related Stock Appreciation Rights shall be exercised during the lifetime of
the optionee solely by him or her. Any Non-Qualified Stock Option granted under
the Plan may be transferable by the optionee to the extent specifically
permitted by the Committee as specified in the instrument evidencing the option
as the same may be amended from time to time. Except to the extent permitted by
such instrument, no Non-Qualified Stock Option shall be transferable except by
will or by the laws of descent and distribution.
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ARTICLE IX
EXERCISE OF OPTIONS
SECTION 1. Each option (and any related Stock Appreciation Rights) granted
under the Plan shall terminate on the date specified by the Committee which date
shall be not later than the expiration of ten years from the date on which it
was granted; provided, however, that in the case of an Incentive Stock Option
granted to an Employee who, at the time of the grant is a Ten Percent
Stockholder, such period shall not exceed five (5) years from the date of grant.
SECTION 2. Except to the extent otherwise provided in any instruments
evidencing an option and, if so specified in such instrument, in the cases
provided for in Article XII hereof, each option (and any related Stock
Appreciation Rights) granted under the Plan may be exercised only while the
optionee is an Employee or Director of the Company.
SECTION 3. A person electing to exercise an option or Stock Appreciation
Rights then exercisable shall give written notice to the Company of such
election and, if electing to exercise an option, of the number of shares of
Common Stock such person has elected to purchase. A person exercising an option
shall at the time of purchase tender the full purchase price of such shares,
which tender, except as provided in Section 4 of this Article IX, shall be made
in cash or cash equivalent (which may be such person's personal check) or, to
the extent permitted by applicable law, in shares of Common Stock already owned
by such person (which shares shall be valued for such purpose on the basis of
their Fair Market Value on the date of exercise), or in any combination thereof.
In the event of payment in shares of Common Stock already owned, such shares
shall be appropriately endorsed for transfer to the Company. The Company shall
have no obligation to deliver shares of Common Stock pursuant to the exercise of
any option, in whole or in part, until such payment in full of the purchase
price therefor is received by the Company. No optionee, or legal representative,
legatee, distributee or transferee of such optionee, shall be or be deemed to be
a holder of any shares of Common Stock subject to such option or entitled to any
rights of a stockholder of the Company in respect of any shares of Common Stock
covered by such option until such shares have been paid for in full and issued
or delivered by the Company.
SECTION 4. In order to assist an optionee in the exercise of an option
granted under the Plan, the Committee or Board may, in its discretion,
authorize, either at the time of the grant of the option or thereafter (a) the
extension of a loan to the optionee by the Company, (b) the payment by the
optionee of the purchase price of the Common Stock in installments, (c) the
guarantee by the Company of a loan obtained by the optionee from a third party
or (d) make such other reasonable arrangements to facilitate the exercise of
options in accordance with applicable law. The Committee or Board shall
authorize the terms of any such loan, installment payment arrangement or
guarantee, including the interest rate (which, in the case of incentive stock
options, shall be not less than the higher of (i) the 'prime rate' as from time
to time in effect at a commercial bank of recognized standing, and (ii) the rate
of interest from time to time imputed under Section 483 of the Code and terms of
repayment thereof, and shall cause the instrument evidencing any such option to
be amended, if required, to provide for any such extension of credit. Loans,
installment payment arrangements and guarantees may be authorized without
security, and the maximum amount of any such loan or guarantee shall be the
purchase price of the Common Stock being acquired, plus related interest
payments.
SECTION 5. Each option shall be subject to the requirement that if at any
time the Board shall in its discretion determine that the listing, registration
or qualification of the shares of Common Stock subject to such option upon any
securities exchange or under any state or Federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of or in connection with, the granting of such option or the issuance
or purchase of shares thereunder, such option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free from any conditions not reasonably
acceptable to the Board. Unless at the time of exercise of an option and the
issuance of Common Stock so purchased, there shall be in effect as to such
Common Stock a registration statement under the Act, the holder of such option
shall deliver a certification (a) acknowledging that such shares of Common Stock
may be 'restricted securities' as defined in Rule 144 promulgated under the Act;
and (b) containing such optionee's agreement that such Common Stock may not be
sold or otherwise disposed of except in
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compliance with applicable provisions of the Act. In the event that the Common
Stock is then listed on a national securities exchange, the Company shall use
its best efforts to cause the listing of the shares of Common Stock subject to
options upon such exchange.
SECTION 6. All payments made by the Company pursuant to Section 4 of this
Article IX shall be subject to withholding in respect of such income or other
taxes as may be required by law to be paid or withheld. The Company may
establish appropriate procedures to provide for payment or withholding of such
income or other taxes as may be required by law to be paid or withheld in
connection with the exercise of options under the Plan, and to ensure that the
Company receives prompt advice concerning the occurrence of any event which may
create, or affect the timing or amount of, any obligation to pay or withhold any
such taxes or which may make available to the Company any tax deduction
resulting from the occurrence of such event.
ARTICLE X
ADJUSTMENTS
SECTION 1. New option rights may be substituted for the options granted
under the Plan, or the Company's duties as to options outstanding under the Plan
may be assumed, by a corporation other than the Company, or by a parent or
subsidiary of the Company or such corporation, in connection with any merger,
consolidation, acquisition, separation, reorganization, liquidation or other
similar corporate transaction in which the Company is involved. Notwithstanding
the foregoing or the provisions of this Article X, in the event such
corporation, or parent or subsidiary of the Company or such corporation, does
not substitute new option rights for, and substantially equivalent to, the
options granted hereunder, or assume the options granted hereunder, the options
granted hereunder shall terminate and thereupon become null and void (i) upon
dissolution or liquidation of the Company, or similar occurrence, (ii) upon any
merger, consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be a surviving entity or (iii) upon a
transfer of substantially all of the assets of the Company or more than 80% of
the outstanding Common Stock in a single transaction; provided, however, that
each optionee shall have the right immediately prior to or concurrently with
such dissolution, liquidation, merger, consolidation, acquisition, separation,
reorganization or other similar corporate transaction, to exercise any unexpired
option granted hereunder whether or not then exercisable.
SECTION 2. In the event that the Committee determines that any dividend or
other distribution (whether in the form of cash, shares, other securities, or
other property), 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, issuance
of warrants or other rights to purchase shares or other securities of the
Company, or other corporate transaction or event affects the shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then, the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number of shares of Common
Stock or other securities of the Company (or number and kind of other securities
or property) with respect to which options may be granted and any limitations
set forth in the Plan, (ii) the number of shares of Common Stock or other
securities of the Company (or number and kind of other securities or property)
subject to outstanding options and (iii) the grant or exercise or target price
with respect to any option or, if deemed appropriate, make provision for a cash
payment to the holder of an outstanding option including, if necessary, the
termination of such an option; provided, in each case, that with respect to
Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422 of the Code.
Without limiting the generality of the foregoing, any such adjustment shall be
deemed to have prevented any dilution and enlargement of an optionee's rights if
such optionee receives in any such adjustment rights which are substantially
similar (after taking into account the fact that the optionee has not paid the
applicable exercise price) to the rights the optionee would have received had he
exercised his outstanding options and become a stockholder of the Company
immediately prior to the event giving rise to such adjustment.
SECTION 3. Adjustments and elections under this Article X shall be made by
the Committee whose determination as to what adjustments, if any, shall be made
and the extent thereof shall be final, binding
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and conclusive. Adjustments required under this Article X shall also be deemed
to increase by a like number the aggregate number of shares authorized for
purchase pursuant to options granted under the Plan as set forth in Section 2 of
Article III hereof.
ARTICLE XI
PRIVILEGES OF STOCK OWNERSHIP
No optionee shall be entitled to the privileges of stock ownership as to
any shares of Common Stock not actually issued and delivered to him or her.
ARTICLE XII
TERMINATION OF SERVICE OR EMPLOYMENT
SECTION 1. In the event that an optionee shall cease his or her
relationship with the Company or a Subsidiary by voluntarily terminating such
relationship without the written consent of the Company or a Subsidiary, or if
the Company or a Subsidiary shall terminate for cause such relationship, unless
otherwise provided in the instrument evidencing such option, the option and any
associated Stock Appreciation Rights held by such optionee shall terminate
forthwith.
SECTION 2. If the holder of an option shall voluntarily terminate his or
her relationship with the Company or a Subsidiary with the written consent of
the Company, which written consent expressly sets forth a statement to the
effect that options which are exercisable on the date of such termination shall
remain exercisable, or if the optionee's relationship with the Company or a
Subsidiary shall have terminated by the Company or a Subsidiary for reasons
other than cause, unless otherwise provided in the instrument evidencing such
option, such optionee may exercise his or her option to the extent exercisable
at the time of such termination, at any time prior to the expiration of three
months after such termination or the date of expiration of the option as fixed
at the time of grant, whichever shall first occur. Options granted under the
Plan to Employees shall not be affected by any change in the position of
employment so long as the holder thereof continues to be an Employee or a
Director.
SECTION 3. Should an optionee die during the existence of his or her
relationship with the Company, unless otherwise provided in the instrument
evidencing such option, all of the optionee's options shall be terminated except
that any option (and any related Stock Appreciation Rights) to the extent
exercisable by the optionee at the time of such death, may be exercised within
one year after the date of such death but not later than the expiration date of
the option solely in accordance with all of the terms and conditions of the Plan
by the optionee's personal representatives or by the person or persons to whom
the optionee's rights under the option shall pass by will or by the applicable
laws of descent and distribution.
SECTION 4. Should an optionee die after cessation of the optionee's
relationship with the Company or a Subsidiary, unless otherwise provided in the
instrument evidencing such option, all of the optionee's options shall be
terminated except that any option (and any related Stock Appreciation Rights) to
the extent exercisable by the optionee at the time of such death may be
exercised within one year after the date of such death but not later than the
expiration of the option solely in accordance with all of the terms and
conditions of the Plan by the optionee's personal representatives or by the
person or persons to whom the optionee's rights under the option shall pass by
will or by the applicable laws of descent and distribution.
ARTICLE XIII
AMENDMENTS TO PLAN
The Board may at any time terminate or from time to time amend, modify or
suspend the Plan; provided, however, that no such amendment or modification
without the approval of the stockholders of the Company shall:
(i) materially increase the benefits accruing to participants under
the Plan;
(ii) materially increase the maximum number (determined as provided in
the Plan) of shares of Common Stock which may be purchased pursuant to
options granted under the Plan; or
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(iii) materially modify the requirements as to eligibility for
participation in the Plan.
The amendment or termination of the Plan shall not, without the written consent
of an optionee, adversely affect any rights or obligations under any option
theretofore granted to such optionee under the Plan.
ARTICLE XIV
EFFECTIVE DATE OF PLAN
The Plan shall be effective on March 20, 1997.
ARTICLE XV
DEFINITIONS
For the purposes of this Plan, the following terms shall have the meanings
indicated:
Act: Shall mean the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
Code: Shall mean the Internal Revenue Code of 1986, as amended and the
regulations promulgated thereunder.
Committee: Such term is defined in Article II, Section 1.
Common Stock: Such term is defined in Article I.
Consultants and Advisers: Such term shall include any third party retained
or engaged by the Company or any Subsidiary to provide services to the Company
or such Subsidiary, including any employee of such third party providing such
services.
Director: Such term shall include any director of the Company.
Employee: Such term shall include (i) any officer as well as any full-time
salaried key executive, managerial, professional, administrative, or key
employee of the Company or a Subsidiary. Such term shall also include an
employee on approved leave of absence provided such employee's right to continue
employment with the Company or a Subsidiary upon expiration of such employee's
leave of absence is guaranteed either by statute or by contract with or by a
policy of the Company or a Subsidiary and any consultant, independent
contractor, professional advisor or other person who is paid by the Company or a
Subsidiary for rendering services or furnishing materials or goods to the
Company or a Subsidiary.
Fair Market Value: The fair market value as of any date shall be determined
by the Committee or Board after giving consideration to the price of the Common
Stock in the public market and shall be determined otherwise in a manner
consistent with the provisions of the Code.
Incentive Stock Option: Such term means an option intended to qualify under
Section 422 of the Code.
1934 Act: Shall mean the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated thereunder.
Non-Employee Director: Such term shall mean any director of the Company who
is a Non-Employee Director as that term is defined in Rule 16b-3 promulgated
under the 1934 Act.
Non-Qualified Stock Option: Such term means an option which does not
qualify under Section 422 of the Code.
Person: Such term shall have the meaning ascribed to it under the 1934 Act.
Plan: Such term is defined in Article I and shall include all amendments
thereof.
Stock Appreciation Rights: Means the rights granted by the Committee
pursuant to Section 4 of Article VI hereof.
Subsidiary: Means and includes a 'Subsidiary Corporation' of the Company as
defined in Section 424 of the Code.
Ten Percent Stockholder: Such term is defined in Article IV.
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